Hello, this is the Chorus Call conference operator. Welcome to Vecima Networks First Quarter Fiscal 2023 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 touch tone phone. You will hear a tone acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. Presenting today on behalf of Vecima Networks are Sumit Kumar, President and CEO, and Dale Booth, Chief Financial Officer.
Today's call will begin with executive commentary on Vecima's financial and operational performance for the first quarter of fiscal 2023 results. Lastly, the call will finish with a question-and-answer period for analysts and institutional investors. The press release announcing the company's first quarter fiscal 2023 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 interim, condensed consolidated financial statements and accompanying notes for the three months ended September 30, 2022, and 2021. 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-19 and the distinctive characteristics of Vecima's operations and industry and customer demand that may have a material impact on or constitute risk factors in respect of Vecima's future financial performance as set forth under the heading Risk Factors in the company's annual information form dated September 22, 2022. A copy of which is available at www.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.
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. At this time, I would like to turn the conference over to Mr. Kumar to proceed with his remarks. Please go ahead.
Thank you and welcome everyone to our first quarter conference call. Fiscal 2023 is off to an incredible start with record quarterly financial results, strong performance across all product families, and a number of technology achievements to talk to you about today. To begin, I'm proud to say we achieved a new quarterly revenue record with first quarter sales climbing 127% year-over-year and 22% sequentially quarter-over-quarter to CAD 73.4 million. Not only that, we delivered adjusted EBITDA performance of CAD 17.2 million, which was four times higher than what we achieved in Q1 last year and represents a new all-time quarterly record for the company. We also achieved excellent first quarter earnings performance of CAD 0.41 per share.
Not only was this 14 x higher than the CAD 0.03 per share generated in the same period last year, but it's also more than we achieved in all of fiscal 2022. A truly remarkable start to the year. Our Q1 performance was again anchored by our video and broadband solutions segment and the tremendous success of our next-generation Entra distributed access architecture solutions. VBS revenue was up 151% year-over-year to CAD 61 million, with Entra accounting for CAD 53 million in segment sales. Entra sales were nearly triple what we achieved in the same period last year, and they were up 32.5% sequentially.
This is the highest sequential growth we've ever seen for Entra, and it reflects a number of tier one and other customers deploying at scale in the quarter with our fiber access and cable access solutions. We were successful in leveraging our inventories and supply chain strengths to comprehensively meet their needs and address some of the backlog that's been building. While this led to exceptional Q1 revenues, we do expect a balancing in the growth of our Entra deliveries in Q2 as a result of some of the pull-ins that occurred during the quarter. Overall, however, demand for DAA continues to accelerate, and we're seeing broad market adoption of Vecima solutions. At quarter end, we were actively selling to 49 operators, including a growing number of tier ones.
We now have deployments with eight of the 12 largest cable operators in North America for our Entra Remote PHY, Remote MAC-PHY, and 10G-EPON Remote OLT nodes and 10G-EPON chassis platforms. Having successful deployment with a tier one operator is a big deal in our industry, but having adoption across so many of the top operators really speaks to our leadership in the industry. I should add that we also continue to hold the majority global market share for both 10G-EPON, Remote OLT, and Remote MAC-PHY nodes. In terms of total global engagements, these have widened to 95 customers from 77 a year ago, and they include a significant and growing number of fiber access customers, as well as customers turning to us for a combination of cable and fiber access solutions.
Our ability to support these customers is really enhanced by our comprehensive DAA product portfolio. Vecima can provide an unmatched level of flexibility to operators as they embark on the evolution of their broadband access networks to the 10G future. Vecima also continued to lead on the innovation front in the quarter, with important new product introductions and demonstrations. On the fiber side, we launched our new Entra EXS1610, All-PON 10G shelf solution, which broadly supports the most widely deployed PON standards. This gives service providers the ability to shorten time to market for their fiber-to-the-home rollouts. It also provides Vecima with access to a vast new addressable market, valued at nearly CAD 2 billion annually.
On the cable side, we successfully demonstrated our 10G capable DOCSIS 4.0 leadership in partnership with a top global tier one operator, and we showcased our ability to unlock multi-gigabit symmetrical speeds on existing infrastructure. In the process, we highlighted the massive capacity that can be achieved through incremental upgrades to the cable access network using our DAA nodes. We also recently announced the next generation Remote PHY device. Our new ERM322 module is the industry's most interoperable and can be used either on our platforms or to extend the life of third-party cable access nodes. Our Entra portfolio just keeps getting bigger and better and more innovative. With it, our DAA momentum continues to build. Looking now at some other contributors to our Q1 results.
