Vecima Networks Inc

TSX:VCM

Earnings Call Transcript 2020-Q4

[Operator]

Hello. This is the Chorus Call conference operator. Welcome to Vecima Networks' Fourth Quarter and Year-end Fiscal 2020 Results Conference Call and Webcast. [Operator Instructions] 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 the executive commentary on Vecima's financial and operational performance for the fourth quarter and year-end fiscal 2020 results. Lastly, the call will finish with a question-and-answer period for analysts and institutional investors.The press release announcing the company's fourth quarter and year-end fiscal 2020 results as well as detailed supplemental investor information are posted on Vecima's website www.vecima.com under the Investor Relations heading. The highlights provided in this call should be understood in conjunction with the company's audited annual consolidated financial statements and accompanying notes for the year ended June 30, 2020. 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, beliefs 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 24, 2020, a copy of which is available at www.sedar.com.In addition, although the forward-looking statements in these earnings calls 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.

[Sumit Kumar, CEO, President & Non Independent Director]

Good morning, and welcome, everyone. Thank you for joining us. Fiscal 2020 was an exceptional year for Vecima. We achieved rapid momentum and passed a number of major milestones with our next-generation DAA and IPTV products. Our financial performance began to soar. And we set the stage for meaningful growth in fiscal 2021. We'll tell you more about all of this on today's call. I'll start with an overview of our fiscal 2020 results and highlights. Dale will provide a review of our fourth quarter financial results, and then I'll return to talk about what we see going forward.I want to begin today by pointing out that much of what we accomplished in fiscal 2020 was achieved against the backdrop of the COVID-19 pandemic. Thinking back to March, our teams had to adapt virtually overnight, major changes in how and where we work and the ways we interact with our customers and suppliers. And we did this in the midst of escalating demand from our cable, telco and broadcaster customers, who were themselves responding to a worldwide surge and demand for data and content. Our teams aren't going to miss, we continue to over deliver in meeting our customers' needs, advancing our new technologies and to strengthen our results.I want to thank each and every member of our team for their contributions to what was truly a pivotal year for Vecima. Financially, we achieved full year revenues of $96.4 million. This was our best top line performance in 4 years and up 13.5% from fiscal 2019. And this is highly profitable growth, consistent with Vecima's MO. We grew full year gross profit to $52.3 million on a combination of higher sales and slightly stronger gross margin of 54%.We also more than doubled adjusted EBITDA to $18.3 million. Once again, Vecima produced simply excellent financial performance in fiscal 2020. We also ended the year in a strong financial position with working capital of $55.3 million and a solid cash balance of $34.5 million. That's a significant achievement when you consider the heavy investments we've made into next-generation technologies in recent years. Most importantly, Vecima generated value for our shareholders. Our share price grew from $9 to $10.45 over the fiscal year and has recently moved to new highs in the mid $12s and higher this morning. And through fiscal 2020, we've returned a cumulative $29.9 million to shareholders through our regular dividends. $0.23 per share was paid as regular dividends for the year.Our strong fiscal 2020 performance was led by our Content Delivery and Storage segment. From the outset, we anticipated 20% or better revenue growth from this part of our business in fiscal 2020, reflecting the growing adoption of IPTV and Vecima's ability to capture corresponding customer wins. We significantly exceeded that target. Content Delivery and Storage sales increased 32% year-over-year to $55.2 million as we build business with existing customers and continue to attract many new ones. I'm delighted and not surprised to report that we secured 13 new IPTV customers during the year, including 3 in the fourth quarter.Our MediaScaleX solutions are now in use by over 100 cable companies, telcos and broadcasters worldwide, representing a combined operator footprint of over 132 million subscribers. This translates into a vast base for the future as many of these customers are just starting their migration to IPTV, and we expect their needs will grow over time.Our CDS segment also made major inroads into markets outside of North America. Driven by our growing footprint in the Latin America and Caribbean