Altigen Communications, Inc. Reports Third Quarter and Nine Months 2020 Financial Results

MILPITAS, CA / ACCESSWIRE / July 23, 2020 / Altigen Communications, Inc. (OTCQB:ATGN), a Silicon Valley based Microsoft ISV and Cloud Solutions provider, announced today its financial results for the third quarter ended June 30, 2020.

Third Quarter Financial Highlights

• Revenue of $3.0 million, up 14% Year-Over-Year
• Net Income was $426,000 GAAP, $767,000 Non-GAAP

Nine Months Financial Highlights

• Revenue of $8.8 million, up 10% Year-Over-Year
• Net Income was $1.4 million GAAP, $2.0 Million Non-GAAP

Third Quarter Fiscal 2020 Financial Results

Net Revenue: Total revenue for the third quarter was $3.0 million, an increase of 3% from the $2.9 million reported in the preceding quarter, and an increase of 14% from the $2.7 million reported in the comparable period last year. Third quarter revenue consisted of:

• Cloud services revenue of $1.98 million, representing an increase of 7% and 24%, respectively, compared to the preceding quarter and the prior year period.
• Software assurance revenue of $655,000, representing a decrease of 1% compared to the preceding quarter and a decrease of 5% year-over-year.
• Software license revenue of $281,000, representing an increase of 13% and 47%, respectively, compared to the previous quarter and the prior year period.
• Professional services and other revenue of $106,000, representing a decrease of 40% compared to both the preceding quarter and the prior year quarter.

Gross Margin: Gross margin in the third quarter of fiscal 2020 was 77.4%, compared to 75.9% in the preceding quarter, and compared to 80.6% in the prior year quarter. The decrease was primarily driven by higher amortization of capitalized software and acquisition related costs, and to a lesser extent, a shift in our product mix.

GAAP Net Income: For the third quarter of fiscal 2020, GAAP net income was $426,000, or $0.02 per diluted share, compared with GAAP net income of $497,000, or $0.02 per diluted share in the preceding quarter, and compared with GAAP net income of $612,000, or $0.02 per diluted share in the same period in 2019, representing a decrease of 14% and 30%, respectively. The decrease in net GAAP income was a result of higher operating expenses primarily attributed to litigation-related expenses.

Non-GAAP Net Income: Non-GAAP net income for the third quarter of fiscal 2020 was $767,000, or $0.03 per diluted share, compared with non-GAAP net income of $630,000, or $0.02 per diluted share in the preceding quarter, and compared with non-GAAP net income of $664,000, or $0.03 per diluted share in the same period of the prior year.

GAAP Operating Expenses: GAAP operating expenses totaled $1.9 million for the third quarter of fiscal 2020, compared with $1.7 million in the preceding quarter, and compared with $1.6 million during the third quarter of fiscal 2019. As noted below, the increase in operating expenses was primarily due to a $188,000 litigation-related expense recognized in the third quarter of fiscal 2020 in connection with the pending CTI litigation. For additional information, please refer to the Company's filings with the OTCQB over-the-counter market, including the Company's most recent Quarterly Report filed on June 29, 2020.

Non-GAAP Operating Expenses: Non-GAAP operating expenses totaled $1.7 million for the third quarter of fiscal 2020, compared with $1.7 million in the preceding quarter, and $1.5 million in the comparable period last year.

Year-to-Date Financial Results

Net Revenue: For the nine months of fiscal 2020, total revenue increased 10% to $8.8 million, compared with $7.9 million for the nine months of fiscal 2019. During the first nine months of fiscal 2020, cloud services revenue increased 20% to $5.5 million, software assurance revenue decreased 6% to $2.0 million, software license revenue decreased 14% to $736,000 and professional services and other revenue increased 44% to $495,000.

Gross Margin: Gross margin for the first nine months of fiscal 2020 was 76.9%, compared to 81.7% for the first nine months of fiscal 2019. The decrease in gross margin was primarily driven by higher amortization of capitalized software and acquisition related costs, and to a lesser extent, a shift in our product mix.

