Calnex Solutions (LSE:CLX) — Final Results for the year ended 31 March 2025

0:00 Good afternoon, and welcome to the CALNEX SOLUTIONS PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Tommy Cook, CEO. Good afternoon, sir. Good afternoon, everyone. Thanks for joining. And sorry we're a few minutes late. We're just having some technical issues here. I'm sorry. So we're probably gonna switch our cameras off, but, well, hopefully, you'll be able to hear us and see the slides, and we'll go through the the results for you. So first of all, let's just remind everyone who CALNEX is.

0:47 So if you're new to CALNEX, I can give you an update here. CALNEX SOLUTIONS designs, produces, and market markets test implementations for the network synchronization, monitoring, emulation markets. So, basically, anybody that's using a network, whether it's telecoms, enterprise, defense, data centers, we provide test solutions into that area. We're now just entering our third decade, so we're going to twenty years. And through that through that period, we've actually shipped product to over 600 700 sites around the world in 68 countries. And you can see with the graphic in the bottom right hand corner, when you look at the whole whole life cycle of developing new network equipment, the bits that we focus on is that design validation conformance test and the kind of maintenance monitoring part. These are very much rather high value, where customers need equipment that's aligned to the latest standards, the latest requirement.

1:46 So it's low volume, high value equipment is what we provide. In terms of where we started as a company, we're very much started in the telecom space, which is obviously in the in kind of five g phase at the moment. But we always saw it's a different set as an enterprise, so it's always been a multisector environment. But in recent years, as you'll see, so we're through the presentation, that is developing even further. We now sell into data centers because in some ways, a data center, in my world, feels like a network in a building. But we also sell into things like the satellite networks in terms of evaluating them, and more and more into federal and and government type military type applicants. It's the same equipment, but different groups of people using it as provides an opportunity for us.

2:34 So what are our key strengths? Our strengths are that we have now established, been in the market for twenty years. We have a reputation for continually delivering high value quality products with a high customer base. We have a high level repeat business where customers buy equipment from us and then continue to come back and buy upgrades to that equipment or additional pieces of equipment. And we've, over the recent period, tried to diversify our business. We have a global footprint, you can see there, but also from the end markets as well, we've continued to try, when the last few years, telecoms has been a bit more subdued market, take the opportunity to expand into other sectors, into the digital infrastructure and government and defense sectors.

3:19 We have a strong revenue profile with a robust balance sheet. And with today, we are operating, as you'll hear later on, end markets are very large and high growing, fast growing markets, And that's where we believe that would provide opportunities for us to grow in the future. And we continue to invest to accelerate that growth in terms of into our new products, but also in our infrastructure to be better aligned to maximize these opportunities. So what's happened in the last year? Well, last year, we're pleased to say that our revenues are up 19%, just under $22,000,000 Our profit also increased substantially, and we continue to have a strong cash base in terms of closing cash level.

4:04 And we will increase the dividend this year from 0.62 p to 0.68 p. Our strategy really has continued to play out the three pillars we have. Basically, innovating into the the telecoms space, and we did that through a new product, Paragon Ace, that came out just at the very beginning of the last financial year, the 800 gigs, the leading edge capability, and that drove a lot of the business that we got from that sector last year. But we've already started investing to the next generation, the 1.6 terabit, which is the leading edge technology today, and we'll have that available on shipping next year. But, of course, a lot of the focus internally has been in in terms of trying to expand our footprint into the digital infrastructure and government and defense sector.

4:53 In the government and defense sector, what we're finding is our products are well suited to the need. We haven't really had a lot of feedback requiring enhancements to our products. So it's really been been about go to market. We hired key people last year to focus on getting into that, especially in North America, and and to understand how to get involved in some of these large projects and absolutely make sure that our products are considered for inclusion in these projects. And we've made good progress. We've always felt it was gonna be an eighteen to twenty four month initiative to get a strong foothold there. We're a year into that, and we feel that we are on track and but still a long way to go, but we could build a knowledge and better understanding of how to get involved in these projects and how to sell into these these big projects that happen.

5:42 And on the digital infrastructure, that's really about understanding what's happening, the impact of AI on the whole data center, cloud computing infrastructure of where it is, this acceleration of the size of it, the change in in in architecture to move some to the edge and how as well as central is an area we've been focused on to really understand where the opportunities are, and I'll talk later on how we feel we have identified places where there's opportunity for us that we look to maximize or look to start to realize later this year and into next year. And the third strand is really partnerships, strategic partnerships. We've done acquisitions in the past, but in the last year, it's been more about strengthening using partnerships to strengthen our go to market. We started working with the Avi in terms of our wireless group. And if you're if you're familiar with us in the past, we used to work with Spilot, which provided a route to market for us, channel partner facility.

