Hello, this is the Chorus Call conference operator. Welcome to Vecima Networks' fourth quarter fiscal 2024 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. Analysts and institutional investors who wish to join the question queue, simply press Star and One on your touchtone phone. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up the handset before pressing the keys. If you need assistance during the conference call, you may signal an operator by pressing Star and Zero. Presenting today on behalf of Vecima Networks are Sumit Kumar, President and CEO, and Judd Schmid, Chief Financial Officer.
Today's call will begin with executive commentary on Vecima's financial and operational performance for the fourth quarter and year-end fiscal 2024 results. Lastly, the call will finish with a question and answer period for analysts and institutional investors. The press release announcing the company's fourth quarter and year-end fiscal 2024 results, as well as detailed supplemental investor information, are posted on Vecima's website at www.vecima.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, 2024 and 2023 . Certain statements in this conference call and webcast may constitute forward-looking statements within the meaning of applicable securities laws, from which Vecima's actual results could differ. Consequently, one should not place undue reliance on such forward-looking statements.
All statements other than the statements of historical fact are forward-looking statements. These statements include, but are not limited to statements regarding management's intentions, beliefs, or current expectations with respect to markets and general economic conditions, future sales and revenue expectations, future costs and operating performance. These statements are no guarantee of future performance and involve risks and uncertainties that are difficult to predict and/or are beyond our control. Vecima 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. Please review the cautionary language in the company's fourth quarter earnings report and press release, as well as its 2024 annual report regarding the various facts, assumptions, and risks that could cause actual results to differ.
These documents are available on Vecima's website at www.vecima.com, under the Investor Relations heading and on SEDAR+ at www.sedarplus.ca. 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. I want to start today by acknowledging and thanking Dale Booth, whose retirement we announced earlier this week. In the thirteen years Dale was a part of the Vecima team, including the past five years as our Chief Financial Officer, Dale's been instrumental to our growth and development. As CFO, he helped deliver five years of growth, and this past year, the best six months in Vecima's history. Dale made many other contributions to Vecima, including building, managing, and mentoring a strong finance team. One of the outcomes of that team-building is that Judd Schimett, previously our VP Finance or Corporate Controller, is succeeding Dale as Chief Financial Officer. Judd has been a part of Vecima for a total of nine years, including seven directly with Vecima and two years with Concurrent, which we acquired in 2017 .
He's a highly experienced leader with deep knowledge of Vecima and public company finance. He also has significant management and executive experience, including as CFO with a number of large companies. I'm delighted to welcome Judd to the senior executive team, and you'll hear from Judd directly today as he'll be providing the financial color on today's call. Before we get to that, however, I'm going to start with some commentary on the fiscal year and the fourth quarter. As we expected, fiscal 2024 was a year of two distinctly different halves. During the first six months, the DAA environment was undergoing a transition in which customers caught up on delayed projects and worked through inventory we helped them build through the previous year's supply chain challenges.
Those challenges began resolving in the second half as customers started to move forward with their DAA network upgrades, supported by multiple new Vecima product rollouts. With our sales momentum building again, we went on to achieve the best six-month revenue and adjusted EBITDA results in Vecima's history. That included back-to-back record revenue quarters, with Q3 sales climbing to an all-time high of CAD 80.1 million, and Q4 taking it up another notch to CAD 87.5 million. In total, we achieved CAD 291 million of sales in fiscal 2024, together with adjusted EBITDA of CAD 53.8 million and adjusted earnings per share of CAD 0.89, despite a slower first half.... Our video and broadband solutions segment generated CAD 236.1 million of the full-year sales, supported by record segment performance in both the third and fourth quarters.
As we expected, Entra products accounted for the majority of these results. We benefited from continued strong demand for our Entra optical 10 gig EPON products for fiber-to-the-home, as customers broaden those fiber-to-the-home deployments as part of funded rural broadband programs, but it was delivery of new Entra products that provided an even greater contribution. The key highlight of our year was the introduction and ramp of deliveries of our new ERM3 Remote PHY devices to our lead customer, Charter. As we've discussed on previous calls, Charter is planning to use our solution for a significant portion of its footprint-wide hybrid fiber-coax upgrade. The ERM3 quickly became our top-selling product of fiscal 2024 , helping to drive record Q3 and Q4 revenue performance, and more than doubling our Remote PHY sales on a full year basis.
