Vecima Networks Inc. (VCM) Earnings Call Transcript & Summary

Greetings, and welcome to the Vecima Networks Inc. Annual General Meeting. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce President and CEO, Sumit Kumar, to begin the presentation. Thank you. You may begin.

Thank you. Ladies and gentlemen, the Virtual Annual General Meeting of Vecima Networks Inc. will now come to order. My name is Sumit Kumar, and I'm the CEO and President of the company. I'll act as Chairman of this AGM. Due to COVID, this AGM is taking place via telephone. After the end of the AGM, there will be a brief verbal presentation from myself. I will ask Peter Torn, the Corporate Secretary of the company, to act the secretary for this meeting. With the consent of the meeting, I'll ask Olivia Craven of Computershare to act as scrutineer of the meeting. The secretary has tabled for inspection by any shareholder or proxy holder a confirmation that the notice calling this meeting was mailed to shareholders in accordance with the bylaws of the company and applicable law. With the consent of the meeting, the reading of the notice of the meeting will be dispensed with. And I'll ask the secretary to attend the confirmation of mailing to the minutes of this meeting as scheduled. Peter Torn will now read the Scrutineer's report.

Yes. The Scrutineer's report, we have 1 shareholder in person. We have 25 shareholders in proxy, representing 17,301, 219 shares, 25 total shareholders holding 17,301,219 shares total issued outstanding as of the record date as 22,646,482 shares. Percentage of outstanding shares represented at the meeting is 76.4%.

Okay. I adopt the Scrutineer's report and declare accordingly that a quorum is present. So as there is a quorum present and as adequate notice of the meeting has been given, I now declare this meeting to be regularly called and properly constituted for the transaction of business. As a matter of procedure, I'll ask the persons wishing to speak during this meeting, please identify themselves by name on the telephone and indicate that they are a shareholder, or if they're a proxy holder, their name and the name of the shareholder that they represent by proxy. I've been advised that we have guests at this meeting other than shareholders and proxy holders, and I welcome all guests. However, I would like to remind them that they don't have the right -- a legal right to vote on any resolution and are not entitled to address or ask questions at the meeting. Since this meeting is being held virtually, all resolutions today will be held by telephone confirmation. To record your acknowledgment during the meeting, no special code is needed. The telephone operator will read instructions to the online shareholder, and the shareholder will press star 1 on their telephone keypad to raise their hands effectively to affect the vote. The financial statements for the company for the fiscal year ended June 30, 2020, and the report of the auditors thereon were mailed to applicable shareholders prior to this meeting. There are extra copies available for anyone wishing to review them, and I direct the Secretary now table the same. If there are any questions which any shareholder would like to ask in respect of the financial statements and the report, I'd be glad to answer them or call on others to do so. Okay. Since there's no questions, the next matter is the nomination and election of directors. The Board of Directors presently consists of 6 directors, and management proposes to elect 6 directors for the ensuing year. I now ask for someone to move a motion to fix the number of directors for the ensuing year at 6.

Sumit, Dean Rockwell here. I'll move that. So moved.

Thank you, Dean. Who will second the motion?

Yes, Dale Booth. I will second that motion.

Thank you, Dale. Is there any discussion on the motion? It doesn't sound like it. So all those in favor of this motion, please say by this by your approval using the telephone. [Voting]

Against? [Voting]

Okay. And with that, I declare this motion duly -- this resolution duly carried. It is now in order to proceed with the nomination of the directors. This meeting is now open for nominations for election as a director for the ensuing year. I'll now read the names of the persons nominated as directors as listed in the company's information circular: Dr. Surinder Kumar; Mr. T. Kent Elliott; Mr. Sumit Kumar, myself; Mr. Danial Faizullabhoy; Mr. Derek Elder; and Mr. James Blackley. The company has received a written consent of each of these nominees to act as a director of the company. Are there any further nominations? If there are no further nominations, I'll declare that -- I will declare the nomination closed. And I declare the nominations closed. Since the number of nominees is the same as the number of vacancies to be filled, I now ask for someone to move a resolution that the persons nominated for election as directors be elected as directors of the company to hold office until the next AGM. Who will move the motion?

Sorry, there was quite [indiscernible].

Go ahead, [ James ].

Sorry there's a bit of talk over there. Can I get a repeated motion?

Sure. This is [ Clay McCreery ], it's so moved.

Thank you, Clay. And who will second the motion?

Dean Rockwell. I'll second the motion.