In our commercial video family, we achieved another solid quarter, with sales up 19% year-over-year on higher Terrace family sales. This further added to the substantial results from our VBS segment. In our content delivery and storage segment, sales increased 63% year-over-year and 19% quarter-over-quarter. There's a strong demand for our MediaScale solutions as operators continue to transition to and expand their IPTV services. In Q1, we added an additional telco win for our IPTV linear Cloud DVR and video-on-demand platforms. We also carried out expansions with existing customers, including a large tier one customer in the Caribbean and Latin America region. I'm pleased to report we added a customer win for our new Community Cache solution.
This is a solution that combines our MediaScale platform with our Terrace family commercial video products to save bandwidth used for video delivery and improve the broadband experience for subscribers. We also released two new product iterations during the quarter, including enhanced versions of our Origin and Cache products in MediaScale. Important achievements for the CDS segment in Q1, together with solid growth. In our Telematics segment, performance remained strong in the first quarter, with sales at a multi-year high and very strong adjusted EBITDA margin performance. We generated additional deployments with municipal government fleet customers and grew our base of asset tracking customers with the addition of 12 new customers. We're now monitoring over 28,000 units with our asset tracking solutions. Additionally, Telematics achieved an excellent gross margin percentage of 66% for the quarter.
Overall, it was a terrific start to what we expect will be another year of record momentum for Vecima. Now I'll turn the call over to Dale to provide more detail on our first quarter financial performance. Dale?
Thank you, Sumit. For the purposes of this call, we assume that everyone has seen our first quarter fiscal 2023 news release, MD&A, and financial statements that are posted on Vecima's website. I will present the relevant numbers and discussions around overall results, market segments, operational expenses, and the balance sheet. Starting with consolidated sales, for the three months ended September 30, 2022, we generated record sales of CAD 73.4 million. This was an increase of 120% over the CAD 32.4 million in Q1 last year and an increase of 22% from the CAD 60 million in Q4 fiscal 2022. The significant year-over-year increase reflects a sharp increase in video and broadband solution sales, combined with stronger content delivery and storage sales and the positive foreign exchange impact of a weaker Canadian dollar.
Within the video and broadband solutions segment, we generated sales of CAD 61 million. This was up 151% from the CAD 24.3 million in Q1 last year and 23% higher than the CAD 49.4 million last quarter as customers transition to next-generation networks using Vecima solutions as well as their success in meeting the needs of tier one customers undertaking larger scale DAA deployments during the period. Our Entra next generation DAA products contributed first quarter sales of CAD 53 million, up a significant 192.4% from the CAD 18.4 million in Q1 fiscal 2022, and up 32.5% from the CAD 40 million in Q4 fiscal 2022.
Commercial video family sales for the quarter were CAD 7.3 million, up 19% from CAD 6.1 million in Q1 fiscal 2022, and down 17% from CAD 8.8 million in Q4 last quarter as expected. Terrace family sales were up year-over-year, primarily due to the timing of sales as compared to early fiscal 2022, and demand for our Terrace QAM platform remains healthy, although somewhat lower year-over-year as operators continue their commercial rollout for the current generation. In the content delivery and storage segment, first quarter's revenues were CAD 11 million, or 63% over the CAD 6.8 million in Q1 last year, and 19% higher than the CAD 9.2 million in Q4 fiscal 2022. Segment sales for the Q1 fiscal 2023 period included CAD 6.4 million of product sales and CAD 4.6 million of service sales.
The significant year-over-year increase in CDS sales reflects the addition of a new customer during the quarter, expansions with existing customers, and favorable order timing as compared to last year. As always, we note that quarterly sales variances are typical for the CDS segment. The demand for Vecima's IPTV and Open Caching solutions continues to increase, and we expect moderate sales growth for the content delivery and storage segment for fiscal 2023. Turning to the Telematics segment, sales of CAD 1.4 million in the first quarter were slightly higher than the CAD 1.3 million achieved in both Q1 and Q4 of fiscal 2022, as expected. Gross margin for the first quarter was 46%, down from 48% in Q1 2022, and 48% in Q4 of fiscal 2022.