GAAP Net Income: GAAP net income for the nine months ended June 30, 2020 was $1.4 million, or $0.06 per diluted share, compared with GAAP net income of $1.6 million, or $0.06 per diluted share in the prior year period. The decrease in net GAAP income was a result of higher operating expenses primarily attributed to litigation-related expenses.

Non-GAAP Net Income: Non-GAAP net income for the nine months of fiscal 2020 was $2.0 million, or $0.08 per diluted share, compared with non-GAAP net income of $1.8 million, or $0.07 per diluted share during the same period a year ago.

GAAP Operating Expenses: For the nine-month period ending June 30, 2020, GAAP operating expenses totaled $5.4 million, compared to $4.9 million during the same period a year ago, an increase of 9%.

Non-GAAP Operating Expenses: Non-GAAP operating expenses increased 6% to $5.0 million for the nine months of fiscal 2020, compared with $4.7 million for the same period in fiscal 2019.

The increase in operating expenses was primarily due to a $188,000 litigation expense recognized in the third quarter of fiscal 2020 in connection with the pending CTI litigation. For additional information, please refer to the Company's filings with the OTCQB over-the-counter market, including the Company's most recent Quarterly Report filed on June 29, 2020.

Balance Sheet: Cash and cash equivalents totaled $6.1 million at June 30, 2020, compared to $4.9 million at the end of the second quarter of fiscal 2020. Working capital increased by $347,000 to $4.0 million during the nine months ended June 30, 2020 as compared to the preceding quarter. In May 2020, the Company received loan proceeds in the aggregate amount of $804,000 pursuant to the Paycheck Protection Program under the CARES Act which was enacted in March 2020 as a result of the COVID-19 pandemic. The Loan, which was in the form of a Note dated May 14, 2020 bears interest at a fixed rate of 1% per annum, payable monthly commencing on November 14, 2020.

Paycheck Protection Program

Under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") enacted as part of the Coronavirus Aid, Relief and Economic Security Act, the Company was granted a PPP loan in the aggregate amount of $804,000 on May 14, 2020. The Company intends to maximize the use of PPP Loan proceeds for qualifying expenses and intends to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. Whether forgiveness will be granted and in what amount is subject to an application to, and approval by, the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt.

Adoption of the New FASB Lease Accounting Standard (ASC 842)

The Company adopted the new ASC 842 lease accounting standard in the first quarter of 2020, which resulted in the recognition of "Operating right-of-use assets" of $1.1 million and "Operating lease liabilities" of $1.1 million, a portion of which is in current liabilities, as of June 30, 2020. There was no impact on the Company's consolidated statements of operations or cash flows.

Non-GAAP Financial Measures

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our core operating performance on a period-to-period basis. The excluded items represent stock-based compensation expense, depreciation and amortization expenses and other non-recurring or unusual items that may arise from time to time that we do not consider to be directly related to core operating performance. We use non-GAAP measures to evaluate the core operating performance of our business and to perform financial planning. Since we find these measures to be useful, we believe that investors benefit from seeing results reviewed by management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by facilitating: (i) the comparability of our on-going operating results over the periods presented and (ii) the ability to identify trends in our underlying business.

The following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:

Stock-based compensation expense

Stock-based compensation expense is impacted by the Company's future hiring and retention needs and the future fair market value of the Company's common stock, all of which are difficult to predict and subject to constant change. Furthermore, stock-based compensation expense is generally fixed at the time of grant, then amortized over a period of several years, and generally cannot be changed or influenced by management after the grant. The Company believes that the exclusion of stock-based compensation expense assists investors in the comparisons of operating results to peer companies. Stock-based compensation expense can vary significantly based on the timing, size and nature of awards granted.

Depreciation and amortization expenses

Depreciation and amortization expense includes the depreciation of property and equipment, amortization of capitalized software, as well as amortization of intangible assets. Such expenses are fixed at the time of an acquisition, then amortized over a period of several years. While depreciation and amortization are considered operating costs under GAAP, these expenses primarily represent non-cash current period expense which vary widely from company to company. Management believes that the exclusion of depreciation and amortization expense provides a supplemental measure of the Company's ongoing operating performance.

