Earnings call transcript: Bessema Networks Q4 2024 reports loss, stock edges up

Bessema Networks reported a net loss for the fourth quarter of 2024, with earnings per share (EPS) of -$0.32, missing the forecasted EPS of $0.1426. The company’s revenue reached $71.2 million, falling short of the expected $84.33 million. The stock currently trades at $8.03, near its 52-week low of $8.03, with InvestingPro analysis suggesting the company is currently undervalued based on its Fair Value model. This valuation, combined with the company’s GOOD financial health score of 2.63, presents an interesting scenario for investors looking beyond recent results.

Key Takeaways

• Bessema Networks’ EPS and revenue fell short of forecasts.
• Stock price increased by 1.67% despite financial misses.
• Strategic acquisitions and product innovations are underway.
• Workforce reduction aims to save $17.5 million annually.
• Strong market position in remote PHY devices and optical line terminals.

Company Performance

Bessema Networks continues to navigate a challenging market environment, with consolidated sales increasing by 15% year-over-year to $71.2 million. The company maintains strong fundamentals with a 45.21% gross profit margin and healthy liquidity, evidenced by a current ratio of 1.73. Despite these strengths, a net loss of $7.9 million was reported, attributed to product mix impacts, restructuring costs, and foreign exchange losses totaling $4.3 million. InvestingPro subscribers have access to 10+ additional exclusive insights about Bessema’s financial health and growth potential.

Financial Highlights

• Revenue: $71.2 million, a 15% increase year-over-year.
• Gross profit: $25.9 million with a 36.4% margin.
• Net loss: $7.9 million or $0.32 per share.
• Adjusted EBITDA: $1.1 million.

Earnings vs. Forecast

Bessema Networks’ actual EPS of -$0.32 missed the forecast of $0.1426 by a significant margin, marking a notable deviation from expectations. Revenue also fell short of the $84.33 million forecast, coming in at $71.2 million. This performance reflects a challenging quarter as the company grapples with restructuring and market volatility.

Market Reaction

Despite missing earnings expectations, Bessema Networks’ stock price rose by 1.67% to $11.57, reflecting investor optimism about the company’s strategic direction and market position. The stock remains closer to its 52-week low of $11.25, indicating room for recovery as market conditions improve.

Outlook & Guidance

Looking ahead, Bessema Networks anticipates a fiscal 2025 top-line performance similar to the previous year, with growth expected in EN 9,000 node deployments, fiber access platforms, and the vCMTS market. The company’s revenue has shown a steady 6.86% growth over the last twelve months, and analysts remain optimistic about future profitability. For a comprehensive analysis of Bessema’s growth prospects and valuation metrics, investors can access the detailed Pro Research Report available exclusively on InvestingPro, which covers over 1,400 top stocks with expert insights and actionable intelligence.

Executive Commentary

CEO Sumit Kumar emphasized the company’s adaptability, stating, "Adapting to changing business conditions is one of Eskimo’s core strengths." He also highlighted the timing uncertainty, noting, "The only real uncertainty is in the timing." Kumar expressed confidence in the company’s long-term prospects, asserting, "Bessemer’s long term future continues to look excellent."

Risks and Challenges

• Product mix and restructuring costs continue to pressure margins.
• Foreign exchange losses impact financial performance.
• Uncertainty in customer project timing could affect revenue.
• Competitive pressures in the DAA and IPTV markets.
• Potential U.S. tariffs necessitate manufacturing diversification.

Q&A

During the earnings call, analysts expressed concerns about Bessema Networks’ growth potential in fiscal 2025, the sales cadence of EN 9,000 and RPD modules, and the revenue model for the vCMTS market. Questions also focused on dynamics within the EPON market, highlighting areas of investor interest and scrutiny.

Full transcript - Vecima Networks Inc. (VCM) Q2 2025:

Conference Operator: Hello. This is the Chorus Call conference operator. Welcome to Bessema Networks Second Quarter Fiscal twenty twenty five Results 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 and one on your touch tone phone. You will hear a tone acknowledging your request. Presenting today on behalf of Vessima Networks are Sumit Kumar, President and CEO and Judd Schmid, Chief Financial Officer. Today’s call will begin with executive commentary on Vessima’s financial and operational performance for the second quarter fiscal twenty twenty five results. Lastly, the call will finish with a question and answer period for analysts and institutional investors.