6:38 And now that that part of Spilot is with the Avi, we're out in discussions with them at the moment to to allow us to to continue to build on what we the the relationship we had before and give us a stronger footprint by using where they are strong in the market space. So a lot of change happening in our in our in our sales footprint, but a lot of positive change that we believe will be in a strong position for FY twenty seven. So if I look at what some of the key things that we've we've changed in the last in FY twenty six, as I said, you know, the the NWA network emulation products, we've had really good engagement with a number of key players and some and through that, we've identified where we can strengthen our position.

7:24 And it's not from a a change in product a lot of time. It's really about focused sales collateral that we can present our products to our customers in a way that is fully understand how they can see the benefit and the value and maximize the value, which can obviously encourage them to spend. We've also had a a large repeat order from a hyperscaler that we've been working with for a few years, and that's significant in terms of what's happened. And also for our product program, which, again, I'll talk about later, because I guess a product that we've been selling the other century, we're gonna start and work on a on a new version of that, which will bring additional value in FY twenty eight. And we continue to work on our products to tailor them to what our customers need ever evolving needs.

8:10 And, of course, our SYNC products can is where, as a company, we started, but remains really important in terms of base plate, and we continue to see opportunities to grow that in in the future. And then the other part of the strategy and the action in the last year has been into that US federal and defense sector. As I said, we have started to see, we've had some key wins. We've got a a a growing sales funnel. It's a challenging go to market. It's completely different than our market. You really have to kinda get to know where all these programs are and deal with them one at a time. There's not a kinda simple website you can broadcast to everyone. So it is a long road, but it's a valuable road for us and a road that we believe we can continue to strengthen moving forward, and we made really great progress in f y twenty six.

8:58 So at this point, I'll hand over to Ashley, and she'll give you an update on the financials. Thanks, Tommy. And before I take you through the next slide, is the revenue model, I thought I'd just briefly remind you of our of how our two revenue streams work, and and this will hopefully give some background for anybody that's new to CALNEX as well. So we have two revenue streams. Well, the first one we call bundled hardware and software, which is the the biggest one. And then the second one is our software support program revenues and and warranties. So typical customer will come to us to purchase one of our hardware products, and that will have a number of software options included at the time of purchase. And that's invoices one bundled sale and they can come back for upgrades or additional options that are added to the existing hardware through the provision of a license key over over the the life cycle of that product with that customer.

9:56 And we can sell the software sales and upgrades as standalone sales as well. Bundled hardware and software sales pricing can obviously differ for each order as it just depends on the the makeup of the hardware product being purchased and then the the options are chosen at that time from the from the list of numerous options that we provide. And then each customer obviously can can purchase different combinations just depending on what they need at that point in time. So as a result of that variability, the average revenue earned per bundle can just vary from order to order creating a a mix effect. So that revenue is recognized when we dispatch it to the customer or when we deliver the software license key if it's a software if it's a standalone software option.

10:50 And as you can see from here, that is the the black block in this in the in the top left graph here and that takes up the majority of our revenues. And then each of our products comes with a standard warranty period, which can also be extended for an extra fee. And we also sell software support programs alongside that. And this makes up our second revenue stream, the the gray block. This this revenue is recognized of the life of the product and and different customers can take different lengths of contract out with us for for support. So those that last longer than a year, contract wise, the revenue for that is spread over the over the that life of the the contract and anything in years deferred on the balance sheet and released over that relevant number of years.

11:39 So coming to that graph here on the top left, in previous years prior to the years that are shown on this chart here, we did have several years with the trend was 90% hardware and software and 10% software support revenues. Over the past couple of years, the software support revenues took up closer to 20% of our revenues. But a lot of that was to do with the fact that our hardware and software revenues had taken a dip just while CapEx budgets had been less available out in the marketplace. As our as as you can see in FY '26, that ratio is closer to to eighty three percent and seventeen percent for support revenues. And that's as a result of the growth in the hardware and software sales in the year. And our goal is really to keep that support revenue at that 15 to 20% range going forward as we grow as we grow revenues in general for the business. So just moving across to the top of the slide here to the to the middle chart.

12:45 As you you'll also know if you're not new to CALNEX, our revenues are generated across a global customer base and partner network. We have three geographic divisions. That's The Americas, North Asia, and rest of world. And rest of world covers EMEA, India, Southeast Asia, and parts of and Australasia as well. The global spread obviously helps us mitigate the risk for us, but as as well as giving us opportunities to understand new end market dynamics from a global perspective as well. There's more information on the regional and product line revenues and the trends coming from that in a couple of slides time. So as you remember from our previous presentations, our sales were previously predominantly derived from telecoms customers in in the past, where the end application was within a telecoms network. And we previously previously showed metrics from up to last year. They split our orders into telecoms and cloud computing market customers. And that that cloud compute computing bucket of customers included hyperscaler, data center customers, enterprise, and government and defense to name a few.