In Q4, we also kicked off deployments of another important new product, our Entra EN9000 Generic Access Platform or GAP node, which provides operators with a future-proof path to 10G. We wrapped up manufacturing of this node in preparation for anticipated strong adoption in fiscal 2025. Also in Q4, we initiated shipments of our new Entra EXS1610 All-PON shelf, which enables customers to cost-effectively deploy Fiber to the Home in any market or hub deployment. And we continued lab trials of our new Entra VCMTS, or Virtualized Cable Modem Termination System, with our lead Tier 1 customer, while securing additional customer engagements for this new Entra cloud platform. I want to emphasize that each one of these products represents a major new growth driver for Vecima.
Combined, they form a powerful catalyst for growth that promises to propel Entra results in fiscal 2025 and future years. I should add that subsequent to the year-end, we also paved the way for access to the massive $42.5 billion U.S. Broadband Equity Access and Deployment Fund, or BEAD program, as we commenced manufacturing of some of our fiber-to-the-home optical products with a partner in the U.S. This now enables us to meet Buy America provisions under the program, giving us access to huge new opportunities for our fiber access portfolio in Entra. So a very big year for Entra developments and deployments that carries on. And it's clearly no surprise that Entra was our fastest-growing product family again in fiscal 2024, representing 73% of our consolidated sales.
In total, our customer engagements for Entra climbed to 115 during the year, up from 107 at the start of the year, and 62 of those customers are now purchasing our Entra cable and fiber access products for use in their networks. This includes deployments with eight of the top 12 largest cable operators in North America, which provides a strong indicator of Vecima's continued leadership in the DAA landscape. Looking now at highlights from our other business segments, our content delivery and storage segment generated sales of 48.2 million in fiscal 2024. While that was 8% lower than the previous year, our results included a 10% increase in higher-margin services revenue, reflecting the growing list of customers for a deployed base of MediaScale IPTV network solutions.
This, in turn, contributed to strong segment gross margin performance of 56.7% for the year, up from 53.1% in fiscal 2023. Our CDS results included initial revenue also from the successful launch of our new dynamic ad insertion solution with two U.S. customers in Q4, with further customer additions being expected in fiscal 2025. That's an important new offering for Vecima, one that significantly supports our customers' ability to monetize their video assets. On the innovation front, we released new versions of our MediaScale Origin and Dynamic Content products, which include additional dynamic ad insertion features, along with other important advances in the offering aligned with customer objectives. And we launched a new next-generation recording system for MediaScale Cloud DVR during the year.
We also made important strides in our standards-compliant development of the MediaScale Open CDN, Open Caching platform, which we expect to evolve into a material growth driver for the business in the long term. Once again, Open Caching allows operators to, for the first time, monetize the millions of OTT streaming video packets crossing their networks for free today, while at the same time greatly increasing viewer quality of experience and reducing caching costs for the streamers. Turning to telematics, we continue to build on the segment's profitable recurring revenue contribution as we advance uptake of our successful movable asset tracking platform. We added 15 new asset tracking customers during the year and increased the total number of movable assets we monitor to over 68,000, an increase of 20,000 from last year.
This, in turn, helped us grow sales in telematics in the fourth quarter by approximately 22% year over year, and our telematics segment achieved a strong gross margin of 67.5%. So overall, a year of across-the-board achievements for Vecima, and we ended in a strong financial position with CAD 84.9 million of working capital and a CAD 30 million reduction in our short-term borrowings between Q3 and Q4. That was after continuing to invest in working capital, R&D, and organic growth, and returning cash to our investors in the form of our regular dividends of CAD 0.22 per share across the year. Vecima is moving forward in an excellent position to capitalize on the significant growth opportunities we see ahead. I'll tell you more about our outlook in just a few minutes.
First, though, I'll turn the call over to Judd to provide our fourth quarter financial review. Judd?