This primarily reflects supply chain constraints, which resulted in higher expedite costs as well as one-time inventory allowances related to legacy product inventory. We target a gross margin percentage of 48%-52%. Video and broadband solutions gross margin was 44% in the current year quarter. This was lower than the 47% a year ago and the 47% in Q4 fiscal 2022. The lower VBS gross margin primarily reflects supply chain constraints, which resulted in higher expedite costs as well as one-time inventory allowances related to legacy product inventory. Gross margin in the content delivery and storage segment increased to 55% from 50% in Q1 last year and 50% in Q4 last quarter, due to higher sales and higher service revenues for the quarter.
In the Telematics segment, gross margin in the quarter increased to 66% from 63% in Q1 fiscal 2022, and was slightly higher than the 65.7% in Q4 fiscal 2022, reflecting an increase in customer acquisitions and sales in the current quarter. Turning to first quarter operating expenses, the notable changes year-over-year were as follows. R&D expenses increased to CAD 10.7 million in the quarter from CAD 8 million in Q1 fiscal 2022 as we continue to invest in research and development to support the launch of new products. The increase reflects hiring of additional R&D employees, higher licensing and prototyping costs, partially offset by an increase in capitalized development costs. Until these new products are commercialized, development costs are deferred to future periods.
Sales and marketing expenses increased to CAD 6.3 million from CAD 4.1 million in the same period last year. This increase primarily reflects higher staffing costs as well as an increase in travel, entertainment, and trade show expenses as COVID-19 travel restrictions have lifted. G&A expenses increased to CAD 5.6 million in the quarter from CAD 4.7 million in Q1 fiscal 2022, primarily reflecting additional staffing, ERP implementation costs, software licenses, and travel and entertainment costs. Total OpEx in Q1 increased to CAD 22.7 million from CAD 17.5 million during the same period last year. This reflects additional operating expenses tied to our higher sales in both the video and broadband solutions and content delivery and storage segments. I note that reported R&D expense in a period is typically different than the actual expenditure.
That's because certain R&D expenditures are deferred until product commercialization. Adjusting for deferrals, amortization of deferred development costs and income tax credits, actual R&D investment for the quarter increased to CAD 13.5 million or 18% of sales from CAD 9.6 million or 30% of sales in the same period last year. The increase reflects higher staffing costs and increased costs for software licensing and prototyping in the current year quarter as our next generation products move closer to commercial deployment. We reported an operating income of CAD 11 million in Q1 fiscal 2023, as compared to an operating loss of CAD 1.8 million in Q1 fiscal 2022. The significant increase was primarily due to higher VBS and CDS segment sales, partially offset by lower gross margins and the operating expenses to manage the increase in sales year over year.
Net income for the quarter increased to CAD 9.5 million or CAD 0.41 per share from CAD 0.7 million or CAD 0.03 per share in Q1 fiscal 2022. Turning to the balance sheet. We ended the first quarter with CAD 2.5 million in net bank overdraft. The decrease in cash in the quarter mainly reflects the buildup of inventory by CAD 14.6 million in the quarter, an increase in prepaid expenses of CAD 7 million, other non-cash working capital of CAD 2.8 million, capital expenditures of CAD 9.9 million, partially offset by positive cash flow from operations of $ 11.7 million. Working capital increased to CAD 66.8 million from CAD 58.6 million as at June 2022. We note that working capital balances can be subject to significant swings from quarter to quarter.
Our product shipments are lumpy, reflecting the requirements of our major customers. Finally, cash flow used in operations for the first quarter increased to CAD 7.2 million as compared to CAD 4.5 million during the same period last year. The CAD 2.7 million increase in cash flow used in operations reflects a CAD 15.7 million decrease in cash flow from non-cash working capital, partially offset by a CAD 13 million increase in operating cash flow. Now back to Sumit Kumar.
Thank you, Dale. Turning now to our outlook. In our video and broadband solutions segment, we anticipate continued acceleration of demand for our Entra DAA products on a full year basis. According to the Dell'Oro Group, a leading industry forecaster, cable operators are responding to competitive expansion from fiber and fixed wireless access providers by leveraging both the cable and fiber access solutions that position them to succeed in a highly flexible way. That competition is encouraging cable operators to upgrade their networks now rather than later, and is driving a wave of investment into DAA broadband access technologies. We're certainly seeing the ramp up in demand for the broad portfolio of DAA products that we provide. We're seeing the same thing on the fiber access side, with particularly strong demand for our 10G- EPON products.