regions, we increased our international revenues by 37% year-over-year. And subsequent to the year-end, we announced a new $12 million agreement with one of our Tier 1 customers in the Asia Pacific region. Our geographic diversification and global scope are continuing to grow. I should also mention that we saw a greater proportion of our CDS revenue coming from service revenues in fiscal 2020. With a large number of new deployments this past year, the high-value services provided by our CDS team shined. As we look to continue growing the CDS segment, we're expecting services to play an increasingly important role. And services, as you know, generate higher margins, stable sales for all parts of our business.Turning to our Video and Broadband Solutions segment, I'm ecstatic to report that we achieved a critical objective to capture the start of the DAA market with our next-generation Entra products in fiscal 2020. As most of you know, our strategy to lead the cable industry towards a network evolution to DAA was put in motion about 7 years ago. This is a once in a lifetime technology transition that has involved the best of innovation, significant investment and a great deal of tenacity. So it was extremely rewarding to see Vecima's momentum building. We came into the year having secured our first master purchase agreement with the Entra Remote PHY Access Node and Remote PHY Monitor.In first quarter earnings, we highlighted the launch of the Entra Interactive Video Controller and EN8124 double density or Remote PHY node and received our first customer order for the Entra Video QAM Manager, VQM, also newly released in the year. We broke the $1 million milestone in the second quarter with Entra sales of $1.1 million as cable operators began purchasing our DAA platforms and products. And by the fourth quarter, we had secured our first major Tier 1 DAA customer where we initiated product deployments of our industry-leading multi-core interoperable Entra Remote PHY nodes. And we've grown our quarterly Entra revenues in Q4 to $2.1 million.In total, we achieved Entra family sales of $5.3 million in fiscal 2020. That's a material result, and it's just the very beginning of the DAA potential we see ahead of us. Subsequent to year-end, we doubled down and changed the game when it comes to Vecima in the DAA market. We acquired Nokia's portfolio of industry-leading cable access solutions, putting together the world's most advanced range of DAA technology just as the market is kicking off. The transaction was relatively modest in terms of use of our cash, but it's huge in terms of benefits, short and long term. We immediately expanded our portfolio with market-ready DAA products, including 10-gig EPON fiber-to-the-home capabilities and DOCSIS Remote MAC-PHY solutions as well as an Entra Access controller. Those are all critical pieces of the cable DAA ecosystem, and we've been planning to add them to the Entra portfolio either way. In fact, we've already begun to in-house development of the MAC-PHY.Now with the acquisition, we decisively accelerated our time line. We have 10-gig EPON and MAC-PHY in our hands right now, market-ready and already shipping. In the process, we've catapulted Vecima to the forefront of the distributed access architecture market. By consolidating the industry's leading DAA products, technologies and pioneering teams, Vecima is now the prime holder of DAA technology in the industry. We can provide our customers with unmatched choice to select the access architecture that's right for them, and we've expanded our addressable market manyfold.Quite simply, as we said, this is a game changer that dramatically accelerates Vecima's momentum in the vast new DAA market. We think of it as adding jet fuel to an already surging strategy that we've had organically.Now looking at other contributors to our fiscal 2020 performance, we saw a significant uptake of TerraceQAM during the year as our lead Tier 1 customer continued to expand its hospitality footprint. While preparing at the same time for migration to the next-generation TerraceIQ platform. This helped to offset the expected tail off in demand for some of our other legacy products, most notably TC600 and TC600E.And then in our Telematics segment, we continued the fleet-wide rollout with the city of Saskatoon, which includes monitoring about 1,000 municipal vehicles and movable assets. We've now completed about 75% of that rollout. We also continue to build out the new market for our Nero GPS Asset Tracking products. I'm pleased to report we added 21 new customers in fiscal 2020 with 4 coming in during the fourth quarter and all including both assets and fleet. Overall, it was an excellent year for Vecima under any circumstances and truly remarkable as a year in light of the COVID-19 pandemic.And at this point, I'll ask Dale to provide more detail on our fourth quarter performance. Thanks, Dale.