Thanks, Sumit, and thank you for the introduction earlier. I just wanted to offer my sincere thanks to Dale, who is not only my boss, but my friend, and I certainly wish him well in his retirement. I'm grateful for the opportunity to serve Vecima as its CFO in what will undoubtedly be an exciting future for the company. Thanks to Sumit, the board, and the rest of the management team for their vote of confidence. Good morning to everyone who's here with us on the call today. I'll be reviewing our fourth quarter financial performance in more detail. And for the purposes of this call, I'll assume that everyone has seen our Q4 and year-end fiscal 2024 news release, MD&A, which provides much more detail than what I'll be covering today, and financial statements posted on Vecima's website.
As Sumit indicated, we had a great quarter to end the fiscal year. Starting with consolidated sales, we achieved a strong close to the year with record fourth quarter revenue of CAD 87.5 million, and that was up 16% year over year and 9% on a sequential quarterly basis. Our video broadband solution segment accounted for CAD 74.7 million of these sales, with revenues growing 31% year over year and 9% quarter over quarter to achieve a new all-time segment high. As we predicted, Entra DAA sales were the key driver of this record performance, supported by the Entra product rollouts that Sumit discussed earlier. Our Q4 DAA sales grew 35% year over year and 13% quarter over quarter to a new quarterly high of CAD 68.7 million.
VBS segment sales also included a CAD 5.9 million contribution from our commercial video products. In our content delivery and storage segment, we continue to experience quarterly revenue fluctuations, with Q4 sales of CAD 11.1 million, decreasing from the record quarter we achieved in Q4 of last year, but increasing 8% as compared to Q3 of this year. Each customer's purchasing cycle for CDS products are different. This results in the lumpiness in quarter-to-quarter CDS revenues that we see. I'm pleased to note, though, that our CDS segment continued to benefit from higher-margin services revenues. Services revenues were up 10% year over year.
Turning to telematics, this segment turned in another growth quarter with sales of CAD 1.8 million, increasing 22% year over year and 4% quarter over quarter, as we continue to achieve gains with our movable asset solution strategies. Turning to fourth quarter operating expenses, the notable changes year over year were as follows: R&D expenses increased by CAD 1.9 million- CAD 11 million. This primarily reflects a targeted decrease in salary and wage costs at the beginning of fiscal 2024 and higher capitalized development costs as we continue to invest in future product development. Sales and marketing expenses for the fourth quarter were CAD 700,000 higher at CAD 8.5 million, mostly due to higher salaries and wages, as well as additional expenses aimed at supporting future sales, such as trade show participation.
Fourth quarter G&A expenses increased by CAD 600,000- CAD 8.5 million. This reflects higher staffing costs, as well as expenses aimed at supporting future growth within the organization. Other expenses decreased by CAD 1.4 million- CAD 200,000, reflecting a CAD 2.4 million gain on the sale of our office property in Victoria, partially offset by advisory fees for our failed acquisition of Casa Systems and the settlement of third-party support contracts, both non-recurring. In total, our fourth quarter OpEx was lower, at CAD 28.5 million, a decrease of CAD 4.2 million year- over- year. As I just noted, I encourage each of you to read our MD&A for more details in this area. Also, as noted in our past calls, reported R&D expense in a period is typically different than the actual R&D expenditure.
That's because certain R&D expenditures are deferred until product commercialization. Adjusting for these deferrals, amortization of deferred development costs and investment tax credits, our actual cash R&D investment increased to CAD 15.6 million, or 18% of revenues in the fourth quarter, from CAD 15.3 million, or 20% of revenues in Q4 of last year. Looking at our bottom line results, fourth quarter operating income was up 125% year over year to CAD 12.2 million. This primarily reflects the higher VBS sales, partially offset by an overall lower gross margin percentage of 46.5%, as compared to 50.5% in the same period last year.