14:03 We've decided this year going forward to give a more granular split as you can see from the top right graph here in our end market customer base just given the growth in our more diversified end customer base or end customer use case outside of the traditional telecom sector. So at the top right here, you can see we split our analysis into government and defense, digital infrastructure, which is still the cloud computing, data centers, enterprise, etcetera, and telecoms. And you can see that in FY '26, the split of our orders in the year was 21% government and defense, 49% digital infrastructure, and 30% telecoms. We've seen an increase in customers from the digital infrastructure sector over the years, which a which is partly driven there are new customers in there, but it's partly driven by equipment vendors who initially developed products for use in telecom applications.

14:58 Now selling the same products into other data network applications where the same technology is implemented and those new applications are becoming the primary market opportunity for our customers product, which is which is contributing to the kind of move in the metrics here in this graph between telecoms and digital infrastructure. So it's not it's not as if we've lost the customers that are in that telecoms block. They some of them have actually moved into the data digital infrastructure and categorization in this in this chart here. So moving on to the bottom of the slide here, you've got two pie charts that are kind of interlinking in terms of the drivers. So the the bottom left one, I'll start with, over the last three year rolling period to March 26, our top 10 customers contributed 51% of total orders.

15:49 And in addition to that, our top 10 customers as a as a group have a average length of relationship with us of thirteen years, which just demonstrates that repeat nature of business and strong customer relationship that we have with them. So we have for those of you that that that don't know, I know this is related to the the next pie chart. We have a high level of repeat custom from our from our customer base as well as as new customers coming in. So we see customers coming back to order from us frequently from a repeat perspective as they buy different bits of kit for testing different things or different sites and to add into different sites or want to add new kit as they grow their their labs or testing requirements. They might want to add new software options because they've already bought the hardware and and and years got gotten by or they want to upgrade or they want to move on to our newer products as they get released.

16:45 So that repeat revenue demand is quite an important metric to us. We have we would call ourselves a repeat revenue, let's say, company as opposed to recurring revenue company. And that's a metric that we've that we measure across the whole business as well. It's just our top 10. So you can see here the the repeat revenue orders usually are in that 70 to 80% mark and that that hasn't changed for this year compared to previous years. So just moving on to the next slide here, just as a summary before take into the regional splits in the p and l and cash flows. So as Tommy mentioned earlier, FY '26 revenues, growth of 19% on the prior year.

17:32 The improved profitability is being driven by that increase in revenues, obviously, and the maintenance of our gross margins. Gross margin has gone up one percentage point. It does tend move up and down by one to two percentage points just depending on mix because we are a low volume, high high value business. So maintenance of strong gross margins and our fixed cost base in this situation has acted in a positive way. So the positive operational gearing we get from that fixed cost base and the increased revenues has has driven that increased improved profitability. So you can see that from the underlying EBITDA margins and the p p t margin, but the underlying p p t EBITDA margin is sitting there 8%, up from 6% last year.

18:22 P p t of 1,200,000 compared to 700,000 in the previous year, driven by those factors. The balance sheet remains strong. We ended the year with cash of 9,300,000. That was versus 10,900,000 at the start of the year. However, q four was quite a high volume trading quarter for us. So due to the timing of phasing of timing and phasing of our q four shipments, the trade receivables balance was higher than normal at the year end. Most of that cash is had was collected by Thursday last week and continues to be collected ahead of the the calendar month end. So at May 21, before we published our results, the cash was up to 11,200,000 and that's as as a result of these the these data is being collected.

19:14 So just on a regional split perspective, just to give you a little bit more flavor there. Rest of world, and you'll know you'll remember this from previous presentations. Rest of world is is the one of the regions that has most the most broad mix of end customers and sectors and it's it's always can effectively been like that for us and that just helps to manage trading risk within any single sector. Revenues you'll see grew by 48% in that region year on year, largely due to repeat order from a major hyperscaler customer. But even when you strip that back, underlying revenues also grew in the region and that was driven by a couple of things. So growth in telecom sector opportunities in EMEA and digital infrastructure sector deals across both EMEA and India.

20:07 Americas, although when you look at the reported numbers, the revenues have declined by 8%. If you adjust for from a reporting perspective, the the hyperscaler customer was reported within our rest of world region internally. But if you adjust for the fact that we understand the the a large amount of the units that we sold to that the the hyperscaler will be deployed in The US if you if you adjust for that. Underlying performance is broadly stable year on year in the Americas region. The Americas region did contribute most of the increase in government and defense orders for the group as a result of our targeted hire strategy at the end of last year and the start of this year and to support the expansion of The US federal customer base over there.