Okay, Dean. Thank you. Any discussion on this motion? If not, all those in favor of this motion, please signify this by your approval using the telephone. [Voting]

All right. And against? [Voting]

Okay. I declare this resolution duly carried. The next item of business before the meeting relates to the appointment of auditors of the company. I now ask for someone to move a resolution that Grant Thornton LLP, Chartered Accountants, be reappointed as auditors for the company for the ensuing year and that the directors be authorized to fix their remuneration. Who will move the motion?

Dale Booth. I will move this motion.

Thank you, Dale. And who will second the motion?

[ Clay McCreery ], I'll second the motion.

Thank you, Clay. Any discussion on the motion? All those in favor of this motion, please signify this by your approval using the telephone again. Aye? [Voting]

And against? [Voting]

Okay. I declare this resolution duly carried. That concludes the short agenda for the meeting, and I thank you for your attendance. I'll now provide a verbal update on the business side for Vecima. Thank you.

Thank you.

Returning to that. Thank you, once again, everyone, for coming to our Annual General Meeting for 2020. So I'll briefly address the meeting now with an overview of Vecima's business highlights. Fiscal 2020 was, of course, really extraordinary and pivotal year for our company. We've all seen how businesses, neighborhoods and families all over the world have had to confront this once-in-a-lifetime pandemic. But in the midst of that, Vecima took immediate steps. We implemented major changes in our working practices to protect the health and safety of all of our stakeholders, from our employees, our suppliers, our customers. But along with that, we were in the midst of heavily increasing demand from our cable, telco and broadcaster customers. So due to the work-from-home meetings across the globe, these service providers were inundated with unprecedented levels of traffic in their access networks, generated by applications like Zoom that we're all using these days. So these traffic surges were superimposed on the existing trends of these major increases in data and content consumption on worldwide Internet access networks. So Vecima quickly adapted to the new ways of doing business. And thanks to our talented team of employees, we responded with our products and technologies into this opportunity. So even with this global upheaval occurring, we achieved rapid momentum, passing some major milestones with our next-generation DAA and IPTV products, and we cemented our role in building and connecting people and communities worldwide. Remember that in keeping with our strategic investments, networks worldwide were already in this transition to the next generation, and that adoption of the next-generation was, again, hastened as the pandemic led to surges in worldwide usage in networks for things like working from home, online learning, telehealth and generally keeping the world connected virtually. So the combination of those factors created both opportunity and necessity for Vecima's products, those products that usher in the next generation of speed and content on networks. Financially, fiscal 2020 revenues reached $96.4 million, up 13.5% over fiscal 2019, and our best performance in 4 years. Our full year gross profit grew to $52.3 million due to higher sales and strong gross margin of 54%, and we doubled our adjusted EBITDA to $18.3 million. So those are truly impressive numbers achieved against this backdrop of the COVID-19 pandemic. Our employees came through with flying colors, as you can see. We also continue to maintain our strong finance position with working capital of $55.3 million and a cash balance of 35 -- $4.5 million at June end. So a very solid financial footing, even after the significant investments we've made over the years in the next-generation cable access and IPTV technologies and in working capital to prepare for the growth. So in short, our balance sheet is rock solid after we completed a major investment cycle that we're harvesting now. Vecima share price also grew from $9 to $10.45 during the fiscal year that ended June 30. And just recently, we hit an all-time high daily [ call-in ] price of $13.74, generating significant value for our shareholders. Regular dividends were paid out to $0.22 per share across the year. And by the end of fiscal '20, we've returned a cumulative $29.9 million to shareholders since October 2014. So touching on each of our segments briefly. The anchor for the superb results we had in fiscal '20 was our Content Delivery and Storage segment. Although I've been reiterating for several quarters that we'd anticipated 20% or better growth for the fiscal year, we really just decisively eclipsed that target, and delivered 32% year-over-year growth to $55.2 million as we continue to build that business. And we captured many customers wins in the growing IPTV market during the year. So we secured 13 new IPTV customer wins in the year. And our MediaScaleX solutions are now being used by over 100 cable companies, telcos and broadcasters around the world. So those customers represent the combined global footprint of 132 million subscribers that we cover. That ties to far-reaching base to further build on for the future as many of our customers have only just begun their transition to IPTV, and their technology needs are going to expand to accommodate the subscriber demand. Meaning as consumers uptake and use those systems more, that creates more demand for our systems to scale out at those same customers, leading to further sales. Fiscal 2020 also saw our footprinting