The change in gross margin percentage was largely driven by a different product mix in the VBS segment, as well as a lower percentage of high-margin CDS sales in our overall revenue mix. We recorded a foreign exchange loss of CAD 2 million in the fourth quarter, which compares to a foreign exchange gain of CAD 1.3 million in the same period last year. A weakening Canadian dollar negatively impacted the translation of monetary liabilities, resulting in this FX loss. As a result, I'm pleased to report we achieved Q4 net income of CAD 8.3 million, or CAD 0.34 per share, which was up sharply from CAD 5.1 million, or CAD 0.21 per share, in the same period of fiscal 2023.
Our record revenues, together with a tighter control of operating expenses, and despite the foreign exchange loss, helped us increase Adjusted EBITDA to CAD 16 million in Q4. That was 5.8% higher than in the same period last year. Turning now to the balance sheet. We ended the fourth quarter with CAD 2.1 million in cash, as compared to CAD 2.3 million in the same period last year. Working capital of CAD 84.9 million increased slightly from CAD 83.7 million in Q4 of fiscal 2023, and CAD 82.1 million at the end of last quarter. While working capital has remained relatively consistent over the last several quarters, the components of working capital can be subject to significant swings from quarter to quarter. Our product shipments can be lumpy, reflecting 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. Lastly, cash flow provided by operations for the fourth quarter increased to CAD 36.1 million from CAD 4.6 million during the same period last year. As a result of this CAD 31.5 million increase in operating cash flows, we were able to pay down our revolving line of credit by CAD 30 million in the fourth quarter, which had peaked at CAD 81.7 million at the end of the third quarter. On a final note, the board of directors approved a quarterly dividend of CAD 0.055 per common share, payable on November fourth, 2024, to shareholders of record as at October 11th, 2024.
It's important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes. So just to summarize, we had an excellent fourth quarter with robust year-over-year sales growth and tight control of operating expenses, helping out to close out the year with a strong bottom line performance. Now back to Sumit.
Thank you, Judd. Looking ahead, we see our revenue momentum continuing to build in fiscal 2025 as we leverage our world-leading portfolio of DAA and IPTV solutions. On the DAA side, multiple Tier One MSOs are now underway, with major network rollouts supported by Vecima's next-gen cable and fiber access solutions, with more set to follow. In our video and broadband solutions segment, our new products are acting as important growth drivers in this environment. We anticipate near term that our contributions from our ERM3 Remote PHY devices and EN9000 Generic Access Platforms will position us for a solid start to the growth year. The EXS1610 All-PON shelf, in addition to another Remote OLT variant we're introducing this year, are also expected to build on this momentum as the year progresses.
With our U.S. manufacturing now in place for the applicable parts of our fiber access portfolio, we're positioned to access opportunities related to the $42.5 billion BEAD program in calendar 2025. Longer term, our natural entry into the VCMTS market provides another important growth opportunity for Vecima. As these various rollouts begin to build up on one another, and as more MSOs worldwide start their own network upgrades, we see our full-year Entra revenue momentum continuing in fiscal 2025, particularly in the second half. Turning to our content delivery and storage segment, we anticipate further expansion and demand for our IPTV solutions from existing and new customers in the year ahead. The rollout of our new dynamic ad insertion and open caching products with more customers should also contribute to strong performance from our CDS segment.
Over the longer term, we continue to see even higher growth potential as the many facets of IPTV we empower gain further momentum and as our newer products become bigger contributors to our results and growth. Finally, we're anticipating sustained profitable growth in our telematics segment as demand for our asset tracking services grow and as we continue to build on our free tracking subscriptions. Overall, on a consolidated basis, we're anticipating another strong year of growing annual revenues in fiscal 2025 . Based on our product rollout roadmap, I want to note that we're anticipating gross margin near to or in the lower end of our target range of 45%-49% for the year. That reflects our expectation of a significant volume of EN9000 platform node sales in our product mix over the coming quarters.
Standalone cable access nodes, like the Entra EN9000, typically carry a lower margin profile, with margins from the overall platform becoming more accretive over time as our higher-margin, software-driven access modules are populated within that platform. In the first half of fiscal 2025, we expect a higher proportion in the product mix from Entra EN9000 as the lead customer matches them with the Entra ERM3 Remote PHY modules we've been shipping through fiscal 2024. Overall, we're highly confident in the ongoing expansion of the business in fiscal 2025. As the industry accelerates its move to DAA and IPTV, we have multiple new growth engines in place to help us leverage many opportunities to drive our momentum. Our market position remains very strong, with exceptional products, broad and growing customer relationships, and our investment in continuous technology innovation secures our place at the forefront of our industry.
