Earnings Call: Q4 2021

Sep 23, 2021

Earnings release

Hello. This is the Chorus Call conference operator. Welcome to Vessima Networks' 4th Quarter Fiscal 2021 Earnings Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Simply press star then 1 on your touchtone phone. You will hear a tone acknowledging your request. If you're using a speaker star and 0 on their telephone. Presenting today on behalf of Bessemer Networks are Sumit Kumar, President and CEO and Dale Booth, Chief Financial Officer. Today's call will begin with executive commentary on Bessema's financial and operational performance for the Q4 year end fiscal 2021 results. Lastly, the call will finish with a question and answer period for analysts and institutional investors. The press release announcing the company's 4th quarter year end fiscal 2021 results as well as detailed supplemental investor information are posted on Besima's website atvesima.com under the Investor Relations heading. The highlights provided in this call should be understood in conjunction with the company's audited annual consolidated financial statements and accompanying notes for the years ended June 30, 2021, 2020. Certain statements in this conference call and webcast may constitute forward looking statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward looking statements. These statements include, but are not limited to statements regarding management's intentions, belief or current expectations with respect to market and general economic conditions, future sales and revenue expectations, future costs and operating performance. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and or are beyond our control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward looking statements. These factors include, but are not limited to, the current significant general economic uncertainty and credit and financial market volatility, including the impact of COVID-nineteen and the distinctive characteristics of Bessemer's operations and industry and customer demand that may have a material impact on or constitute factors in respect of Bessemer's future financial performance as set forth under the heading Risk Factors in the company's annual information form dated September 23, 2021, a copy of which is available at sedar.com. In addition, although the forward looking statements in this earnings call are based on what management believes are reasonable assumptions, such assumptions may prove to be incorrect. Consequently, attendees should not place undue reliance on such forward looking statements. In addition, these forward looking statements relate to the date on which they are made. Vessimo disclaims any intention or obligation to update or revise any forward looking statements as a result of new information, future events or otherwise, except as required by law. At this time, I would like to turn the conference over to Mr. Kumar to proceed with his remarks. Please go ahead. Good morning, and welcome, everyone. Thank you for joining us. Fiscal 2021 was the breakout year we've long envisioned for Bessema. After years of investment, innovation and persistence, we realized our long held objective, capturing the 1st wave of our industry's wide scale migration to distributed access architecture, and we translated this achievement into record top line results. Gil will provide details of our full year and Q4 financial results in a few minutes. So Let me start with a few of the important highlights. I'm very proud to report that we achieved the single best full year sales results in Bessemer's 33 year history. Our fiscal 2021 sales grew to a record $124,200,000 an increase of 31% year over year. We also achieved exceptionally strong 4th quarter sales of $35,300,000 which were up 37% year over year and 11% quarter over quarter. That capped off a year in which each Sequential quarterly revenue increase averaged nearly 10% from the 1st to the 4th quarter. And while it was a challenging year and wish to produce these outstanding results in the midst of a global pandemic and worldwide supply chain constraints, we were successful in generating full year adjusted EBITDA of $12,300,000 even after integrating major operations from our acquisition. We turned in an excellent 4th quarter performance with adjusted EBITDA nearly tripling to $5,700,000 Our top line growth was led by our Video and Broadband Solutions segment, where sales more than doubled year over year, fueled by the rapid growth from our Entra DAA portfolio. As you know, our DAA sales were already building as we came into the fiscal year. Our acquisition of Nokia's DAA and fiber to the home portfolio in the Q1 added jet fuel to that momentum. The transaction dramatically accelerated a key component of our strategy to lead the industry's evolution to DAA. Specifically, it built on our own successful Remote PHY technology by adding market ready 10 gig fiber to the home access capability and DOCSIS remote MaxFi cable access solutions. Those are 2 highly important additional pieces of the cable DAA ecosystem and the ones that we had intended to develop internally. The acquisition sped up our timeline, saving us several years and many 1,000,000 of dollars of investment and product development. And it instantly established Bessemo's portfolio as the industry's single strongest for high speed data access network products. Bessemer's breadth of solutions addresses the widest possible range