The press release announcing the company’s second quarter fiscal twenty twenty five results as well as detailed supplemental investor information are posted on Bessema’s website at www.bessema.com under the Investor Relations heading. The highlights provided in this call should be understood in conjunction with the company’s unaudited interim condensed consolidated financial statements and accompanying notes for the three and six months ended December 2023. Certain statements in this conference call and webcast may constitute forward looking statements within the meaning of applicable securities laws from which Bessema’s actual results could differ. Consequently, attendees should not place undue reliance on such forward looking statements. 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. Bessema 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 second quarter earnings report and press release for fiscal twenty twenty five, as well as its annual information form dated 09/19/2024, regarding the various factors, assumptions and risks that could cause actual results to differ. These documents are available on Vessima’s website at www.vessima.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.

Sumit Kumar, President and CEO, Bessema Networks: Thank you. Good morning, and welcome, everyone. Thank you for joining us. Our second quarter was a complex one with transitory impacts affecting our financial results. At the same time, Q2 brought important strategic achievements that continue to pave the way for Vestman’s future growth and success.

I’m going to start today with an overview of the key events of the quarter. I’ll also take a few moments to talk about the prospect of U. S. Tariffs as it relates to VESMA. Doug will follow with a more detailed Q2 financial review, and then I’ll return to talk of our outlook going forward.

As we disclosed both in our preliminary earnings release last week and in today’s release, our business faced a number of overlapping headwinds in Q2 that impacted results. Consolidated sales, while up 15% year over year, came in below Q1 levels and did not meet our expectations. Adjusted EBITDA of $1,100,000 and adjusted loss per share of $0.25 also represent disappointing results relative to our initial objectives coming into the quarter. Though I do want to emphasize that both adjusted EBITDA and net loss as reported were impacted by 4,300,000 in non cash foreign exchange losses in the quarter. Another key factor affecting our results was customer timing adjustments as it relates to network upgrades.

As you know, Bessema is supporting a number of major DAA programs with customers in fiscal twenty twenty five. Transitions of this scale require system level field qualifications, which can be challenging, particularly for Tier one operators with very large networks and typically a mix of older and newer systems in place. While we’re extremely proud of how well Vessimos technology has been performing through the qualification phases, these are once again very large and major projects, such a complex environment of networks and technologies. So while Bessema’s products have performed exceptionally well as designed, throughout customer testing, customer certification across the entire ecosystem of partner solutions has been slower than initially anticipated. It all takes time.

And for Bessema, the net effect was a slowing of our Entra sales pace in Q2. Where we did see a major uptick in Entra sales was with our new EN 9,000 platform. We’ve now shipped close to 15,000 of those nodes with the majority delivered in the second quarter. The EN9000 is a product that carries significant strategic importance, but it also carries a lower margin profile. It’s a modular node platform device that’s designed to be hardwired into place in the cable access network and populated with successive generations of software driven access modules that enable the operators to repeatedly tap into next generation performance and capacity.

While it’s a pivotal piece of technology on a standalone basis, it delivers a lower relative margin profile. This balances out over time as higher margin software synthetic modules are added to the platform. The increase in lower margin NEA 9,000 deliveries combined with project and order delays for some of our higher margin network upgrade projects products shifted the gross margin as a result of the product mix. And this was compounded by a year over year decrease in CDS sales, which is a higher segment higher margin segment for Bessemo. As I mentioned earlier, our bottom line results were further affected by a negative foreign exchange impact related to movement in the value of the Canadian dollar.

And we also implemented a worse workforce reduction in December, which resulted in recognition of some restructuring costs during the quarter. We undertook that initiative to better align our teams and our investments with our customers’ needs and to enhance operating efficiency. I should note that headcount was ramped up quite significantly in recent years to support the network upgrade timing originally planned by customers. On an annualized basis, we expect to achieve related cash cost savings of about $17,500,000 and we’ll start to see some of those savings benefiting our results in the second half. Between the cost restructuring and the ramp up of EN 9,000 deliveries, these are strategies that will strengthen our performance going forward.