20:59 And revenues in North Asia have grown 88% despite China remaining a challenging environment for us. That was coming from growth in digital infrastructure and and as as a cloud computing and data centers demand increases and in telecoms as well. Lab from a product line perspective, lab sync, that revenue grew in the year. That was from increased trading across The Americas from the government and defense sector and in the rest of world region, particularly in EMEA, in the telecom sector. Network sync is our Sentry product. That is a product that feeds into the data center or into the hyperscaler orders.

21:46 So the hyperscaler orders sitting in there, so that obviously grew in the year. It's a healthy order. NAA is our emulation product range that can be split into SNE in any one. The SNE experienced revenue growth and particularly within government and defense in Americas and across all sectors in the rest of the world. Any one saw very slight growth in orders. We would like to see that growth increase in future years. So we do continue our focus on returning that product to to increase growth in effort '27. So just on the p and l, I've covered revenue already and I mentioned gross margin as well. So you see that here. Headcount did increase slightly as a result of the targeted hires that we've talked we've talked about, predominantly in the in the global sales and marketing teams just enhance our our team to support the growth in the diverse diversified markets.

22:46 So the administration cost increase is being driven by a couple of things, predominantly by the sales and marketing team increases hires over the over the year. Channel enhancement activities and things like contract negotiations and things like that have have there have been quite a lot of them this year as well. Then the also the effect of our year end profit share accruals that were in this year's numbers and not in last year's numbers because there was there were no the the targets for our bonus and profit share accruals were met last year. R and D amortization continues to follow the same trends as in in previous years.

23:31 Our R and D the majority of our R and D spend is capitalized on our balance sheet and amortized to the p and l over five years. So the increase in this amortization line here is very formulaic based on that on that profile. If r and d CapEx spend has increased in previous years, that that will then drive the the amortization. So that's that's to support the growth in our in our product ranges and to support our roadmap. Mentioned profit before tax of 1,200,000 and and the drivers around that from an operational gearing perspective. Effective tax rate reported is 41%. There there are prior period adjustment drivers within there, predominantly due to the our change in accounting policy around our RDEK income.

24:22 So at the underlying rate there is closer to the the standard 25%. Then just on to the cash flow, mentioned cash at the year end was 9,300,000. We have received some significant level of cash coming in since the year end year end. But just just as a summary on the actual cash flow itself, net cash inflow from operating activities taking into account that trade receivables increase at the year end was higher than than last year at 5,500,000. The the the the the driver there is is very much trading in the year compared to last year. Investment in r and d, 6,300,000 compared to previous 4,900,000 of last year. The increase there is very much not there's there has been some inflationary increases for people costs and some graduate hires.

25:21 The the increase in spend there is is a one off spend in the year for a access to an or on a spend on on on early access fee to gain access to new silicon technology for our development program for the 1.6 t Paragon project. And dividends you'll see are have been in that cash spend has been in line with last year. So just to wrap up before I hand over back over to Tommy, Revenue growth, maintenance of strong gross margins and that post positive operational leverage in our fixed cost base has driven our profitability in the year. FY '26 r and d investment increases for the early access scheme are being driven by the early access scheme fee. FY '27 will see further investment in r and d from a cash perspective and that's to leverage that's that's to further our our product roadmap to leverage opportunities in the AI and data center markets as as well as the 1.60 project as well.

26:31 Targeted investment in our global sales and marketing teams that we made this year to diversify our customer base is starting to gain traction as you can see from the the market splits. And again, strong balance sheet remains that underpins our continued targeted investments in key product development and it supports our accelerated growth ambitions from from FY twenty eight. Back over to you, Tony. Okay. Thanks, Ashley. So just the last section here before we take some questions. Just a quick update on our outlook and and our strategy that we're playing out in FY twenty seven. Just to remind you, our product program, there's there's three main tranches of products or platforms that we have. All our products are platforms, are we calling platforms, and that we continue to add enhancement to them and increase the value we can deliver. We've got the two on the left, which are really about that synchronization, transferring very high accuracy time through networks.

27:31 The ones in the the lab sites for in an r and d environment, and then we've got a network sync, one for both telecoms, one for data center, where it's monitoring time once monitoring managing time once it's deployed. And then on the right, we've got our network emulation products. Now all of these products, we continually add capability to them, and that's how we get that repeat business as both customers buying new products, but also buying upgrades to the products. And you can see from a summary picture here in the last year, we've had some fairly big releases in terms of new platforms, the 800 gig made at the very start of the financial year. And in the middle of the year, we came out with the first 400 gig network emulation available on the market to target that digital infrastructure.