of our customers' DAA needs just as the market has begun its trajectory of widespread next gen network adoption. As the fiscal year progressed, The number of customers placing orders for our DAA products grew from 3 to 38 and Entra sales lifted off along with that, growing from a little over $5,000,000 in Q1 to $16,600,000 in Q4. By year end, we achieved full year DAA sales of 42 point $6,000,000 up by 7x more than what we achieved last year. And Entra, which represented just 15% of our Video and Broadband Solutions segment sales in fiscal 2020, became the segment's number one product group, representing 57% of segment sales in fiscal 2021. I want to emphasize that this is just the beginning of the growth potential we see for our EDGAR family of solutions. DAA is a once in a lifetime technology transition for the global cable industry, and it's a market expected to ultimately measure in the 1,000,000,000 of dollars. Bessemer is at the forefront of this opportunity with the industry's best portfolio of products and a rapidly growing base of Tier 1, 2 and 3 operators, including some of the world's largest MSOs. So there is much, much more to come from ENTRE, and I'll talk more about that in our outlook. First, though, let's look at some of the other contributors to 2021 performance. Within the Video and Broadband Solutions segment, fiscal 2021 was another excellent year for our Terris QAM commercial video hospitality products. We saw significant continued uptake during the year as our lead Tier 1 customer continued to expand its hospitality footprint while preparing for a migration to the next generation Terrus IQ platform. This together with our strong Entra sales more than offset the expected tail off in demand for some of our other legacy commercial video products. In our content delivery and storage segment, we achieved solid annual revenue of $43,400,000 even as we navigated challenges stemming from the global pandemic. COVID-nineteen restrictions at some of our customers' operations slowed the integration of the record new business wins we achieved in fiscal 2020 and the delayed expected scale expansions of those new IPTV networks. Despite those challenges, we successfully fulfilled the largest ever contract for our MediaScale X solutions with a Tier 1 customer in the Asia Pacific region during the year. We also added another 5 customers to our roster for IPTV new customers and we increased CDS service revenues another 4% in fiscal 2021. In telematics, we continue to build out the segment's recurring revenue contributions with the addition of new municipal fleet municipal government fleet subscribers and introduction of new vehicle routing software during the year. I'm I'm pleased to report that we also continue to expand our presence in the movable assets tracking market, an area Bessemer has innovated in. We added 15 new customers and expanded the total number of movable assets being monitored to over 11,000 units. Taken as a whole, fiscal 2021 was a remarkable year for Vezema, and all the more so when you consider the pandemic challenges our industry and many others were dealing with. Our excellent long term supplier and customer relationships proved really invaluable in helping us to manage supply chain issues, and we were able to leverage our strong financial position to drive working capital and stay ahead. We'll continue to rely on these strengths going forward, and I'm pleased to note that we're moving into fiscal 'twenty two with a once again robust financial position. Even after investing in our organic and acquisitions based growth and returning cash to our investors in the form of our regular dividends of $0.22 per share over the year, we ended the year with $28,900,000 in cash and a strong $44,800,000 in working capital. Now I'll turn the call over to Dale to provide more detail on our financial performance. Dale? Thank you, Sumit. For the purposes of this call, we assume that everyone has seen the 4th quarter fiscal year 2021 results, news release and MD and A and our fiscal year 2021 financial statements posted on Decima's website. I will present the relevant numbers in discussions around overall results, market segments, operational expenses and the balance sheet. Please note that the results for the Q4 and full fiscal 2021 includes almost a full year of operating results from our acquisition of the Nokia Cable Access portfolio we acquired on August 7, 2020. It also reflects the divestiture of our Content Agent business on March 31, 2021. The results of Content Agent are now reported under discontinued operations. Starting with consolidated sales. For the 3 months ended June 30, 2021, we generated sales of $35,300,000 This was an increase of 37% over the $25,700,000 in Q4 last year and an increase of 11% from $31,900,000 in Q3 fiscal 2021. The year over year increase reflects an increase in product sales from the Video and Broadband Solutions segment, driven by our new Entra family of products and partially offset by lower sales in the Content Delivery and Storage segment and further offset by foreign exchange related to a strengthening Canadian dollar. Within the Video and Broadband Solutions segment, for the Q4 of fiscal 2021, we generated sales of $23,500,000 This was up 124 percent from the $10,500,000 in Q4 last year and 8% higher than the $21,800,000 in sales last quarter. Further deployments of our next generation DAA products contributed 4th quarter Entra revenues of 16 $600,000 up sevenfold from $2,100,000 in Q4 fiscal 2020 and up 31% from $12,700,000 in Q3 fiscal 2021. Entra sales included $9,200,000 from the DAA products acquired from Nokia. In all, Entra DAA platforms are now being sold to 38 operators across 6 continents. 