Turning now to some of our other strategic achievements for the quarter, starting with our Video and Broadband Solutions segment. In addition to the volume ramp with our EN 9,000 node, we increased deliveries of our EN 8,400 node during the quarter, both to our lead customer for that platform and to another customer as well. We call the EN 8,400 a forever node because it provides a clear pathway to 10 gs by supporting DAA today, while also supporting future technologies like DOCSIS four point zero and ten gs Fiber of the Home. Like the EN 9,000, the EN 8,400 positions customers from multiple generations of access solutions. On the vCMTS front, customer engagement continued to grow with lab trials now underway with four North American MSOs, including our lead Tier one customer.

We also secured new lab trial commitments for VCMTS with additional Tier 2s and 3s worldwide. Several of those lab trials are expected to launch in upcoming quarters. We continue to anticipate that Entra vCMTS will be a significant driver of our future growth and success and continue to invest heavily in this product and project. And it’s an important and significant new part of the cable access TAM for this month that isn’t yet part of our revenues. And as software, it’s also positioned to be highly accretive to our margins.

As previously announced, we also completed our tuck in acquisition of Falcon V in the second quarter. Falcon brought us two important new software technologies Principal Core, a platform orchestration technology and TestSuite, an end to end test platform that lets operators significantly speed up and scale their DAA software upgrades, particularly in multi vendor and multi core environments. During the quarter, we saw strong interest in and contribution from these products as we secured licenses for the principal core with the lead Tier one customer in North America and landed our first order for the Falcon test suite with a customer outside of North America. We also expect the Falcon solutions to be strong beachheads to key customers for BCMTS and the Remote PHY and Seltzer opportunities. Turning to our CES segment, the quarter brought continued momentum for our dynamic ad insertion technology.

We positioned the solution with multiple additional customers during the quarter, building on our earlier deployments with the initial three customers. We also made continued progress with our OpenCDN platform, deepening product readiness and features together with customer engagements. We see both dynamic ad insertion and open CDN as significant potential growth drivers for the CDS segment going forward. As you know, in November, we also announced exclusive global agreement with Digital Harmonic (NASDAQ:HLIT) to market its keyframe media optimization product. That’s a high value solution that drives costs down while materially improving video quality and capacity for operators.

So that relationship is off to a great start and by the end of Q2, we had already secured our first lab order for that product. In In our Telematics segment, we achieved another strong quarter as we continue to attract new customers for our asset tracking services. As a whole, Telematics is now monitoring over 100,000 assets, including 20,000 vehicles and 80,000 asset tags as part of a growing recurring revenue business that delivers an attractive gross and EBITDA margins to the Company. So overall, while challenging on the financials for the period, some very good achievements for the business in Q2. Before I turn the call over to Jud, I want to talk about the recent prospect of U.

S. Tariffs on Canadian goods and how that might impact Bessemo. So currently, about 90% of Bessemo sales are to The U. S. But because of a significant proportion of our products are already manufactured in non tariff jurisdictions, we estimate that only about half of our U.

S. Sales will be subject to the proposed tariffs. As a short term mitigation effort, we’ve taken the precaution of accelerating shipments and warehousing of goods in The U. S. In advance of potential tariff implementation.

But in planning longer term strategies, I want to point out that our approach has always been to take the lowest cost approach to production of goods, whether that’s in Canada, The U. S. Or offshore or nearshore. We are both diversified and agile when it comes to manufacturing. That’s core strength of Esma’s.

And we’ve demonstrated the ability to adjust quickly, whether via partners or directly. And in multiple recent instances, as a result of both our key M and A and new product introductions, we’ve successfully transitioned manufacturing across a number of jurisdictions, partners and product lines. Just one example of that is the recent migration of some of our product manufacturing to The U. S. In anticipation of the BEED program.

I do want to note, however, that simply shifted production to The U. S. As a tariff response strategy could very well increase overall costs due to the higher labor and overhead cost potential in The U. S. If the tariffs do ultimately materialize, we’ll assess the best and lowest cost manufacturing strategy and make appropriate adjustments.

And if costs do increase as a result of tariffs or other inputs, we have worked to ensure our product prices keep pace. We have a long track record of partnering with customers to share the burden and recoup cost increases and to maintain sufficient margins. And as an example, during the pandemic, customers partnered to accept both short term and sustaining price increases that resulted from the supply chain pressures during that time. One final note on this topic is that we do believe that our competitors are on equal footing in terms of their own offshore or nearshore manufacturing setups. So, this is expected to be an industry wide issue to manage.