28:19 And the link across the the bottom is really trying to shoot with the colored dots on it. It's really showing that we continue to release minor enhancements to all our platforms, and this is gonna add new functionality, customer driven enhancements, start changes to the standards that we need to keep up. So it's a continuous investment in terms of keeping the products relevant and and valuable to our customers. And as we look into '27, there are actually three fairly major developments going on. First of all, for our Sentry product, which we sell to the hyperscalers, and that's for monitoring in a data center. That product's been sold for about three years. And really, what we've learned from through that success that we're building a version two of that, which will add key functionality that makes it more attractive to that into that environment.

29:11 So that project's underway at the moment, and it's just due to get released in h two, and we would expect to start to see revenue from that by the end of the year. And that will also allow us in f y twenty eight to really go to a number of other data center companies and see whether we can repeat the success that we've had to date with that with a wider base. If I jump to the right hand one, we've also, as already mentioned, already underway with the 1.6 terabit in the OS. That's to prove high accuracy time in the the r and d environment. And as Ashley said, we we got access to key technology that we needed early in the year, so the project's underway and that will release at the the second half of FY twenty eight. Very high complexity project, but a high value product as well. And that was can, you know, again, build enough success of being the market leader in that in that sector. And that sells both the telecoms, but because a lot of the data center people now are using equipment, they're using very high speed interfaces, then we'd expect to sell that into the the the companies that are making equipment for deploying into the data centers as well.

30:20 And then the third very important one is this middle one. You know, they as we all know, AI is completely changing the way the data centers are having to scale and the way they're gonna have to change their architecture to meet the needs of that, both for running models and training models, but then once it's run, the models is to to run with the real world and how inference happens. That's when the models interact with the real world situation. And as we know, potentially, there's a lot of discussion of edge networks and actually moving storage out to the edge of the network. So what we've done is really taking a step back because it's to really understand where there's opportunities for us in the middle of this because it seems to be moving so fast, You really need to focus in and understand the value. And what we find with our first product at 400 gigs is that we need to enhance it to get up through bandwidth.

31:11 And so what we've really done is looked at how do we get to these very high bandwidths. So although there's NIC cards available that run at 400 gigs, we don't just run at 400 gigs. We have to manipulate all the traffic at 400 gigs, and that really means that we we have to wait until the next the second generation cards come out. So we're we're just releasing at the moment what we call our aggregated solution. And our Ignite platform uses FPGA technology, so it, like, gives us full control and ability to manipulate all the packets in there. And the aggregated uses a switch along with the product so that the switch can select traffic, passes it down to the Ignite. We manipulate it and pass it back to the switch. And that's a custom a bespoke bespoke switch that we're working with a supplier for that, and we'll supply it as an aggregated switch and product together.

32:00 And then six months later, we're gonna come out with our native version, which means we don't need the switch anymore, and you can use the the you can go in straight into the card and manipulate it. But the key thing is this gives us the ability to talk to customers for a road map to the higher rates because everybody wants to talk about 400. We know they want to start on the 800, and very soon they want to talk about 1.6. And so we can use the products we have in an aggregated format to offer the higher rates, and then as soon as we can get the technology to come out within native. So we'll just really present that to customers at the moment. We'd hope to get sales on the next period from that, and then that'll allow us to really engage deeply with customers and try and understand where is the long term test needs gonna be, and how can we build platforms that can sustainably deliver value, keeping up with our customers and delivering products.

32:50 So that's really quite exciting for our for our point of view and going forward and really trying to to build on what's happening as we all know there's a huge amount of change happening there, a huge investment, and make sure we can find an opportunity that we can sustainably deliver value from. But it's not only just about products, it's about the way we go to market. And as we've mentioned, there's been a huge investment in '26, and that will continue in '27. In in the middle of '26, we brought in a new VP of sales, and we've also brought in smaller key hires, an operations sales operations person, and you reach a a partner manager as well. And really, it's about system making more systematic the way that we go to market. And the fact we've got a lot more partners now that we keep them all commune we communicate sustainably and and consistently with everybody.

33:41 And also within our sales and marketing and our marketing groups, we've changed the structure in there. A year ago, we put a new VP of sales in there, a VP of market products sorry, a VP of product management and and markets. And that again was to really take a step forward in the way that we do business and the way we manage all our partners. So there's a lot of change happening inside. We've got the new PRN tools and new approaches to make sure we can maximize the potential from the sales channel opportunities, I guess, both with the RB and all the other sales partners we've got. So to wrap up, we feel positive going into the next year. We've got a strong balance sheet. We've got an exciting road map there, and we've again, we've already started to diversify our market footprint that we plan to continue to work on in the year ahead.

