Calnex Solutions (LSE:CLX) — Interim Results

0:00 Good afternoon, and welcome to the CALNEX SOLUTIONS PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted anytime by the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives through 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 CEO, Tommy Cook. Good afternoon to you, sir. Hi. Thank you very much, Alexander, and and welcome, everyone, and

0:33 thanks very much for taking the time to to join and and get an update on our interim results. Before I go there, let me just in case there's a few people that are not so familiar with us, just take a couple of minutes to introduce CALNEX and who we are and what we do. So CALNEX SOLUTIONS is a test solutions provider to the world's telecom and cloud computing industry. We basically provide solutions that allow the our customers to validate the performance of critical infrastructure associated with whether they're working in the telecoms or the compute the cloud computing spaces. To date, we have shipped we have secured and shipped orders to 68 countries around the world, so very much a global footprint. And we run a lean business model with a global distribution channel, and we outsource our manufacturer manufacturing to a local supplier.

1:21 You can see on the right hand side there are just some of the names that you may recognize of the key customers that we sell to in a in a number of different sectors, in telecoms, hyperscale enterprise component, and telecoms network space. So what is it we do? Basically, this shows, like, a simplistic view of developing new equipment to whether it's going into the telecom sector or into datacoms from the design starting the design through design validation, conformance test, manufacture, obviously, and then main maintenance. And you can see from the red circles where we really focus on is that design validation conformance test. So this is the space where engineers have got a new design coming through. They really have to put it through its paces, make sure it works under all conditions, it meets the specification, meets the standards, conformance that it needs to do, and make sure there's good yield before going into manufacturing.

2:18 And so that's really a space we focus on primarily because it's a space where good test equipment can speed up the time to to get into manufacturing effectively. That means speeding up the time to revenue for our customers with new products coming to market. And it is a space where the customers spend a lot of money in test equipment because really it allows them to build confidence as well that once their equipment is deployed in the many different topologies around the world, it will work under all conditions. The one other space we focus on is more of the maintenance and monitoring. So this is where in networks where if something no longer works, the engineers need to come along and try. Quite often these days, the first approach is is very much just replace equipment. And if it works, then job done. But if it doesn't work, then it usually means there's something wrong with the setup and the and the network, and you need tools that give you a deeper insight into what's going on. And that ties into the ethos of providing high capability tools that we have for the design and conformance test space.

3:24 So that's CALNEX. So let's look at the period just finished, the first half of f y twenty five. So in terms of the trading, we finished at 7,400,000 revenue for the period, which we made a loss of 1,300,000. We had a closing cash of 8,600,000. And for that period, we are gonna distribute a dividend, the same level of dividend that we did last year at 0.31 p per share. Now in terms of what we're looking for, looking at the market, we you know, in some ways, summing up the year so far, it's panning out pretty much as how we how we hoped or how we expected it, I should say, maybe not hoped. I guess we were hoping there may be a recovery, but that was more a hope. And the planning very much was to assume that the telecom space was not gonna recover through this period.

4:13 And any growth and the growth that we would get was really from our own product program and also our own go to market initiatives in terms of trying to find new customers. And that's really what we've seen through this period. We did find in the q one that the order level was subdued, aligned to what we've seen reported by other companies in the sector, but it improved in the second quarter. And the key things as we go into the second half is some of our new product programs have actually come out really early in the quarter. We probably thought the 800 gigs would come out probably halfway through this quarter near Christmas, but actually, the engineers got it out at the end of September, which was excellent because it means, really, the the funnel of deals we have there, we can start working on. We have really high complexity products. Customers want to see it working on the bench before they they close the deal.

5:04 So having the product early really allows us to start and work that deal funnel. So that's really important for the second half. And then the say the other thing that we were looking to create growth was our n double a business. That's our network emulation business where it's not so much about products, but our route to market, and and we'll talk about that later, how we look at each application that people may use on the emulation product, think about how to present it to the customer in terms of really seeing how does this help you and your sec sector and what you're doing, and also think about the route to market channel partners, etcetera, that actually go to these customers. So we've also seen steady progress in terms of building that business through the first half that we hope to continue through the second half. The one other significant change that happened to us this year is if you're familiar with CALNEX, you'll know that in the past, we worked with Spilant as our sales channel partner, and about 60% of our business went through Spilant.

6:02 Now earlier this year, it was announced that Spirent was gonna be acquired by Keysight, so we decided it was time for us to to separate that agreement and move to create just use regional partners across the world instead. Now we already had a partner network of about 40 partners covering different territories around the world as well as working with Spyrant, but really we said about creating a channel that would allow us to start working with Spirent as and when we need to once that acquisition's gone through. And I can report that that channel's pretty much in place. It's gone well. We now have channel partners in all our major territories set up to go as and when we need to switch. But, in all the cases and I and I have complete experience with Spirent is they're always a very professional company, and we find that it's worthwhile continuing to work through this phase. They're obviously very focused on keeping business going.