spend globally in CDS as we made major inroads into markets outside North America, particularly in the Latin America and Caribbean regions. We increased our international revenue by 37% year-over-year in the CDS segment for our IPTV platforms. And in July, we announced a new IPTV agreement with 1 of our Tier 1 customers in the Asia Pacific region, worth $12 million. So I'm delighted to see that our global scope is expanding, and the geographic diversification is happening with our growing customer base. Another factor in our successful year with the CDS segment was a higher proportion of service revenue. The high-value professional services provided by our CDS team were tied to these large number of deployments brought in over the year and really helped push those revenue numbers well past expectations. The CDS services, services will be playing an increasingly important role as we continue to build the segment. And as we've said before, services generate higher margins and stable and often recurring sales across our entire business as we maintain major deployments for our customers. So rounding out the highlights for our CDS segment was the Diamond Technology Review Award by Broadband Technology Report for our MediaScaleX storage product. So MediaScaleX storage is a media-optimized and software-defined storage system, and it's built for media and service provider industries. And it's typically used for cloud DVR storage, which many of you may be familiar with as the record shows and movies in the cloud. I was 1 of the -- 1 of 2 BTR Awards that Vecima won. So turning to Video and Broadband Solutions. In our VBS segment, fiscal 2020 really saw the start of the Entra growth trajectory I've always known and said was ahead of our company. And it's been so rewarding to see that momentum that Vecima been building, transforming into reality now. It was a mission-critical objective to capture the start of the DAA market with our next-generation Entra family of products. From when we first developed our strategy, we lead the cable industry through this once-in-a-lifetime network evolution to distributed access architecture, or DAA, it's been a 7-year journey for Vecima. And that's a journey that's involved leading innovation, investment, a lot of patience and even greater resolve to see it through and we're now firmly on the other side. We started the fiscal year with our first master purchase agreement for the Entra Remote PHY access node and Remote PHY monitor, the access node even bringing in initial revenue in the first quarter. And early fiscal 2020 also saw the launch of the Entra interactive video controller. That's a headend device that supports both DAA and traditional architecture networks. And we added the EN8124, which is a full capacity and usually segmentable double density Remote PHY node. As well, we received the first customer order following the release over Entra video QAM Manager, and that's our other Diamond Technology Award Winner at BTR. So the VQM, Video QAM Manager, allow us for an open approach to DAA deployments by allowing operators to choose how they want to deploy video services and still reducing operational costs. So you can see that Vecima has built up a wide-reaching portfolio of products in DAA that address any and all needs operators may have globally. Making DAA a reality is what I've called it several times. So we broke the $1 million milestone with Entra in the second quarter with $1.1 million in sales and nearly doubled in Q4, with $2.1 million in Q4, bringing total Entra family sales for fiscal '20 to $5.3 million. So for being just off the starting blocks in FY '20, it was really solid results and a great growth trajectory for Entra with the DAA market potential that we see ahead of us. Then in what was arguably our biggest news of the year, we changed the game. In late July, we announced our acquisition of Nokia's industry-leading portfolio of cable access solutions. So I can't overstate the importance of that business decision. Combined with Vecima's full ecosystem of platforms for distributed access architecture, we now have the world's most advanced comprehensive and powerful range of DAA technologies just as the market is kicking off. Just to give you a brief overview of the transaction, the Nokia portfolio includes fiber-to-the-home with 10-gig EPON and DOCSIS DAA with Remote MAC-PHY solutions, 2 critical pieces of the cable access network. So these are technologies Vecima have and trying to add to our Entra portfolio organically to meet the industry's long-term needs. In fact, we'd already begun development of MAC-PHY. However, with the acquisition, we were able to greatly accelerate our technology timeline and put the market-ready 10-gig EPON and MAC-PHY capabilities into our hands immediately, and that's really catapulted us to the forefront of the DAA market. There's no other vendor that has that complete of a portfolio for the worldwide market, and it's positioning Vecima to be a leader. As we bring those assets together with Vecima Entra technology, we're providing the bridge to 10G functionality. No other competitor could come close to what we'll be providing with a newly expanded Entra family, and it's a complete end-to-end offer. For our customers that represents unparalleled flexibility and choice. Our combined portfolio lets operators select an access architecture that's right for them upfront, and then it lets them also migrate or mix and match over time as their network evolves as they do. Vecima represents a much larger addressable market when you consider the scope of access technologies we have in our portfolio. The addition of the Nokia Cable unit