4th quarter Terrace family sales were down 42 percent to $2,400,000 from the $4,100,000 in Q4 fiscal 2020 and down 32% from the $3,500,000 in Q3 fiscal 2021, reflecting tapering demand for our legacy products. Terrus Quam sales for the 4th quarter were up 21 percent to $4,400,000 from $3,600,000 in Q4 last year, but down 16% from the $5,200,000 in Q3 fiscal 2021. We anticipate healthy demand for our Terris QAM platform as operators continue their commercial rollout for the current generation, while preparing for the next generation tariffs iQ platform. The quarter over quarter variance primarily reflects the timing of large orders. Content Delivery and Storage segment sales were in the Q4 of fiscal 2020, but 19% higher than the $8,800,000 in Q3 of this year. These quarterly sales variances are typical for the CDS segment, and this lumpiness reflects the timing of large orders. Sales for fiscal 2021 were additionally impacted by the COVID-nineteen restrictions at some customer operations due to installation timeline slowing as the segment continued to consolidate its record new business wins from 2020. The total CDS segment sales included $6,000,000 in product revenue and $4,400,000 in revenue from services. Turning to the Telematics segments, in line with our expectations, sales in the 4th quarter were at $1,400,000 slightly higher than the $1,300,000 in the same period last year and on par with the $1,400,000 last quarter. Gross margin for the 4th quarter was at 42.4 percent with a gross profit of 15,000,000 an increase of 20 percent from the $12,500,000 in Q4 fiscal 2020 and up 5% from last quarter's $14,300,000 Gross margin was down from the 45% achieved last quarter and the 49% in Q4 fiscal 2020. The lower than normal gross margin reflects the composition of our product mix and supply chain constraints for the period, lower sales in the CDS segment as well as the negative foreign change impact of the strengthening Canadian dollar. Video and Broadband Solutions segment gross profits grew 127 percent to $9,300,000 from the $4,100,000 in the same period last year and on par with the $9,300,000 in gross profit last quarter. Gross profit margin of 40% was slightly higher as compared to 39% in Q4 fiscal 2020, but down from Q3 fiscal 20 21 gross profit margin of 43%. The year over year decrease in gross margin reflects different product mixes each quarter, supply chain challenges as well as the negative foreign exchange impact of the strength in Canadian dollar. Gross margin in the Content Delivery and Storage segment for Q4 decreased to 45% with a gross profit of $4,700,000 from the 54 percent $7,500,000 in Q4 fiscal 2020. On a sequential quarterly basis, CDS gross profit was 14% higher than the $4,100,000 generated last quarter. The year over year changes in gross profit and gross margin reflect a lower percentage of high margin software sales in the product mix and a decrease in sales in the current quarter as compared to the prior year quarter. In the Telematics segment, gross profit in the 4th quarter was $1,000,000 with a gross margin of 68%, slightly down from the 70% in Q4 fiscal 2020, but up from the 66% last quarter. The year over year decrease in gross margin reflects higher product costs in the current quarter. Turning to 4th quarter operating expenses, The notable changes year over year were as follows. R and D expenses decreased to $5,400,000 from $6,700,000 in Q4 fiscal 2020, primarily reflecting higher deferred development costs as a result of the addition of product lines acquired from Nokia, lower amortization of deferred development costs, partially offset by higher staffing costs related to the Nokia portfolio acquisition as well as increased software licensing costs as our next generation product families move closer to deployment. We continue to invest in research and development to support the launch of new products. Until these new products are commercialized, development costs are deferred to future periods. Sales and marketing expenses for the Q4 increased to $3,600,000 from $3,000,000 in the same period last year. This increase was due to higher staffing costs from the Nokia portfolio acquisition. G and A expenses increased to 4 point $3,000,000 in Q4 fiscal 2021 from $3,900,000 in Q4 fiscal 2020, primarily reflecting additional costs associated with the newly acquired operations. Other income was $1,500,000 in Q4 fiscal 2021, an increase from $300,000 in Q4 fiscal 2020 due to U. S. Federal grant credits received in the current period. Total OpEx in Q4 decreased to $11,600,000 from $13,300,000 during the same period last year. This decrease primarily reflects lower operating expenses in the Video and Broadband Solutions and the Content Delivery and Storage segments. I note that reported R and D expense in a period is typically different than the actual expenditure. Just because certain R and D expenditures are deferred until product commercialization. Adjusting for deferrals, amortization of deferred development costs and income tax credits. Actual R and D investment for the quarter increased to 8,900,000 were 25 percent of sales from $6,600,000 or 26 percent