34:32 And in '27, there's an as I talked about, there's there's a lot of platforms to continue. You know, the fact that we've got three new platforms is slightly unusual as well as minor releases happening. So we've got a lot of things happening to build as we go towards '28, and we definitely continue to try and diversify into the other the digital infrastructure and the government defense space by but also keeping close contact to the the telecom space because telecoms will remain really important to us both from a business point of view, but a lot of technology innovation happens in that space, and that feeds into the other sectors. So there's a lot of synergies between all these sectors that make sense that we look to stay strong across all these areas. And as we go forward, because of the new platforms we'll have coming out in '27 or early into '28, we expect to see stronger growth accelerated growth as we move into FY '28 and beyond.

35:29 So at that point, I'll hand back to Lily. That's great. Thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review review those questions submitted today, I'd like to remind you that recording of the presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard. Guys, as you can see, we have received a number of questions throughout today's presentation. Ashley, And, if I could just hand back to you just to run through the q and a, and I'll pick up from you at the end. Sure. Thanks, Lily. So I can see a couple of questions for financials here. So I'll kick off and hand to Tommy and a couple of questions today. So David has asked, gross margins have remained at circa 75%, but the operating margin at EBIT level was only 5% in f y twenty six.

36:21 When can we expect to see operating margins return to the 20% plus levels achieved in FY '21 to '23? So, absolutely, the in terms of that operational gearing I was talking about earlier, that that had has worked against us in in in the years up to now just given by the given the the dip in the subdued telco market. So as part of the diversification strategies that we've got, we're aiming to our our goal is to start getting that that 5% level working up the way. So in terms of the the guidance that's out in the the market just now for f y twenty seven and '28, that that will that our our aim is to notch that up to not necessarily up to those levels yet because we have to be quite prudent in terms of our our our growth strategies around diversified markets at the moment. But our our aim would would be to get those profit margins heading in in that direction.

37:30 We obviously are working with different markets now than we were before, so there's different drivers. But the the the goal is to the goal is to to try and get those margins up into the up into the double digits again in future years. And then in terms of sorry. The next question here. There's a pre submitted question. What it doesn't say who it's from, the presubmitted question says, what percentage of your your current revenue mix is driven by recurring software licensing seats versus one off hardware instrumentation sales and how do you plan to scale the SaaS model to hyperscalers by 2030? We actually hopefully, we'll talk to it prior in my bit of the presentation here helps answer that. We don't actually have a recurring SaaS model within our revenue model. We've got more of a repeat revenue model as that point of sale and and software licensing profile goes through our revenues.

38:35 We do look at SaaS options to bring in SaaS SaaS models with new products or new opportunities. We don't we the types of customers that we have within our our our traditional market space don't really work with with SaaS models. However, we are open to to looking at that going forward if the opportunity arises and the and the and it works for for the customer. Up until now, it hasn't quite worked for the customer and in our customer base. So at this moment in time, we don't we don't have a SaaS model in place. Hopefully, that answers your question there. And there was another pre submitted question that says, how is your Sentry product sales performing this year? Any new deployments or repeat orders from your existing hyperscaler clients like Meta, and how do these sales I'm sorry. And do these sales include an ongoing software monitoring subscription?

39:35 Hopefully, my question that that question has been answered by what we presented in the presentation. There isn't an there isn't an ongoing software monitoring subscription included in that, but hopefully, rest of the question has been answered by by what we've talked about already. Under the There was another one of the pre submitted ones. It's following the global go to market partnership side with the AVI solutions. Can you update us on the early sales pipeline? Are you seeing immediate traction within Viavi's enterprise hyperscale client base or these long cycle sales cycles that will only reflect into FY 2728 order book. So the behind me thing is kind of slightly complicated. There's kind of two parts. There there's the part that we signed last year with the wireless group, where they are taking our product and selling it, and that is we're starting to see a buildup of sales pipeline in some one or two early orders, but really, I think, come through this year because we are actually maybe we have the BIIB team trained.

40:37 They are taking it to customers and start to gain good traction. Of course, the BIAVI relationship has got another element to it because as you as you may know or if you know us, we worked with Spyrant for many years, and part of Spyrant was sold to most of it went to Keysight, but then they spun it apart to BIAVI, and the bit that that spun it to BIAVI was the bit that we've been working with in in in Spyro. And we've continued the relationship, kinda low key up until now because once it was yeah. It was going to them, then it made sense that we tried to work with them. We're just currently reengaging the the contract there with them, and we'd expect to see that pushing later this year. So, again, we we know that that the aspiring for you guys well. We know where we've got strong relationships, and we'd hope to see that in in both into the enterprise hyperscale and even into the government and defense sector as well. So, again, we would like to hope that as we go through this year, you'll see a larger proportion of our business coming through Viavi.

41:37 And remember, they're a sales channel for us, so they don't control anything other than the sales channel. So it it's and we will potentially push some business through them that we'll we could take to other partners if you chose, but, obviously, you need to manage partners and make sure they've got significant business that makes sense for them to to be committed for our products as well. Another piece submitted was you meant Tommy, you mentioned engagement with hyperscales and DC customers. Can you be specific, like, where CALNEX solutions are deployed today across lab deployment, predeployment validation, production, manufacturing, and live network operation? And how has that mix shifted over the last couple of years? We kinda sell into everything. You know what?