Other non-recurring or unusual charges

The Company has excluded certain other expenses that are the result of other, non-comparable events to measure operating performance. These events arise outside of the ordinary course of continuing operations. Given the unique nature of the matters relating to these costs, the Company believes these items are not normal operating expenses. For example, legal settlements and judgments vary significantly, in their nature, size and frequency, and, due to this volatility, the Company believes the costs associated with legal settlements and judgments are not normal operating expenses. The Company believes that the exclusion of such out-of-the-ordinary-course amounts provides supplemental information to assist in the comparison of the financial results of the Company from period to period and, therefore, provides useful supplemental information to investors.

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation. They should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

Conference Call

Altigen will be discussing its financial results and outlook on a conference call today at 2:00 p.m. Pacific Time (5:00 p.m. ET). The conference call can be accessed by dialing (844) 602-0380 (domestic) or (862) 298-0970 (international). A live webcast will also be made available at www.altigen.com. To access the replay, dial (877) 481-4010 (domestic) or (919) 882-2331 (international), conference ID #35723. A web archive will be made available at www.altigen.com for 90 days following the call's conclusion.

About Altigen Communications

Altigen Communications, Inc. (OTCQB:ATGN), a leading Microsoft Cloud Solutions provider, delivers fully managed Unified Communications services, combining Hosted Skype for Business, Advanced Cloud PBX, and Innovative Cloud Contact Center applications with seamless integration to Office 365 for small-to-medium sized businesses and mid-size to large enterprises. Our robust suite of applications integrate with Skype for Business, Microsoft Teams and Office 365 to deliver unparalleled capabilities to organizations using these Microsoft solutions. With thousands of customers around the world, Altigen solutions are designed for high reliability, ease of use, seamless integration to Microsoft infrastructure technologies, and are built on a scalable, open standards platform. Altigen's worldwide headquarters is in Silicon Valley, CA. For more information, call 1-888- ALTIGEN or visit the web site at www.altigen.com.

Safe Harbor Statement

This press release contains forward‐looking information. The statements are based on reasonable assumptions, beliefs and expectations of management and the Company provides no assurance that actual events will meet management's expectations. Furthermore, the forward-looking statements contained in this press release are based on the Company's views of future events and financial performances which are subject to known and unknown risks and uncertainties, many of which are outside the Company's control. There can be no assurances that the Company will achieve expected results, and actual results may be materially different than expectations and from those stated or implied in forward-looking statements.

Please refer to the Company's most recent Annual Report filed with the OTCQB over-the-counter market for a further discussion of risks and uncertainties. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. The Company does not undertake any obligation to update any forward-looking statements.

Contact:
Carolyn David
Vice President of Finance
Altigen Communications, Inc.
Phone: 408-597-9033
www.altigen.com

ALTIGEN COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)

ALTIGEN COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(amounts in thousands)

(1) on May 14, 2020, the Company received loan proceeds in the amount of $804,000 in connection with the CARES Act Paycheck Protection Program (PPP) being administered by the Small Business Administration.

(2) On October 1, 2019, the Company adopted the new leasing guidance (ASU 2016-2), which requires that a lessee recognize the assets and liabilities that arise from operating leases. The Company recognized a right-of-use asset and a liability relating to lease payments (the Lease Liability) in the statements of financial position for lease contracts having terms beyond 12
months period. The adoption of new leasing guidance resulted in recognition of approximately $1.1 million of right-of-use asset and a total of $1.1 million of leasing liability in the first quarter of fiscal year 2020.

ALTIGEN COMMUNICATIONS, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(amounts in thousands, except per share data)

1. During the first quarter of fiscal 2019, the Company performed a section 382 ownership change analysis to determine if there were any limitations on the utilization of its NOLs.

SOURCE: AltiGen Communications, Inc.