[Dale Booth, Chief Financial Officer]

Thank you, Sumit. For the purposes of this call, we assume that everyone has seen the news release and financial statements for the fiscal 2020 full year and fourth quarter 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. Please note that the fiscal 2020 results includes a full year contribution from our acquisition of ContentAgent. This business is part of the Content Delivery and Storage segment.We also adopted IFRS 16 leases on July 1, 2019. The net impact to the income statement as a result of the adoption of IFRS 16 was insignificant. The adoption of IFRS 16 does not have an impact on cash flows.Starting with consolidated sales. For the 3 months ended June 30, 2020, we generated sales of $26.1 million, an increase of 26% from the $20.7 million during the same period last year and an increase of 4% from the $25.1 million last quarter. The increase in sales year-over-year was due to increased sales from both our Video and Broadband Solutions segment and our Content Delivery and Storage segment. Within the Video and Broadband Solutions segment, we generated fourth quarter sales of $10.5 million. This was up 52% from the $6.9 million a year ago and up 9% from the $9.6 million in Q3 of this year.Further deployments of our new Entra DAA products contributed fourth quarter revenue of $2.1 million, a 255% increase from the $0.6 million in sales a year ago and up 17% from the $1.8 million in the third quarter of this year as a lead Tier 1 customer began deployments of the Entra Remote PHY Node in Q4.In our Terrace family of products, sales decreased slightly to $4 million in the fourth quarter from the $4.1 million in Q3 and Q4 of last year -- Q3 last quarter and Q4 of last year. Fourth quarter sales of our TerraceQAM products increased 98% to $3.3 million from $1.7 million in the same period last year that was on par with revenues in Q3 of fiscal '20. While we anticipate continued ordering activity for TerraceQAM, we believe the deployment of the current generation platform is nearing saturation and we are working with customers on the next-generation TerraceIQ platform.In the Content Delivery and Storage segment, revenues were still strong at $14.3 million for the fourth quarter, a slight 1% increase from Q3, but up 14% from the $12.5 million we did in Q4 of last year. The increase in Content Delivery and Storage segment sales reflects the expansion of our customer base and strong demand for our IPTV solutions.In our Telematics segment, we generated $1.3 million in sales for Q4, on par with the $1.3 million last quarter and in Q4 of last year.Gross margin in the fourth quarter was 49%, in line with our expectations and on par with Q4 last year, but down from 52% in Q3.In the Video and Broadband Solutions segment, gross margin decreased to 39% in Q4 as compared to 45% in Q4 of fiscal '19 and 47% last quarter. The changes reflected the different product mixes in each period as well as onetime Entra product costs incurred in the fourth quarter of fiscal 2020.Gross margin in the Content Delivery and Storage segment held steady at 54% in Q4 as it did in Q3 of fiscal 2020, but was an increase from the 50% in Q4 of last year. The continued strong performance in the year, reflecting a different product and customer mix.In the Telematics segment, gross margin for the fourth quarter was a strong 70%, the same as in the third quarter of this fiscal year and up from 65% in Q4 fiscal 2019.Turning to fourth quarter operating expenses. The notable changes year-over-year were as follows. R&D expenses increased to $6.9 million from $5 million in Q4 fiscal 2019, mainly as a result of higher amortization of our deferred development costs, as a result of provincial investment tax credits expiring and as our new products became commercially available.Sales and marketing expenses decreased to $3.2 million from $3.6 million last year, primarily due to lower finished goods inventory allowances partially offset by higher staffing costs in the current period. And G&A expenses slightly decreased to $4.1 million from $4.3 million in Q4 of last year. The year-over-year decrease reflects reduced staffing costs in the Video and Broadband Solutions segment, partially offset by the addition of ContentAgent expenses.In total, operating expenses for the fourth quarter decreased to $13.8 million from $14.4 million in the same period last year. The $0.6 million decrease primarily reflects a reduction in costs in the Video and Broadband Solutions segment, partially offset by higher operating costs in the Content Delivery and Storage segment.R&D expense in the 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 Q4 increased to $6.8 million or 28 -- 26% of sales. That was up from $6.2 million or 30% of sales in the same period last year. The year-over-year change primarily reflects higher staffing costs and higher prototyping costs as our next-generation product families move closer to commercial development and deployment.Turning to our bottom line results. Operating loss improved significantly to $1 million in Q4 fiscal '20 from an operating loss of $4.3 million in Q4 fiscal 2019, driven by a $2.1 million decrease in loss from Video and Broadband Solutions segment, a $1 million increase in contribution from the Content Delivery and Storage segment and a $0.2 million increase in contribution from the Telematics segment year-over-year.Adjusted EBITDA increased to $3.8 million in Q4 from $0.3 million in the prior year quarter, but down from last quarter's strong $5.6 million. The net loss for the fourth quarter improved to $1 million or $0.05 per share from a loss of $3 million or $0.13 per share last year. Overall, it was a very solid quarter, both on the top and bottom lines.Turning to our balance sheet. We ended Q4 with $34.5 million cash and short-term investments. Working capital was slightly lower at $55.3 million as compared to $58.3 million at the end of fiscal 2019.Finally, cash flow from operations for Q4 was $2.5 million from $2.8 million in the same period last year. Subsequent to year-end, on August 7, 2020, we completed the purchase of the DOCSIS DAA and EPON DPoE cable access technology portfolios from Nokia for USD 4.8 million. The purchase price included inventory, property, plant and equipment and intangible assets as well as Nokia employees that supported these products.So just to summarize, another strong quarter despite the uncertainty and challenges due to COVID-19. With a strong balance sheet, including cash of $34.5 million and working capital of $55.3 million, Vecima is well positioned for continued growth over the long term.Now back to Sumit.