We're genuinely excited about the opportunities we see ahead across our operations, and we look forward to continuing to reward investors' confidence in us in fiscal 2025 . That concludes our formal comments for today. We'd now be happy to take questions. Operator?
We will now begin the question and answer session for analysts and institutional investors. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We'll pause for a moment as callers join the queue. Our first question is from Steven Li with Raymond James. Please go ahead.
Thank you. Hey, guys. Sumit, on your VCMTS, I got a couple of questions. Can you give us an update on how your trials with the Tier One is going? When does it move to field, and when is your first stage of revenues? Thanks.
Hi, and good morning, Steven. Yeah, thank you. So as I mentioned in our prepared remarks, you know, we're making, you know, solid progress on our VCMTS lab trials with that lead Tier One customer. And that's been happening really, you know, for some time and carrying on through calendar 2024. I don't want to get perfectly specific on when we're transitioning the field trial with that customer, but, you know, suffice it to say, every Tier One operator has a program that involves lab trials, friendly field trials, and then, you know, market field trials. And, you know, we anticipate we're in good stead to follow that cadence with that Tier One operator through fiscal 2025.
You know, and as far as revenue contribution, I think that, you know, we have our sights set on potentially having contribution in fiscal 2025. But, you know, it's a very big picture move for us in terms of addressing, you know, accessing that TAM and the VCMTS segment of the market. I've said before that our IP is, you know, our software that we've instantiated in the beginning in the MACPHY node, and, you know, very migratable to a virtualized architecture. And that's all coming to bear at that engagement we have with that Tier 1 operator, who has been, you know, a core customer of ours on the remote PHY nodes in the past as well.
Got it. And then, Sumit, secondly, so aside from that Tier 1 customer, how many other operators you have trialing your VCMTS? Can you talk a little bit about that?
Yeah, it's, you know, a little bit early for me to put out some specific metrics on that. But, you know, again, suffice to say, you know, the broadening growth in those engagements with other customers for VCMTS, Vecima being a market leader in DAA, as we've said, it's clear that, you know, the market is looking for the solution from us. We're building it, moving it forward, with the Tier One. That's the playbook we tend to follow because we understand that, you know, a lead Tier One's definition of the requirements are very strong as it relates to the rest of the market. So, you know, we do have a broadening base of engagements, and, you know, we'll provide updates as we can.
Got it. Thank you.
Thanks, Steven.
Once again, analysts and institutional investors who would like to ask a question should press star then one on the touchtone phone. The next question comes from Jesse Pytlak from Cormark Securities. Please go ahead.
Hey, good afternoon. Just with respect to the BEAD program, can you maybe share what you're hearing from some of your customers with respect to the timing on when some of the funding for these projects could be released?
Hey, yeah, good morning, or good afternoon, Jesse. Thanks. Yeah, no, I mentioned the BEAD program. We see it working its way forward in the process. You know, as we understand it, you know, multiple of the states have received their grants from the federal government in the U.S., and they're progressing towards defining their projects and selecting the sub-grantees, which, you know, in this case, are the broadband service providers and our customers. So that's all working through now. As you can see, we've staged our manufacturing, got compliant with the U.S. build requirements. We announced that a couple of weeks ago, so we're well prepared with our fiber portfolio for when those official programs transition to awards.
You know, I think our customers are working that forward. You know, and I think you'll hear from the market in general, the industry in general, that, you know, we're expecting 2025, calendar 2025 to be the year that BEAD starts to roll out. It's important to also note that that's, you know, superimposed and in parallel with the RDOF program, you know, that $20 billion rural broadband program that's been running for about 2 to 3 years now. So both of these are gonna happen in parallel. So there's, you know, many millions of new fiber to the home passings that are gonna be occurring in the U.S. over the next several years. So, you know, that, that's a long time constant. It's a lot of money, a lot of planning, to be done there.