Overall, adapting to changing business conditions is one of Eskimo’s core strengths. And while no one looks forward to market disruptions, we have a proven and successful track record of managing wells in times of change. At this point, I’ll turn the call over to Jud to review our financial results. Jud?

Judd Schmid, Chief Financial Officer, Bessema Networks: Thanks, Sumit, and good morning. I’ll be reviewing our second quarter fiscal twenty twenty five financial performance in more detail. And for the purposes of this call, I’ll assume that everyone has seen our Q2 fiscal twenty twenty five news release, MD and A and financial statements posted on Bessema’s website. As we indicated in our press release last week and assume it has discussed today, our second quarter was complex with financial results affected by various temporary impacts. Focusing first on revenue, we generated consolidated sales of $71,200,000 which were up 15% year over year, but 13% lower on a sequential quarterly basis.

Our Video and Broadband Solutions segment contributed $59,300,000 of these sales with revenue growing 21% year over year. ENTRE DAA sales were again the key driver for the segment. Supported by the volume rollouts of our new EN 9,000 GAAP node, our Q2 DAA sales grew 29% year over year to $56,200,000 However, interest sales did not keep pace with Q1 fiscal twenty twenty five results with revenue down 18%. This also contributed to the 19% sequential quarterly decrease in VBS segment sales. As anticipated, sales of our legacy commercial video products also declined during the quarter as customers continue to transition to next generation DAA driven commercial video solutions.

Commercial video sales of $3,000,000 were 44% lower year over year and 35% lower quarter over quarter. In our content delivery and storage segment, second quarter revenue of $10,200,000 picked up the pace from Q1, growing 41% sequentially, but decreased 9% year over year. As we have previously noted, quarterly variations are normal for this segment and relate to the timing of customer projects and orders. In our Telematics segment, revenues of $1,700,000 were on par with last quarter and approximately 7% higher year over year as we continue to make strides with our movable asset solution strategies. Gross profit dollars for the second quarter decreased 4,900,000 year over year to $25,900,000 with a gross margin percentage of 36.4% compared to 49.8% last year and 41.7% last quarter, mainly due to changes in our VBS product mix.

As Sumit explained, the downward shift in gross margin reflects a higher volume of our new EN9000 platform, which carries a lower margin profile. We expect to see a gradual recovery of our gross margin percentage in the future as our revenue mix changes. Shifting now to operating expenses, including share based comp and acquisition related expenses, but excluding the restructuring charges, Q2 operating expenses decreased to $26,500,000 from $29,600,000 last quarter, but increased slightly by $300,000 from last year. The notable changes year over year were as follows: R and D expenses increased slightly to $11,700,000 from $11,600,000 adjusting for deferrals, amortization of deferred development costs, investment tax credits, our actual cash R and D investment increased to $16,300,000 from $15,200,000 last year, but as a percentage of revenues decreased to 23% from 25% of revenues. Second quarter sales and marketing expenses decreased $400,000 to $7,300,000 This was primarily driven by a non cash reversal of finished product allowances, partially offset by higher conference and travel and entertainment costs.

As a percentage of revenue, our sales and marketing expenses decreased to 10% from 12% year over year. Second quarter G and A expenses increased by $300,000 to $6,900,000 This reflects higher staffing cost and G and A costs related to the Falcon acquisition. As a percentage of sales, G and A expenses also decreased to 10% from 11%. In order to better align our workforce with our customers’ needs, we undertook a workforce restructuring charge in December. As a result, we reduced our global workforce by approximately 12%.

This action along with some additional non labor operating expense cost cuts is expected to result in annualized cash savings of approximately $17,500,000 Additionally, as a result of this workforce reduction, we incurred 2,800,000 in restructuring costs related to severance during the current quarter. Looking at our bottom line results, we reported a second quarter operating loss of $3,400,000 compared to operating income of $4,700,000 in Q2 of last year. While our consolidated revenues increased, the temporary decline in gross margin percentage together with the one time restructuring charges accounted for the decrease in operating income. Now, regarding foreign exchange, we recorded a net foreign exchange loss of $4,300,000 in the second quarter, which compares to a net foreign exchange gain of $1,800,000 in the same period last year. Breaking this down further, we had $6,000,000 in unrealized FX losses that were partially offset by $1,700,000 in realized FX gains.