[Sumit Kumar, CEO, President & Non Independent Director]

Thank you, Dale. We're very excited about all that Vecima achieved in both the fourth quarter and fiscal 2020. Moving into the new fiscal year, we're going to build on all this momentum. The industry's overall plan to move to DAA and IPTV, together with the current and expected to sustain climate of unprecedented consumer demand on networks is translating into many opportunities for our strategic product offerings.In our Video and Broadband Solutions segment, we expect accelerating results from our next-generation Entra DAA products in fiscal 2021, particularly in the second half. We're expecting our lead customers, including our large lead Tier 1 MSO customer will transition to scale deployment. We're also working with a broader set of MSOs who are moving through trials and expect it to begin moving into the field with deployments this next year. We'll also be leveraging our newly acquired DAA and EPON products from Nokia acquisition. In the first 12 months of integrating and operating the assets, our plan is to produce an incremental 10% to 15% in sales relative to our FY '20 topline and translating to a neutral EBITDA result after expenses.Combined with organic sales growth, we see an overall significant ramp-up in Entra sales in fiscal 2021. Once again, our list of engagements is broad, spanning multiple tiers, multiple geographies, and we have an all-encompassing suite of Entra products that are designed to make DAA a reality.In our Terrace family of products, we anticipate continued demand for the current generation TerraceQAM making way for long-term migration to next-generation TerraceIQ in lockstep with the overall network transition, which will ultimately happen to IPTV.Looking at our Content Delivery and Storage segment, we continue to see a lot of opportunity ahead in the IPTV market with the industry early in this evolution. I'm pleased to report we've already added 2 new customers in Q1. Overall, we expect continued growth in fiscal 2021, somewhat lower than the record growth we saw in the CDS segment in 2020.We grew the CDS segment very quickly this past year, and there will be a need to consolidate some of that new business in the months ahead. But we're moving into the year with a large Tier 1 agreement in APAC driving results and will continue on our successful trend of converting new customers as they transition to IP video. We're firmly an industry leader in this space and we intend to remain so.In our telematics business, we expect consistent incremental growth from the fleet tracking market, and we anticipate increasing demand for our Nero movable asset tracking services.Overall, we're planning a very strong fiscal 2021 for Vecima as our multiyear investment technology and strategic acquisition strategy bears more and more fruit. And one caveat will be that the COVID-19 pandemic remains and has the capacity to present unknowns in terms of investment time frames, supply chains and the pace of customer network evolution. But to date, we've managed very well, and we have the benefit of operating in an industry where our products and services and the industry's outputs are deemed essential and where demand is growing swiftly.Going forward, I believe Vecima is extremely well positioned for the future, and I'm very excited and eager to set off on what we'll accomplish in fiscal 2021.That concludes our formal comments for today. We'd now be happy to take questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from David Kwan with PI Financial.

[David Kwan, Technology Analyst]

Nice quarter there. Good to see. Wondering maybe starting off on the interest side of the business. You gave some color in terms of how you guys, I guess, see that revenue kind of ramping up here. So is it fair to say, I guess, potentially a more significant increase expected in the second half of fiscal '21, with a steady ramp from Q4 levels in the first half? Or could we see a faster pace in the first half of the year?