of sales in the same period last year. The increase reflects higher expenditures from the Nokia portfolio, higher staffing costs and software licensing costs as our next generation product families move closer to full scale commercial deployment. In our bottom line results, we reported an operating income of $3,400,000 in Q4 fiscal 'twenty one as compared to an operating loss of $800,000 in Q4 fiscal 2020. The $4,200,000 increase was mainly driven by a from the CDF segment. Adjusted EBITDA grew to $5,700,000 from $3,800,000 in the prior year quarter and up from $2,000,000 last quarter. The 4th quarter foreign exchange loss was $700,000 compared to $500,000 in the prior year period. Net income from continuing operations for the 0.04 loss per share in Q4 of fiscal 2020. Overall, a very strong quarter. Turning to the balance sheet. We ended the 4th quarter with $28,900,000 in cash, up from $23,000,000 in the 3rd quarter and practically having no bank debt. Working capital decreased to $44,800,000 from $46,000,000 in Q3 fiscal 2021 and $55,300,000 last year. We note that significant working capital balances also be subject to swings from quarter to quarter. Our product shipments are lumpy, reflecting the requirements of our major customers. Other timing issues like contracts with greater than 30 day payment terms also affect working capital, particularly if shipments are back end weighted for a quarter. Finally, cash flow provided by operations for the Q4 was $12,900,000 as compared to cash flow provided by operations of $2,500,000 during the same period last year. The $10,400,000 increase reflects a $9,200,000 increase in cash flow from non cash working capital and $1,200,000 increase in operating cash flow. So just to summarize, another strong quarter despite the challenges due to COVID-nineteen and the global supply chain challenges. Now back to Sumit. Thank you, Dale. As we look ahead at what lies ahead for Bessemo, I believe we've reached an inflection point. We've captured a clear leadership position in the vast DAA market and we're exceptionally well positioned to leverage and build on that lead. We've assembled the world's most complete BAA portfolio built on the industry's best technology, and we've been selected as a technology partner to a growing list of Tier 1, 2 and 3 MSOs, including some of the world's largest cable operators. We currently have 71 customer engagements for DAA. 38 of these customers are already using our products and many of them are now transitioning to scaling deployment. Another 33 of our customer engagements are in various stages of DAA development. They represent near term opportunities for additional design wins and follow on deployments, adding to the projected demand for Entra. At the same time, we're continuing to attract new customer engagements as more and more operators initiate their own DAA transitions and turn to Bessemer as a differentiated technology partner. This is a true technology wave and its momentum will continue to build. We know that the companies that capture the 1st wave are uniquely positioned to benefit from not just the initial network build outs, but the years of augmentation and upgrades that follow. VESMA successfully captured DAA's first wave and it positions us for a remarkable trajectory. Keep in mind that DAA is just one of our growth engines. Our Content Delivery and Storage segment represents significant additional opportunities as we address with the rapidly growing managed IPTV and over the top markets for streaming services. In the year ahead, we anticipate steady improvement in our ability to integrate and expand the significant new business wins of the past 2 years. And over the longer term, we see significant growth potential. The IPTV market is on pace to nearly double in size by 2026 and will depend on reliable and scalable solutions like those provided by our MediaScalex portfolio. In our Terrus family of products, we anticipate continued demand for the current with the integration of Terrus QAM and making way for the long term migration to the next generation Terrus IQ in lockstep with the overall network transition, which will ultimately happen to IPTV. And in our telematics business, we expect consistent incremental growth from the fleet tracking market, and we anticipate increasing demand for our newer movable asset tracking services. Overall, we see a very exciting year ahead for Vessma as our multiyear investment, technology and strategic acquisition strategy is fully realized. My one note of caution continues to be the challenges related to current global supply chain disruptions that could temper near term growth or margins and the COVID-nineteen pandemic's capacity present changes and the pace of customer network evolution. Overall, though, we're extremely confident in our market position and investment ability to capture the major 2 years ahead. We expect the year ahead will be an exciting one for Bessemer as the DAA market takes off and IPTV demand continues to build. For many years now, we've remained steadfast in our vision for the networks of tomorrow, while bringing them to life today. Through a combination of invention, development and curation via successful consolidation, we've assembled the best technology in the industry. And I can think of no other time when the opportunity has been so great or so immediately upon us. In the weeks, months years to come, I look forward to