This stems from the fact that we have a significant exposure of net U. S. Dollar denominated liabilities in our Canadian books, such as an outstanding balance on our line of credit, trade payables and intercompany payables. As a result of the weakening of the Canadian dollar against the U. S.

Dollar in the second quarter, the revaluation of these liabilities resulted in the non cash unrealized FX loss. If the Canadian dollar strengthens against the U. S. Dollar, these unrealized losses will reverse. Once settled and realized though, the transactions do not get revalued.

So, as a result of the product mix impact on gross margins, the restructuring charge and the FX loss, we reported a second quarter net loss of $7,900,000 or $0.32 loss per share, which was down from net income of $3,600,000 or $0.15 per share in the second quarter of fiscal ’twenty four. Similarly, adjusted EBITDA was $1,100,000 as compared to $12,500,000 last year. Our adjusted EBITDA to note does not add back the FX losses of $4,300,000 just discussed. Turning now to the balance sheet, we ended the second quarter with $2,400,000 in cash as compared to $2,200,000 at the end of last quarter. Working capital of $63,800,000 decreased from $83,500,000 at the end of last quarter, primarily reflecting lower quarter end receivables.

Lastly, cash flow provided by operations increased to $15,200,000 from $13,200,000 used in operations during the same period last year. As a result of this increase in cash flow provided by operating activities, we were able to pay down our revolving line of credit by $3,800,000 in the second quarter. Our quarter end draw on our line of credit was $32,100,000 Operating cash also provided the funding for our acquisition of Falcon V systems for a total cash of $3,900,000 which was net of the cash we acquired. On a final note, the Board of Directors approved a quarterly dividend of $0.055 per common share payable on 03/24/2025 to shareholders of record as at 02/28/2025. It is important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes.

Bessemer’s Board reviews the dividend policy each quarter based on the Company’s ongoing results of operations, financial condition, cash requirements and other factors, such as the current short term uncertainties relating to customer project timing and potential trade actions. As you’ll hear shortly from Sumit, our longer term outlook remains very positive on both the top and bottom lines. And even after a challenging Q2, we are moving forward in a solid financial position. Back to Sivet.

Sumit Kumar, President and CEO, Bessema Networks: Thank you, Judd. As we move forward, we recognize that demand volatility could continue into the second half, depending on customer project timing. As I mentioned earlier, it takes operators time to qualify very large and transformative system upgrades. On a positive note, once qualifications are in place, things typically move quickly. But, the timing is hard to predict, even for customers themselves sometimes.

As noted earlier, prospect to U. S. Trade actions is also adding uncertainty to our outlook. While the combination of trade and customer timing uncertainties makes accurate forecasting difficult in the near and medium term, we remain very confident in investment of longer term prospects, given our innovation, technology, design wins and customer relationships, together with a definitive industry plan of record for network evolution tied to these products. The DAA and IPTV markets we’re investing in are areas of significant growth globally.

Bessemer enjoys very strong global market share in both of these markets. By way of example, we have about a 40% global share in remote PHY devices and greater than 80% share for Remote PHY. On the fiber access side, we’re number one in the world for remote optical line terminals. Add to this, our deep and growing relationships with some of the world’s largest and most sophisticated operators and broadcasters, and our many different avenues of growth going forward and our position again going forward remains exceptionally strong. The only real uncertainty is in the timing.

With that in mind, here are some general color points on the second half. In our BDS segment, we expect to see continued volume deployments of our EN 9,000 together with additional rollouts of our fiber access platforms in the coming quarters. We also expect to start layering in EXS sixteen ten all pawn shelf deliveries in the second half. Our new Falcon solutions will also provide additional opportunities as the year progresses. Looking further ahead, our entry into the VC MTS market provides another significant growth driver for Bessema, and we can see contribution as early as year’s end.