[Sumit Kumar, CEO, President & Non Independent Director]

No, I think it's a -- as you call from our comments there, it's steady as it goes ramp that we see happening. You know we have these 41 engagements and of course, the lead Tier 1 moving along. And the operator budgets tend to flow in calendar year cycles. So that will be important for us for looking at calendar year 2021. So growth along the way from where we were in Q4 and certainly a little bit of back-end loading in the second half. Thinking about the lead Tier 1, thinking about other customers layering on, thinking about customers that are moving forward on the MAC-PHY and EPON side as well.

[David Kwan, Technology Analyst]

Okay. That's helpful. I guess -- and how much visibility do you have into that revenue trajectory?

[Sumit Kumar, CEO, President & Non Independent Director]

We have improving visibility. I've talked a lot about timing uncertainty, big infrastructure projects, truck rolls, field service training, qualification trials, we've been going through that with a very large list of customers, as you can see, between the organic and acquired side. So predictability improves as we get into more and more live deployments, and we're certainly getting improving data points on the planning cycles as they formalize. So it's -- as we might expect, when a market starts to proceed, the forecasting gets better.

[David Kwan, Technology Analyst]

Can you talk about, I guess -- so when it sounds like at least that lead Tier 1 MSOs live, I think there's a second-tier 1 MSO that wasn't that far behind. So can you maybe talk about that second one, when you expect that one to go live? And maybe by the end of this year, how many operators you hope to have live and how many of those would be? I assume based on your prior commentary on the Tier 1 pipeline, it's probably those 2 ones that would be potentially live by the end of this year?

[Sumit Kumar, CEO, President & Non Independent Director]

Yes. I think, certainly, when you think about the pre-merger side, we have the lead Tier 1. The second one, I've talked about having some realization requirements. We're nearing completion of those requirements and cascading towards the field trials and whatnot. So we do think that they will have a movement in that direction within fiscal 2021, the second Tier 1. Like I said, they are a bit and behind the first one in terms of moving towards scale deployment. So it will be a smaller component overall. And then likewise, across the entire engagement list, there are -- what I would say are multiple deployments in view across fiscal 2021. I'm not going to break down between tiers on that. So you can think of the 2 that we had talked about before and across the suite of DEA products, Remote PHY, MAC-PHY, EPON, we are going to see several of our deployments start to mature this year.

[David Kwan, Technology Analyst]

And I guess within those the 3 technologies of Remote PHY, Remote MAC-PHY and EPON, how is that mix? Is it split pretty equally? Or is there certain technologies like Remote PHY that might have greater scale?

[Sumit Kumar, CEO, President & Non Independent Director]

I think in keeping with the way the industry is gone with this is that we have, and that speaks to the development strategy Vecima followed up until now and continuing is that Remote PHY is perhaps a more incremental step than MAC-PHY. MAC-PHY contains more of the content of the technology for moving to DAA right within the node. That's very powerful in terms of what it means in terms of the overall network evolution to DAA worldwide. But you can think of Remote PHY is potentially having a little bit of that earlier cadence. And the fiber-to-the-home technology is certainly maturing as we speak, and that's working well for how we see that the Entra EPON family moving this year. We're anticipating a little bit earlier in terms of revenue mix of EPON relative to MAC-PHY within the first 12 months here.

[David Kwan, Technology Analyst]

Okay. And I think you talked about, I guess, 41 operators that you're engaged with, including 27, I think, that are latter field trials and live deployments. Was that -- is that inclusive of the Gainspeed acquisition? Or is that -- it is, okay. Can you say how much of that came from?

[Sumit Kumar, CEO, President & Non Independent Director]

I'm not going to say that, except what I will offer is that, that list that we last had organically of '19 also grew significantly, and we got to the 41 true by adding the Nokia engagement. There were, of course, overlaps, that's natural. But the list was growing quite significantly, and then we accelerated it yet again with the acquisition.

[David Kwan, Technology Analyst]

Can you say -- I think, you talked -- well, you've talked about 6 Tier 1s, how many you have right now?

[Sumit Kumar, CEO, President & Non Independent Director]

Yes. That's one of those ones that again, I'm not going to break out at this point. What I would say is that we're not crystallizing now, but our offer at this point that, of course, it's now higher than 6, and we'll provide more color as we can through the course of '21 here.