6:55 So what we've done is created a what we call a deal registration sit situation. If they find a deal, then we're quite happy for it, and they feel they can close it this year, then we've said that's fine. We'll continue under the same terms of the agreement, and we'll continue to work that while we're bringing the new channel up. So it's meant there's been no cliff edge of stopping one channel and moving to another. It's allowed us to work together, and it's beneficial to Spire and it's beneficial to us. And so, again, it's been a very positive end period of this relationship with us as we move through to the point that we will stop using them. Now, obviously, once the acquisition goes through, we may still work with them in a much more focused way, focused on particular customer sub customer sets where we've got good complementary products that we can work together, and that may be something that will happen.

7:44 But, we'll wait and see what happens with the whole Keysight acquisition. But the key thing was that we had the flexibility to move away if that's what we need to do next year. So as we look into next year, into the second half, sorry, we still believe we're going to deliver our line to market expectations. We had an increased backlog of orders going into the period. Of course, the uncertainties remain in the wider economic environment. And the again, we're we're kind of seeing the same as what the other companies in the sector reporting that it could be well into next year when it recovers. But we are not we've built a plan not in waiting for the market to recover, although we'll look forward to benefiting from that when it happens, but built on a plan of growth, built on our new product program, delivering extra value to customers that we could realize and also our positioning to really get to these new customers in the NAE as well. So we feel we're well positioned to create growth on our own, but also well positioned to benefit when the market does recover.

8:50 I've just brought out here a little more on this channel partners because, obviously, it's a significant change for us. But, you know, we have as I say, we now have over 75 partners signed up to cover the the to give us a global footprint. And as I said, there was about 40 before, so it's not like we've signed up seventy seventy five in the last six months. But there are a whole range. Not all partners are the same. We have some partners that cover territories that do quite a lot of it. They'll do a lot of business with us. But then there's other ones, like, we have one in Vietnam. We hear from once every three or four years. They want to buy a unit. So the partners are all very different. Some of them cover large territories, some cover just particular sectors. And I've picked out two examples here of people to give you a kind of feel for the kind of range of people that we've signed up.

9:39 TerraCom's a company we've worked with on and off and throughout the whole life of CALNEX. When we started back in going to The US back in 2008, we actually worked with TerraCom, and then we started working with GDSU who are now Viavi for a number of years. And then we went back to working with Telecom, and then we started working with Spirent. So they're a well established supplier. We know the guys well. They've really got a good footprint in all of the customers that we've been selling through to through Spirate. So, again, we were pleased that we could sign these guys up.

10:15 Whereas Cloud Depend is a new company for us in India, we basically they focus on the Indian companies rather than the multinationals. We've actually know some of the people in there because we'd worked with them previously in SPYRONT. They have personnel that had previously worked in SPYRONT. Therefore, we knew them well. We've been in discussion with them over the years. We keep in touch with channel partners just in case something needed to change. And they have good good they've developed strong relationships into the operators and data center companies in India. So again, we're looking forward to working with these guys because we feel they can potentially take us to some new customers as well as covering the customers we were engaged with with Inspire. So a real range of different type of partners that we develop.

11:02 And then going forward, it's not a matter of coming to the end. We will continue to work that channel network, look into different groups and channel partners that can take us to different customers for our different products as well as people that can give us good penetration into the people that we're already with. And, again, we'll continue to manage that going forward.

11:24 And I guess just on the the kind of long term drivers, we really don't see anything much changing there. We'd focus on the cloud computing and the build out of the mobile network. And our belief, the underlying drivers are still strong there. The operators have, you know, in the last couple of years, slowed down the build out of the mobile network, but they need to start doing it again soon because that's a requirement to move forward. The, you know, the future world needs more mobile access, and they will start building, and that will start to drive the whole telecoms industry when it does. And, of course, the cloud computing world is just getting bigger and bigger. The appearance of AI, we can see that the the data center guys realize that AI calls are gonna require a huge amount of bandwidth and processing power, so the build out of the infrastructure is a continuing pace.

12:13 So these fundamental drivers into all the sectors that we are looking at, we believe are still strong and are still the right areas for us to focus on in terms of our strategic focus and our product programs going forward. So at that point, I'll pass over to Ashley, who'll give you a review of the the finances for the first half. Thanks, Tommy. So just in terms of a summary overview and to to reiterate what Tommy just covered in his introduction, our financial performance in the period was a resilient one given the challenging and unpredictable trading environments we're still operating within. Although our revenues came in slightly under prior year levels, we were encouraged that order and revenue performance steadily improved throughout h one with q two delivering an encouraging uplift on a subdued q one, including strong order demand for our new Paragon 800 gig product, which will start to shift in h two and also for our NEA products.