As we discussed last quarter, we’ve tempered our expectation of what we’ll see from the USB program for this year. In the interim, operators are continuing to access funding from the Rural Digital Opportunity (SO:FTCE11B) Fund, which is providing support for our fiber access products. In our content delivery and storage segment, we anticipate a stronger second half, supported by existing new customers IPTV upgrades and expansions, as well as the continued rollout of our new dynamic ad insertion products. Added to this, we expect to realize opportunities from our new partnership with Digital Harmonic, a new keyframe technology offers massive savings and capacity increases for operators and it is poised for wide scale adoption. Longer term, we continue to see robust future growth potential as IPTV and OTT streaming services markets continue to expand and as Open Cash and Dynamic advertising as growth engines we have developed continue to mature.

Finally, in our Telematics segment, we expect continued incremental growth as demand for our new removable asset tracking services grows and as we add additional subscriptions from the fleet tracking market. Bessemer’s long term future continues to look excellent. And in the near term, we’re a proven company that has demonstrated our ability to successfully adapt to rapidly changing business conditions. Our goal is to continue creating strong value for our customers and our shareholders, and we intend to do just that. That concludes our formal comments for today.

We’d now be happy to take questions. Operator?

Conference Operator: We will now begin the question and answer session for analysts and institutional investors. The first question comes from Stephen Lee with Raymond (NSE:RYMD) James. Please go ahead.

Stephen Lee, Analyst, Raymond James: Hey, guys. Sumeet, I know visibility is not the best right now, but can you at least say whether you will be growing fiscal twenty twenty five over fiscal twenty twenty four? Thanks.

Sumit Kumar, President and CEO, Bessema Networks: Thanks, Steven. Yes, thank you. I do again, as you mentioned, the visibility and we don’t typically provide formal guidance in normal course anyways, but we’re trying to be mindful of that. But I want to try try to outline some of the significant factors going ahead. So we do have these 123 operators engaged all across the world through DA, cable and fiber access.

And our market share has really grown significantly being as a leading vendor in the industry. But it remains a case that the industry is still in the early stages of this essential transformation and that the networks undergoing to multi gig services and broadband 10 gs. So, nothing’s altered from the major thesis that we’ve built and we’ve propagated into the industry and penetrated and monetized already. It’s just a matter of qualification, timing, transformations of this magnitude, where the operators are unlocking major value for the network by digitizing, virtualizing. It can take a long time and in this case even longer than anticipated preparing the certifications and qualifications, multiple vendors, multiple generations technology to qualify.

So, the benefits though of going through that are very much material in the long term with some of these large operators we’re working with. So thinking back and looking back to how we see things playing out in fiscal ’twenty five, we’re still going to be contending with some more of this timing uncertainty till we get through this ramp, but the operators are working steadily towards. But it’s going to limit our growth this year. Could be in the range of the top line last year, maybe slightly upward as we work through the second half.

Stephen Lee, Analyst, Raymond James: And then, Sumeet, on the mix, the EN 9,000 stand alone, so more of that in the quarter versus fully loaded RPDs. What needs to happen for your customer to resume buying the fully loaded RPDs as opposed to just the shelf?

Sumit Kumar, President and CEO, Bessema Networks: Yes. So I think customers such as Alarm (NASDAQ:ALRM) are going through some major transformation, as I mentioned. I think a particular customer has even called it the largest upgrade of the network since the 1990s. So, that’s what the plan is. So it’s taken, as I said, significant amount of qualification effort and that’s necessary because of the magnitude of that very large network.

I think we’re one of the largest broadband service providers, certainly in The U. S. And on the world. So, they’re going through that. And in the case of the cadence between the RPD modules and the EN 9,000, we’re at the same time getting prepared with them.

On prior quarters, we had moved prepared a lot and there was a lot of uptake of the RPD modules as the first stage. And now, we’re into the stage where they’re preparing the snapping of elastic band when the rollout starts to happen in the field at scale, digestion of both the N9000s and the RPDs together, and then we can get back to more natural flow of their ongoing field deployments. Does that make sense?

Stephen Lee, Analyst, Raymond James: So, I guess, so first, so are we coming to an end are these qualifications? And then if yes, do we then go through a period where we have to digest the RPDs at the order maybe a couple of quarters ago first before you start to get back to normal?

Sumit Kumar, President and CEO, Bessema Networks: Yes. I think we’re certainly the group of the customer and all the vendors working together are feeling the layers of the onion getting to the end of the qualification cycle. And it’s important that that the upgrade kick off and we’re anticipating that. And yes, I think certainly ongoing EN 9,000 deliveries and RPDs are going to get digested. Like I said, once you unlock the field deployment, it can be especially the scale of upgrade we’re talking about, it can be quite rapid of a digestion.