[David Kwan, Technology Analyst]

Okay. I thought I'd try with some of these questions. I guess, as it relates to the TerraceIQ, it sounds like you're making some good progress there and should probably benefit from the transition away from Terrace and TerraceQAM. Can you talk about how we can think about that business ramping up?

[Sumit Kumar, CEO, President & Non Independent Director]

Yes. So TerraceIQ is continuing along that pre-deployment phase where we're working with customers, defining requirements. We're in multiple phases of development of that platform and anticipate some contribution within fiscal 2021. And then, of course, we have that, as we've talked about perspective of these full 25,000 hospitality properties that we've secured in the legacy Terrace and TerraceQAM platforms being subject to upgrade to TerraceIQ in the long term, as the networks themselves from these operators transition to IPTV migration. So we're seeing contribution from TerraceIQ. But overall for a family, there's the super -- you superimpose these moving parts where we've done so well with the Terrace family and going network wide, doing MPEG4 densification, led by these big 3 Tier 1s domestically that have driven that across those 25,000 properties. We're seeing that one of those Tier 1s, we would really complete on their MPEG4 densification. And another one that still has it out ahead of them, but it's maturing slowly, and that will be dictated by their needs for network capacity when they move on that. So a little bit more tapering in the Terrace family.Meanwhile, the lead Tier 1, TerraceQAM has really come back into the fold strong, and you've seen that in recent quarters, and we anticipate that going forward as well with that lead MSO that lead Tier 1 and they, of course, have IQ well on the road map as well. But we still think it's a TerraceQAM story this year, and we'll get TerraceIQ potentially flowing in other customers and make our way as we're in the later part of the year to looking at IQ.

[David Kwan, Technology Analyst]

That's great color. So I guess on the TerraceQAM, could it be something where in fiscal '19, we saw the revenues have there and saw a nice rebound this year. For fiscal '21, like something flat this year, is that kind of what you might be expecting?

[Sumit Kumar, CEO, President & Non Independent Director]

We're actually looking with what we've been able to do. And it's a bit of that cycle where hospitality demand is continuing the platforms in force, and it's almost the last act scenario, if you will, before TerraceIQ. So TQ is actually showing a fair amount of strength this year in that last act, and we're seeing potential for growth. So we're thinking it's the $3.5 million, $4 million a quarter levels could maintain on an average for the year.

[David Kwan, Technology Analyst]

No, that's great. That's good color. Maybe moving along to the Nokia Gainspeed acquisition, quite pleasantly surprised at what the purchase price was. So that looks like a great deal for you guys. Two things in particular. First off, can you talk about kind of feedback you guys have received from their customers today?

[Sumit Kumar, CEO, President & Non Independent Director]

Yes. We've been engaging with customers and as we talked about when we first announced the deal that we believe the industry and, of course, at that point, we had some very specific inputs from customers as well, would look highly favorably on this consolidation and having a DAA-focused, cable-focused vendor with all-encompassing suite of platforms. And that's kind of the feedback we're getting. We've got this wide scope of products that can tap into any architectural decisions that a set of operators may have, and that's very attractive to them. Allowing them to migrate, allowing them to even cherry-pick their access network on a regional or even city or neighborhood basis for that matter. All kind of under the umbrella of the Entra Access controller, which orchestrates all of this. So that kind of thesis that we've built with this consolidation by this combination is resonating quite nicely for us, and that's in keeping with us showing that we're building this engagement list very rapidly at this point.

[David Kwan, Technology Analyst]

No, that's great. And can you say like how much inventory you guys in working capital you guys got with the acquisition?

[Sumit Kumar, CEO, President & Non Independent Director]

I'm not going to state that today, and we'll have our purchase price allocation going forward. Dale, I think that may come out in Q1?

[Dale Booth, Chief Financial Officer]

Yes. We're still working on inventory valuation, other items, David. So we're just not prepared yet until we finalize that valuation of the purchase price to disclose that today.

[Sumit Kumar, CEO, President & Non Independent Director]

What I will say is that there's certainly a strong component of inventory there. And we're excited about moving that into the market in these first 12 months.

[David Kwan, Technology Analyst]

Okay. Great. And then just maybe just on the Content Delivery and Storage business. So I see you had a great year this year, a 32% growth. It sounds like when you're talking about that growth isn't likely to be sustained for fiscal '21 here. Can you give any better color as to kind of what your expectations are? Like, could it grow in the double digits, I guess?