The rural broadband rollout in the U.S. is also continuing to drive major network expansions as operators work hard to construct vast new fiber to the home connections and provide equitable broadband access for all. We're well positioned to meet or exceed our expectations for substantial Entra growth in fiscal 2023, and we're excited about what we can achieve this year. Our confidence continues to be supported by a strong backlog of purchase orders and binding forecasts that are providing excellent visibility into demand levels going forward. I'd once again caution that global supply chain disruptions continue to have the potential to interfere with timely order delivery, while also increasing expedite costs and putting pressure on our margins potentially.
Overall, however, our strategy of maintaining higher than normal inventories of finished goods and raw material to address these challenges is working, and we've increased our investment in working capital to support this strategy, backed by a very robust backlog. In our Terrace family of products, we anticipate continued demand for the current generation Terrace QAM. As we continue to progress qualification for the long-term migration of customers to the next generation Terrace IQ, alongside the overall network transition to IPTV. Looking at the content delivery and storage segment, demand for our IPTV and Open Caching solutions continues to build. While we're anticipating moderate growth for this segment in fiscal 2023, we see this making the way for higher growth potential over the mid to longer term as IPTV projects and expansions gain further momentum and our newer Open Caching solutions become an important new driver of CDS performance.
In our Telematics business, we expect consistent incremental growth from the fleet tracking market and increasing demand for newer movable asset tracking services. Overall, we remain highly confident in our market position and Entra's ability to capture this major multi-year opportunity in the fast-growing DAA and IPTV markets. With an exceptional record-breaking first quarter behind us, we're looking forward to an extraordinary and busy year and many more achievements to tell you about over the course of fiscal 2023. 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-answer session for analysts and institutional investors. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question.
In the materials. Of course, you know, to support our customers' projects, we moved it and took advantage of the opportunity on the material side. We saw some pulling of Entra revenue, if you will, from Q2 into Q1. The overall backlog continues to grow. The overall natural demand is much higher than you're seeing in our results today. You know, when we look at our supply chain factors for the second quarter, we feel like there's a balancing, you know, where you could see the first two quarters start to average in the same ballpark. You know, overall fiscal 2023 creating broader growth profile than we even had last year in Entra. That's how we're looking at it.
Okay. Got it. In terms of kind of the investment in inventory that you keep pursuing, is there maybe a dollar level that you see this settling out at or maybe a phase level?
You know, I think as you've seen, the working capital has grown, inventory and prepaids have grown and, you know, I've talked before about how the supply chain factors have led to lead times pushing out 50-70 weeks in some cases. In parallel, we've had all this growth and demand from our customers for Entra and forecasting visibility, you know, that has moved out, you know, over a long period of time once, you know, customers started partnering very effectively with us in forecasting their needs, you know, a year plus out. We've been building inventory to match to the order flow and backlog we have. You see that represented in what's happening.
You know, I'm not gonna pinpoint a specific number. We do feel like we're making great progress on the working capital inventory front, and we should get ourselves to a position you know, maybe towards the end of calendar 2022 entering calendar 2023, you know, second half of fiscal year, we could start to see things level out. You know, we're being purposefully you know, pursuant of the working capital to support our customers and the backlog that we have.
Okay. Maybe just one final question, if I may. Can you just talk a little bit about how you're thinking about managing your cash position, just kind of given, you know, where it is today, you know, the investments that you are making in inventory that we just talked about, and then also, obviously your R&D planning?
Sure. To start, I'd remind everyone that we have, you know, relatively little long-term debt on the balance sheet at about CAD 15 million long-term. That includes some of the lease obligations. You know, and additionally it's important to note that in Q1 we generated over CAD 10 million in operating cash flow. That's underway. You know, we did invest in working capital tied to all of this growth, again in Q1 with, you know, CAD 20 million+ in inventory and prepaid increases. We have, you know, strong CAD 25 million plus operating line of credit available to us, you know, at good terms to help us, you know, manage these timing puts and takes as we've seen.