We’re rolling multiple markets. We’ve talked about having labor positioned and ready accounted for and for this upgrade. And across the time constant, the customer like that is looking out for the full upgrade. If you look at two to three year program and think about how fast that needs to go, you got a relatively rapid digestion cycle. Meantime, of course, the fiber access side of the business is moving forward.

That’s a higher margin segment. Pardot is accelerating. That will be important to our mix. Our CDS is important to our mix. So that’s how we think about things.

Stephen Lee, Analyst, Raymond James: And then last one for me. On VCMTS, so it sounds like some revenues we should expect in Q4, you said closer to the end of the year. Will it be in the form of like a one time license payment or there is going to be a recurring element to it?

Sumit Kumar, President and CEO, Bessema Networks: Yes. I don’t want to get too into the weeds there, but of course, licenses are involved with the CMTS and the software solution and that’s core. There are recurring elements as well. When we’re talking about software, it’s a higher component of maintenance and support that we need to have ongoing resources allocated to. And together with that, you can have a higher proportion of recurring services revenues.

You’re also continuously adding feature sets and releases and migrating features on the vCMTS platform. Likewise, that gets you a higher proportion of service revenues.

Conference Operator: The next question comes from Ryan Coons with Needham and Company. Please go ahead.

Ryan Coons, Analyst, Needham and Company: Great. Thanks for the question. I appreciate your comments there on the GAAP node adoption there. I wanted to ask a question about your POND business, which sounds like you have still have a pretty strong outlook there as kind of the rural build outs continue. And are you seeing much of a shift away from 10 gig EPON yet?

Or is it really that still kind of the main driver of your customer base there?

Sumit Kumar, President and CEO, Bessema Networks: Hey, thanks, Ryan. Yes, I think as we’ve talked about before, 10 gig EPON has been very helpful for operators in this in this space on their Moto LTs, allowing them to rapidly have some velocity on programs like GuardDof through how they configure that network through their DOCSIS ecosystem for management and whatnot. So, that’s continued to be the case. And some of the scale of participants in the subsidy programs that we work with, and that’s resulted in our significant market share still going strongly with 10 gig EPON. Of course, the ITU standards XGS in parallel, other participants, not necessarily our customers today, have focused on XES PON, 10 gig, which is 10 gig as well.

So, we’re both in the 10 gig technology generation. Ultimately, I think you know that the standards are moving towards 50 gig potentially 100 gig going forward, and we expect some convergence of the standards in that generation. But the vast majority of deployments today in fact are still on GPON, particularly in The U. S. And there’s still an upgrade cycle even to get to 10 gig that’s going on.

Certainly, the hard off focus is for us is on 10 gig EPON and we don’t anticipate any transition there in this cycle.

Ryan Coons, Analyst, Needham and Company: Industry? What are kind of the differentiating kind of features or on your roadmap that you can kind of flex your muscles on there competitively? Thanks.

Sumit Kumar, President and CEO, Bessema Networks: Yes. Thanks, Ryan. I think as always, that’s some core to how we approach the market is flexibility and interoperability. And to some extent, customizing to specific operators, and that’s important to digest such a change in their broad band network. Some operators have to deal with provisioning and billing orchestration, legacy platforms and in some cases they’ve built in house that brought from third party contractors for the back office.

And we’ve excelled as migrating the solution to be flexible in that regard to plug in exactly how they need it. I think we always maintain the view that we have one of the best interoperability platforms in the industry. That’s core to how we approach the market. And that is expected to be successful in BCMTS as well. There is also, I think, a natural need in the marketplace for having a diverse set of vendors offering BCMPS.

That’s very natural for us given our IP that’s been accrued in this space ever since the MacPhi generation of time and what we’ve built up over these last ten years. So considering Bessemer’s market share overall in cable access, we’re seeing customer response being very good for our entry into BCMTS. VCMTS. That’s great.

Ryan Coons, Analyst, Needham and Company: Good to hear. Appreciate the questions.

Sumit Kumar, President and CEO, Bessema Networks: Thanks,

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