demonstrating how this will translate into the company's success as Besseba embarks on this exciting trajectory of growth. We're highly energized about what lies ahead for Bessemer and looking forward to our exciting new achievements in fiscal 'twenty two. That concludes our formal comments for today and we'd now be happy to take questions. Operator? Thank you. We will now begin the question and answer session for analysts and institutional investors. Our first question is from Jim Byrne with Acumen Capital. Please go ahead. Thanks very much. Congrats on the quarter guys. I Just wanted to dig in about the customer conversion. Obviously, you've seen a nice jump in engagements and customer orders. Maybe you could just talk about how is that conversion rate, how that's been and what do you expect for the future? Great, great. Yes, no, Jim, sure. Thanks for joining. And I'll get to your specific question in a moment. I think one thing I wanted to do is As it's been sometimes done over the last few quarters given that it's top of mind for everyone, just wanted to set the stage with some more big picture color on Entra again before going to the question. But like I said, we're really pleased and beyond that really excited about this rapid progress that the company has been making on Entra in the last 7 quarters with this rapid momentum into FY 2021. So it's really a breakthrough year for Entra with the sales going up like we said 7 times year over year to the $42,600,000 that we put out. We made definitive progress Across a high and growing list of these customer engagements that we're talking about and you asked about the conversion on. And that translated into Meaningful revenue territory growing in the last 6 quarters from $1,100,000 to $16,600,000 per quarter in interest sales. So following the $5,000,000 in fiscal 2020 up with the $42,600,000 just as DAA is just getting started as a market with these Lead Tier 1s, 2s and 3s and fanning out their activity and deployments. It's all really strikingly positive for VESMA. And we're proud that we're passing almost 14,000,000 homes with Enter DAA Technologies for this multi gigabit broadband Internet service that we So the engagement count, as you asked about, has grown from 25 at the start of the year to 71 at the end of Q4 that we reported today. And likewise, you've seen the number of buying customers increase from 3% to 38% over that same period over the year. So that's a reflection, if you will, partially of the conversion rate. The engagement count itself growing from the 25% and then 61% in Q3, 71% in Q4 reflects People being added into the list. I won't say that the list always remains with the same name, but generally it does in terms of the customer staying and the engagement and flowing through the sales cycle pipeline and converting to those 38 that we have into scale deployment and purchasing with us. So we're seeing signs of a very strong conversion rate and those engagements going all the way through the sales cycle. Okay, that's great. And then maybe Just on the CVS segment, you mentioned the outlook remains quite strong and you saw a bump in the Japanese revenue for the quarter from The deployment of that major contract, maybe just digging in a little bit more on what you're seeing Following maybe some restrictions lifting, are you seeing a ramp up in activity and deployments for that segment? Great. Yes. And we are, as we mentioned today and we've been talking about leading up to today's reporting that We saw some perhaps this is the segment of Vessima's business that was most directly exposed Some delays from the pandemic where customers typically with these projects we will roll out local Systems integration, on-site activity, integration and launch, if you will, covering a defined swath of subscribers of the IPTV services. And that requires some intense Project planning together with our customers and as you can imagine with the pandemic, we encountered timing adjustments in those projects Carrying on complicated projects. So we had these 13 the record 13 new IPTV wins in fiscal 2020 and we followed that up with 5 more wins for IPTV and CDS in fiscal 2021. So a total of 18 new Customers have added over the last 2 years. We've had this expanding pipeline of these new deployments for IPTV systems of MediaScale X. So the interesting part there is that while there have been some timing adjustments because of the pandemic factors, that pipeline has remained Consistent throughout and the nature of the business is that once you launch then you have subscriber uptake of the services and then Definitely, customers envision expansion of capacity over time and that's what slowed our sales performance in fiscal 2021. But when we look at it, fiscal 2019 to fiscal 2020, we were targeting 20% growth and we achieved something like 30%. And when you take the 2 year average sales fiscal 'twenty one and 'twenty for CDS, that average is actually very well in line with The 20% growth that we anticipated from fiscal 2019. So we've had timing adjustments, but we're now past a lot of that moving into 2020 With growth in scope again expansion, launch, all of that activity that we have been building with the new customer And we expect to be a meaningful growth territory again, perhaps to the tune of double digit growth in CDS. As there appears to be no further questions, this concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.