42:23 You know, we talk about the large hyperscale, but that is because our Sentry product is part of the template build out that they do when they expand their data center capacity. So you could call that into their production environment. And and that has been successful for us there, and we want to try and repeat that success. But we actually sell all our products into their r and d space. So that r and d teams, I think, use our our lab sync products and our emulator products for a number of different applications. And we continue to see these sales there. So it's really into that lab deployment and the kind of pre deployment validation. Is the pre play the the key area where we get opportunities with these guys, and we continue to look to develop these as we move forward. Ashley, you got another one? Sure. And there's a couple of related questions here, so I'll try to just kinda cover them off in one go. So James has asked, your results release mentions a targeted step change in f y twenty eight revenue.

43:21 How should investors interpret or range bound quantify that? And then also, Jeff Free has asked, how fast do you think revenue can grow in FY twenty seven, and how about fiscal twenty twenty eight? And then there's a a related question after that that I'll cover after this this. And so in terms of the the guidance that that is out in the marketplace just now, for f y twenty seven, we've we've mentioned f y twenty seven is our our year of investment. When we talk about when we when we talk about investment, r and d investment in terms of the the products that that Tommy was talking about there in that slide that showed you those three products that we're that we're we're working on in FY twenty seven.

44:06 That then will drive that that revenue growth in FY twenty eight. But in terms of growth metrics, f y twenty seven from a because we're still we're still working with this in discovering our diversified end markets. We've kept quite a prudent growth growth metric in for f y two twenty seven in the in the low single in the single digits low single digits. But in f y twenty eight, that should start to increase into the low double digits for for that year, all driven by that, the impact of the things that we're doing in FY twenty seven from an r and d perspective, but also from the sort of platform that we've kind of that we've kind of built from a diversification, go to market side of things from from what we did this year as well.

44:57 And then Dean has also then asked what trends are you seeing in terms of orders booked and pipeline. So in terms of if you take what just said into account are are what we're seeing right now, the the from a sort of tracking perspective, things things are tracking as as as we would expect for this time of year into this new effort in seven year. We are starting to see the trends, the diversification trends within the pipeline are also are are we you can also see them as well. So so quite a varied and and diversified opportunity pipeline there as well. So, hopefully, that answers those three questions and Okay. Together. I got a couple here I can take, Ashley. So first one, Smith says, as Hyperscale scale to 801.6 terabyte architectures, can you give examples of network and time modes that your systems detect or validate that would not typically be caught by a broader optical protocol or or system level test platforms from other vendors.

45:58 Yeah. We very much first of all, a lot of our the the lab sync is really a standards conformance test, first and foremost. It's to prove that the equipment meets the tight standards. Time's an an interesting thing because, you know, when it goes wrong, you don't know it's going wrong. It's like, hey. Do you know your watch is wrong? Well, only when you compare it to somebody else's watch, you know it. So you can get all sorts of strange fears happening in the network. So where we've seen deployments, like, in the hyperscalers, what we are doing is monitoring that the time we are not distributing the time or or verifying that the time is being distributed correctly across the network because we know that if the time goes off, they're gonna get data errors, things are gonna go wrong, and that's gonna slow down or reduce the overall capacity and and bandwidth that they can process.

46:46 So it is really important if you're using time that you have a way of, first of all, proving that it delivers the time accuracy that you expect, and that the equipment each and every piece of equipment that comes along and gets added in is added in aligned to the standards, or you could find the whole system has drifted off and has actually not delivered on the accuracy that you're relying on. And then once it's there, having a monitor in place to ensure that at any point in time, the time doesn't just drift off. Because, as said, mostly time doesn't just stop. It drifts off. And, of course, you don't know that it's drifted off. And that's where the kind of monitoring systems come in and are essential for the for the continuous use within the within the environment. Another question that was pre submitted here in a different topic altogether regarding the global expansion of low earth orbit satellite constellations like Starlink.

47:39 The gateways for these network functions has high bandwidth edge data centers request with PTP synchronization. Our CALNEX products like Sentry and your SME emulation tools actively being sold into the satellite drain station market, and how large is this opportunity in the next three to five years. I wouldn't say centuries being sold at the moment. We're definitely selling our emulation tools in there in terms of being able to emulate the the satellites moving across the sky. The fact that if you the delay is constantly changing, and then we can sawtooth plate part on this. As a satellite moves away, the delay is obviously constantly getting longer, and then it over the horizon. And the system jumps to use another satellite, and you've got a sudden shift like a sawtooth plate part on. So that's where it's being used to prove and verify applications.