You know, we're seeing good signs that calendar 2025 is gonna be a great year for BEAD.
Okay, that's helpful. And I guess, you know, in terms of how you're thinking about 2025 revenue momentum for, for the DAA product family, is this partially contingent upon that BEAD money opening up? And I guess my question is more so, if BEAD gets kind of pushed out again, just because that seems to be kind of what happened in 2024, would that change how you're thinking, how, how fiscal 2025 shapes up for you?
. You know, as we always do, our planning obviously looks at multiple layers. I mentioned multiple growth engines for us in fiscal 2025. We, of course, have attributed some of the pipeline to BEAD in the next fiscal year in the second half. But that's not to say that, you know, if things delay, that other thing, you know, other things won't pick up that component. So obviously, you know, we build a pipeline that is in excess of our plan for the fiscal year, and you know, BEAD is a component. RDOF is a component in and of itself.
Obviously, you know, the cable access network upgrades that are happening to allow operators to get to ten gig services with, you know, cable passings, which are, you know, tremendously more cost-effective than fiber in areas where they're not funded. That's a big part of our plan for fiscal 2025 as well. And there's some international fiber to home deployments as well. So, you know, I think that we're accounting for BEAD, but we're not necessarily dependent on it.
Got it. That, that's helpful. Maybe switching topics a little bit. You know, in the past, you've spoken to targeting 25% market share in the cable and fiber access categories that you're in. You know, thinking about some of the competitive disruptions that's happened in the industry, has this changed your thinking at all on your kind of targeting 25%? And any idea where you might be market share-wise today?
Yeah. So I think, you know, with the consolidation that happened, we mentioned what the Casa acquisition, you know, play out in the end that occurred, and, and there's, you know, one less vendor in the space, to an extent. So, you know, you can generally think there's three vendors that are vying for all the market share. You know, we maintain the view that the 25% is a solid target for us, you know, accounting for all the cable and fiber access. And in fact, you know, I've said before that we've had this worldwide leading market share in the fiber to the home remote OLTs for several years in a row. Same thing for remote MAC PHY and cable access.
You know, I've also communicated that as our customers rev up, ramp up their programs in the sequence of the overall industry, you know, our share in Remote PHY would continue to increase, and we have seen that in the last six months. You know, our market share is leading in terms of Remote PHY for the first six months of calendar 2024 that have been reported so far by the market research. So overall, you know, everything carries on the same way, one less competitor in the space, and you know, provides, if anything, a tailwind for that. That's our views on our overall market share target.
All right, appreciate, appreciate that. And then maybe one final question, just on the IPTV side. You know, what do you think it's gonna take for open caching to restart gaining some momentum? Like, the benefits seem fairly clear, but it doesn't seem like operators and streamers are really prioritizing investment in this area at this point. What's it gonna take to change that?
Yeah, I think the streamers have had some challenges. I think, you know, at a consumer level, we hear a lot about that in terms of their, you know, they had a lot of momentum on getting eyeballs onto their platforms, but, you know, the costs have become a factor for them. So it's taking that, you know, I think it's just that sequence of time where their focus was on growth, heavily focused on growth, for the last several years, and they were getting that growth. But, you know, they are changing their focus to the cost side of the equation now because their ARPU, you know, and how much they have to bill out are going up. You've seen some advertising come into the picture as well.
So cost is becoming important for them. What's very important, and it's always been important for them, is the quality of experience. You know, when you use open caching, you put these edge caches much deeper into the ISP network than, you know, one layer up at the peering point, that dramatically improves the quality of experience for subscribers, which is important for their market share. So I think, you know, what we're seeing is that, you know, it's a very clear value proposition to both the broadband service provider, our customers, and the streamers overall, both on the quality and the reduction of the cost to move that traffic for both, for the streamer and, you know, monetizing that traffic for the first time for the operator.
So we view it as a, you know, when, not if, scenario, and we anticipate that, you know, that this is gonna gain momentum for us and, you know, going forward. And it will... You know, we're in business development, it will continue to take time.
All right, thank you, sir. That was insightful. I'll pass the line.
Thanks, Jesse.