broadens our addressable market by 3x. It's also very powerful in the sense that it represents an opportunity to really vastly expand and deepen our relationship with existing customers, including a broad range of the world's largest Tier 1 MSOs. Any customer in any region, any access technology, any network evolution strategy, Vecima can hit it. And speaking customers, this acquisition brought several new Tier 1 and 2 customers, bringing our active DAA engagements to more than double what they were before. It's important to remember why DAA matters. With the continued shift of video to IP delivery, both operator managed and IPTV and over-the-top IPTV and increased uses of things like video conferencing, these access networks have to continue to evolve to meet the insatiable demand that's happening worldwide. The number of bids that are being sent to and from homes is constantly redoubling. Operators around the world are investing to make sure that they can keep up so that both upload and download capacity and speed to the network are sufficient for the -- to keep up with the increase in traffic. Our industry has established what we call a 10G goal, which, in most networks today, that's better than 10x the downstream capacity, greater than 4x -- 40x the upstream capacity. So since Vecima was founded in 1988, our goal has been to provide technology and solutions for operators and at evolving their networks. That started in the early days of DOCSIS and continued with the transition from analog video to digital video. Today, we're focusing on helping operators evolve to IP video and increasing bandwidth to the subscribers due to migration to distributed access architecture. We continue to firmly believe that we're entering a substantial investment cycle in our industry and we, of course, intend to play a key role in that process with our customers. I also want to talk another -- about another critical component about the acquisition. We brought over a team of over 80 people, primarily composed of R&D and QA engineers and product managers with decades of experience, and we have offices for them in Raleigh, North Carolina, Sunnyvale, California and Qingdao and Shanghai and China. So those 4 new locations place us at the center of some of the world's major tech regions. So combined with our Saskatoon and Victoria staff, we now have the leading experts and a powerful force and knowledge base in the DAA technology landscape, and I believe we have the most focused and best equipped DAA team in the world. In other areas of our Video and Broadband segment that continued -- that also contributed to a strong fiscal 20 performance, our TerraceQAM continued its steady performance as our lead Tier 1 customer expanded its hospitality footprint and prepared for adoption of the next-gen TerraceIQ platform. So we expect that steady growth in TerraceQAM to offset the revenue decline in some of the other legacy products. In our Telematics segment, the fiscal year saw a second municipal city fleet management win with the City of Saskatoon in keeping with the City of Victoria win we had in the prior year. Telematics also had some excellent progress and continued build-out of the new market for our Nero Asset Tracking products. We had 21 customers added on in fiscal 2020, covering both movable assets and fleet vehicles with telemetry and tracking. So as asset tracking spreads across various commercial sectors, we expect that it's going to drive additional revenue streams and continue to fuel some stable growth for the Telematics segment. So as I just outlined, this is an exceptional year for Vecima in spite of COVID-19. We're very proud of what we achieved in fiscal '20, and we're looking forward to exceeding it in 2021. That momentum we saw building at the beginning is continuing to ramp up as our industry began this mass migration to DAA. And IPTV. Now with this current climate of unprecedented consumer demand for data and content and even in the future post-pandemic world, we see major opportunities for Vecima's comprehensive and innovative products and platforms. We've entered this new fiscal year, fiscal '21, with a game-changing acceleration after the acquisition, and we're offering the world's most complete portfolio of DAA solutions, creating the bridge to 10G for the global industry. And as I've said, no other vendor comes close. We're expanding and deepening our customer base and extending our global reach, building strong connections to solidify our future and firmly establishing our leadership in the DAA landscape. We're positioned at the forefront of the 2 most significant market developments driving our industry, gigabit Internet speeds and the massive growth of IP video, and we have leading business units in both of those areas and award-winning portfolio of products as these markets open and blossom. We're excited about Vecima's future as we move to take our place on the DAA and IPTV leaderboard. So thank you to all shareholders for all of your support as we transition to these many years of industry evolution. It's time to look ahead now as we look to reap from the seeds of success we've sown. We've been building towards this for a long time, and Vecima's future is now. Thank you. At this time, operator, we'll see if any questions submitted from the floor?

[Operator Instructions] There are currently no questions coming via the phone. So I'd like to hand the call back over to management for any closing comments.

No comments to conclude. Thank you, everyone, for joining us today, and we look forward to the next year and speaking in the next AGM. Thank you.

Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.