48:31 I run Robustola satellites to ensure that that changing in delay profiles doesn't cause any problem to the actual application. We're probably selling more of our lab sync products at the moment into there, where, again, it's about proving that each piece of equipment is operating correctly before it's deployed. So far, we haven't seen a lot of opportunity for the the monitoring going on, but it's interesting that it was followed. It may become an opportunity for us. Again, it does look like it's a a growth opportunity. It doesn't feel explosive at the moment for us because, again, we are involved more in the r and d stage than in the deployment stage. But, obviously, there's more and more services that are going through the satellites, and satellites are more and more used to provide that connectivity across the world. And there definitely feels an opportunity that we should expect to see growth in that market over the next one, two, let alone three, four years.

49:27 And one from Steven here. What do you look for in the telecom space to assess whether CapEx is beginning to be deployed again? And what is the situation currently? You know, what we've always looked for, Steven, is what's happening at the front end of the food chain. We're looking at the back end of the food chain, which maybe not the best place to be, but I guess it's build out. It's it's the operator starting to start major build out and expansion of the network. So that really has always been the the kind of the driver at the front end. So as we've seen a few years ago when the cost of debt went up, they slowed all that down. So therefore, the equip the equipment vendor slowed down the program, and we were just kinda sitting behind them. So we are actually starting to see it's interesting in the last year, we monitor the top 20 customers, all our top cost customers. And I would say in the last year, there's been an increase in what we would sort of call traditional telecoms people reenter on our top 10. They didn't appear disappear completely.

50:27 They moved in to be more on top 20, but they have slowly started to increase the spend and kind of age themselves back up again. So we are seeing the situation easing slightly there. I think in in a lot of things, things like edge networks, how is edge computing gonna be deployed? How is it gonna be? Who's gonna put it there? Because obviously, the data center people probably want it at the edge of the network, but they don't have real estate. And obviously, the telecoms guys have got the towers. They've got real estate at the edge. So it's gonna be interesting over the next year to see what happens there. As you've probably seen last year, NVIDIA invested 1,000,000,000 into Nokia, and we felt that was all about knowing that this edge computing is coming along. There's gonna be new pieces of equipment put at the edge and it's, you know, potentially, it's gonna be the network operators that put them there. Now is that a joint ownership with the the data center guys? Are they gonna lease the equipment?

51:21 This is all the kind of change that we like to see happening because change like that means there's gonna be different approaches to taking different architectures, and, hopefully, that creates opportunity for us going forward. Ashley, have you got a question you can jump on? I think the the next one from Julian is more for you, Tommy, the Okay. Data centers. Well, let me pick this one up from Julian. In eighteen to twelve to eighteen months, what proportion of your revenue do you anticipate to come from CPO and data centers? That's a good question. I'd expect it to grow, Julian, which is probably it's not not as much detail as you're hoping. You know, I think there's a lot of our growth opportunities that are gonna come from that area, and it's quite hard to see because it's a fast evolving market at the moment to kind of pin it down to exactly what's gonna happen.

52:14 A lot of our internal you know, in terms of the telecom space, we stay in contact with our our key customers. But in terms of investigation work, it's it's more into that data you know, digital infrastructure that we've been doing a lot of investigation. So we definitely would hope to see that grow. I think when we get a new Sentry v two eight, we'd like to see that going into more customers, continue to build on the success we've had already with a few customers, but hopefully take that to some more customers. And we are seeing the whole way that people are testing applications that are running on data centers changing and evolving, and, hopefully, that will, continue to give us growth opportunities moving forward. And I think we're just about at the end of our time, and I think we've done all the questions.

53:00 That's great. Thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the investor meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Tommy, can I please just ask you for a few closing comments? Okay. Yeah. Well, first of all, once again, thank you very much, everyone, for taking the time to listen today. So as we enter our third decade as a company, there's kind of three things I would say have been absolutely the same every single year in the first two decades, they'll probably be the same in the fourth decade. And that is that there's challenge, there's opportunity, there's change, and there's no shortage of all three as we go into this third decade. There's always things changing in the world that create challenge, and it's from a change point of view, we might be 20 years old, but we're not finished in terms of trying to make ourselves more effective at go to market. So there's a lot of things happening in the back office in terms of changing utilization of AI technology to make us more effective at go to market. But most important is there is plenty of opportunity, and I think, hopefully, I've expressed with the new platforms that we've got, but we believe there is a lot of opportunity starting to appear out there, and it's really up to us to go after it and make sure that we can realize it in the in the next few years ahead and and make sure we've got a strong start of decade.

54:20 So thanks very much again today for joining. That's great. Thank you for updating investors today. If I please ask investors not to close the session, I should now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, and I'm sure be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good afternoon to you all.