Of course, we have the AR and AP flowing, you know, about CAD 20 million in real estate, a little over half of that is attached to the long-term debt vehicle. You know, we think that capitalization is very fluid for us. We have strong inventory balance and, you know, we also have access potentially to the equity markets if the market conditions suggest that we should go in that direction supported by our growth. We of course have our shelf prospectus out there as well. That's some opportunity if we need to, you know, support some more working capital.
Understood. Thank you. That's all for me.
Thanks, Jesse.
Thanks, Jesse.
Once again, analysts and institutional investors who would like to ask a question should press star and one on their touch tone phone. We will pause for a moment so any additional callers may join the queue. Our next question is from Steven Lee with Raymond James. Please go ahead.
Thank you. Hey, Sumit. The GAP node that you unveiled last year, is this just for MAC-PHY or can it be both for Remote PHY and MAC-PHY deployments?
Yeah, it certainly can be for both deployments and the very nature of the Generic Access Platform, that's GAP, node is that it's designed to be a universal modular platform in conjunction with one of our key tier one customers. In fact, you know, getting very involved in specifying that platform. Certainly Remote MAC-PHY or Remote PHY and Remote PHY, you know, even in the future, Fiber to the Home, EPON, XGS-PON can move towards that platform.
Have you started to ship it?
You know, I'm not gonna get into too much detail. Of course, you know, we're continuously in trials, you know, and shipping, as you can imagine, is in the near term.
Okay, perfect. Also, Sumit, recently you announced the EXS. I'm also wondering, is this shipping or what's the expected timeline?
Yeah. You know, we're moving towards the lab qualification processes for that platform. You know, we're right in the midst of early output of it as we typically go through a cycle of putting product into labs and then going through field trials and whatnot. That's quite imminent.
Okay, got it. Sumit, just one more question. You referenced backlog a few times. Can you comment on the size of it or maybe if you grew sequentially, if your backlog grew sequentially?
Certainly did grow sequentially and, you know, don't wanna get totally specific, but, you know, suffice it to say the backlog remains, you know, very material and it's growing continuously like I just said. You know, order of magnitude, think of it as equivalent to multiple quarters at the current top line run rate, you know, and on the order of a full year at that, you know, with delivery date timings, you know, naturally set across both the next year and a half.
Perfect. Thanks.
Thanks, Steven.
Our next question is from Ole Pregel, a private investor. Please go ahead.
Hello, Sumit.
Hi, Ole.
Congratulations on the blowout quarter.
Thank you.
I got a question about the accounts receivable. Are they all within the 30-day limit or?
I mean, of course, we've got a little bit of a spectrum of terms with our customers. Larger customers, of course, have their model and how they negotiate terms on payment terms. You know, there's generally this spectrum between Net 30 and Net 60 terms on our receivables. Absolutely, you know, in terms of on-time payments and all that, things are fantastic on the AR receivable.
There's no concerns there at all?
Never. Yeah.
Okay.
No, we have no collection issues whatsoever, Ole.
Very good. Now, another thing is with the shelf prospectus.
Mm-hmm.
That's been in place for some time. It's always been a I mean, it looked like it could be a constraint going forward with your backlog growing. Are you contemplating anything in near future and perhaps get a NASDAQ listing or split the shares? Like, it's the liquidity of the shares has always been a problem.
True. True. It's been a challenge. You know, of course, all options are always being considered as is prudent to do. With our type of growth, you know, both the shelf prospectus, whether it's the Canadian market or considering the U.S. market, that's all on the table, you know, relevant when we're talking about the growth pace that we've attracted. We do think that there's opportunity to improve the liquidity through potential offering at the same time as, you know, providing some incremental support for the working capital that we need. You know, it's all subject to market conditions and a window of timing making sense.
I look at it as a potential opportunity in the sense of, you know, whether a Canadian listing, a U.S. listing. We do think that, you know, we're presenting some very attractive value in terms of a stock.
Yeah. Well then, to me it looks like perhaps a bear market for now is over or at least looking forward to the next six months or a year.
Yeah.
The opportunity, the timing may be correct.
Yeah. Yeah. We're looking for the market conditions getting on the other side. Yeah.
Even just splitting the shares. Have you ever thought of that?
Not in specific detail. Of course.
No.
You know, all options are often considered.
Yeah.
You know, I don't think I would put too much specificity around that today.
No.
Yeah.
Okay. All right. Well, thanks, and congratulations again.
Thanks, Ole.
Nice to see.
Thanks, Ole.
Thank you.
As there appears to be no further questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.