[Sumit Kumar, CEO, President & Non Independent Director]

Yes. So let's kind of work through that a little bit. So again, highlighting that the buying pattern in CDS is different than what you maybe -- we've been accustomed to for the VBS segment. So we're selling all of our hardware licenses, capacity, software features, professional services and support. So there's this design win that leads to this long and productive deployment that builds up over time with the uptake in the capacity side of the equation. So we've done really great things out of the business with the execution in fiscal '20, pulling in those 13 new wins taking us to 34 IPTV deploying operators. So lots of progress in fiscal '20. And there's this inherent nature of these types of deployments is that there will be on each of these projects, the digestion phase, where the initial capacity has to be taken up before the expansion starts to come in behind that. So for fiscal '20, it was all a conquering year with the new wins, setting us up very nicely with the total amount of customers that have these networks from Vecima with MediaScaleX. So we think we're in that digestion cycle, and that's pretty natural considering what happened in fiscal '20. So if I take us back when we entered fiscal '20, we were looking for 20% growth or to reach 20% growth. We hit 32%. So when I think about fiscal '21, if I was to take the average of '20 and what we see in '21, it's going to come right back to that average 20% year-over-year growth for both of those years. So that's how we're looking at it.

[David Kwan, Technology Analyst]

Okay. No, that's helpful. When I saw that the revenue jumped in Japan this quarter, was that due to the large contract in the $12 million contract when to starting some of that work in Q4?

[Sumit Kumar, CEO, President & Non Independent Director]

Yes, on a regional basis, that's good smoothly on your part. The $12 million deal is an Asia Pacific deal. That's as much as we've said, about specific region on that. Very, very strong, and it's part of the -- some of the data points they offered on our international growth. And moving forward in fiscal '21, with that deal launched is very powerful. In fact, we took revenue in the fourth quarter on that as well. So I'm not going to tie it directly, but think you can see what we've reported there.

[David Kwan, Technology Analyst]

Okay, perfect. Just a couple more. Just on the R&D, that jumped up this quarter here. I think you kind of talked about some prototyping and some other work. How much of that was related -- or how much of that was kind of more onetime in nature?

[Dale Booth, Chief Financial Officer]

Yes. So the jump in R&D, are you talking the cash R&D piece or the expense, David, sorry?

[David Kwan, Technology Analyst]

The expense side.

[Dale Booth, Chief Financial Officer]

Yes. So on the expense side, we had a onetime $1.3 million provincial investment tax credit that had expired, and we weren't able to utilize. So because that was part of what we had capitalized back in the day, we had to adjust for that through amortization. So that's a onetime $1.3 million amortization hit.

[David Kwan, Technology Analyst]

Okay. Perfect. And then just quickly on the balance sheet. The receivables have been elevated over the last couple of quarters here. I'm suspecting some of that is probably at least COVID related. When do you expect the DSOs to come back down? And do you think -- do you have any kind of credit concerns?

[Dale Booth, Chief Financial Officer]

No, we don't -- actually, we don't have too much COVID issues. We have a few. We've been working through them and have almost cleared those all up. But -- and we're just being very careful as we sell into certain markets that we're comfortable that we're not going to have a COVID-related issue. A lot of that receivable is timing of back-end loading of the sales in the quarter, David. So we don't have any concerns with any of that receivable.

[David Kwan, Technology Analyst]

Okay. Perfect. And last question, just on the inventories. Should we expect them to jump up a bit this quarter. Should we expect them to be -- continue to move by pure as Entra ramps in particular and to a certain extent that you might want to carry a bit more inventory heading into the fall and winter here, if we see some potential issues in terms of supply chain if the COVID outbreak gets worse?

[Dale Booth, Chief Financial Officer]

Yes. So we did have a bit of jump up related to just being careful with COVID. We have been building up our inventory as we had some long lead times on Entra and it -- based on forecast earlier and the slowness that we saw, we definitely have entry inventory there that we'll be able to draw down on as in the first 2 quarters of 2021. So we're not expecting a ramp-up of inventory. We're actually looking to utilize some of this long lead time inventory that's sitting on our books right now.

[Operator]

[Operator Instructions] As there appear to be no further questions, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.