13:11 That also led to an improved order backlog position, as Tom just mentioned, at the end of the period compared to where we started the year from, which also just gives us a good basis to start H2 with. Our gross margins have remained robust and came in line with prior year at 74%, which is also in line with where we were planning. And the shortfalls on the gross profit pound figure are being driven by revenue volumes only with product margin mix holding up against prior year end plan. We continue to manage overhead costs and R and D investment cash costs tightly with those costs coming in on plan and in line with last year despite inflationary increases in the current year. Inventory sitting over just GBP 6,000,000 with some further investment being made in the period, albeit at lower investment levels than the prior period.

14:01 This continues to allow us to manage lead times for customers and be ready to serve an increased demand when the market conditions improve, also providing us with a good foundation in which to return to stronger financial performance in future periods. And we have a continued strong balance sheet, which we still carry and we still carry a significant level of surplus cash on top of what is needed for working capital day to day management, with cash returning to over GBP 10,000,000 in the month after the period end. Just moving on to the revenue analysis in the period. Just before I take you through the regional and product line splits, I just thought it would be useful just to remind you of our revenue model and our revenue streams.

14:46 So we have two revenue streams, the main one being what we call bundled hardware and software, and we also have software support programme revenues as well. So for bundled hardware and software, typical customer will will purchase one of our hardware products with a number of software options included at the time of purchase, and that's invoiced as one bundled sale. They can then come back for upgrades or additional options that are added to the existing hardware they've already purchased through the provision of a license key, and and we sell that as a a standalone software sales or upgrades. Bundled hardware and software sales sales pricing will differ from each order from order to order as it depends on the hardware product being purchased and the numerous software option choices and mix that each hardware product can offer.

15:34 And each customer purchases a different combination of software options for each hardware product depending on what what it is that they need they need it for. So as a result of that variability, the average revenue earned per bundle will vary from order to order. And that revenue is recognized on dispatch or delivery of software license key that's a standalone software sale, and that makes up the majority of our revenues. And then each of our products comes with a standard warranty period, which can be extended for an extra fee, and we also sell software support programs, and that makes up our second revenue stream. And that that revenue is recognized over the life of the product. So if a customer purchase a support pack that that spans more than one year, that revenue the revenue that's associated with those future years is deferred on the balance sheet and released over that that same number of years that the package covers.

16:29 So just with that background, in terms of our geographic and product revenue performance in the period from a regional perspective, you we have three regions, and that is The Americas, North Asia, and rest of world. And rest of world includes Europe, Middle East, India, Southeast Asia, and a little bit of Australasia as well. So you can see from the disclosure notes in the RNS, it meant that America's region was our biggest performing period region in the period from a revenues perspective with 39% of revenues, the rest of the world coming in a close second at 37%, and North Asia taking out the remaining 24%. The rest of world region has been the least affected by the slowdown in the telco end markets and is able to take advantage of a more diverse

17:17 sector mix from an end customer perspective, which contributed to their performance exceeding both other both other regions in the prior period. The revenue decline in in this current period against the prior period is really predominantly due to timing of shipments and timing of revenue recognition as opposed to order demand. The region is still the highest performing region from an order perspective in the current period. The North Asia region continues to operate against the backdrop of The US China geopolitical tensions, remain in in the region. So as a result, China still remains a a challenging country for us. However, we've seen another strong performance in Japan and Taiwan as we continue to focus on growing those businesses within the regions while China is more difficult.

18:06 The Americas region continues to be the most impacted by the telco slowdown, but we did see a 53% growth in revenue from the region in the period compared to last period last half year. And that's driven from a revenue perspective, that's driven by the sales of our NAA products, our emulated products, which have been successful in the cloud based and government sectors in particular. And that's been the focus for us whilst the telco market has been slower. We're also seeing some encouraging order demand in that same region for our newly developed Paragon Neo 800 gig product coming from that coming from the Americas region, which was another key focus for us in this period. And those orders were were planned and will and will ship in h two.

18:52 We plan to ship in h two as well. From a product line perspective, lab sync, so that's our Paragon Neo and Paragon X products, that continues to be impacted by the slowdown in the telco market as is the case with our Sentinel product, which is our telecoms focused network sync product. Although the order demand for the 800 gig NEO that I just mentioned is very encouraging, and we'll start to see those orders generate revenue in the second half of the year. Our plans for growing Century sales, our network sync product aimed at data centers are continuing, and we saw good growth in orders and revenue for our NEA product line. So that's the SNE and the NE1 emulators. And that was across a range of end markets driven by a strong demand for SME X and SME Ignite, plus continued solid demand for our NE1 product as well.

19:48 So just on to the income statement itself. So as Tommy said, the revenue for the half was GBP 7,400,000, which is a decline a 6% decline in last year's half, driven by the challenging dynamics that are still exist in our end markets. And as you know, our indirect cost base is largely fixed. The tighter the revenue, the more negative operational gearing, the the it it it affects the p and l at the profit line. So from a gross margin perspective, gross margin, as I mentioned before, was 74% in the half year, very much in line with where we planned it to be and with the and in and with the the prior year. Sometimes, gross margins can fluctuate by one to 2% depend depending on the mix of products and bundles that are sold in the year, but the mix of the margin has been constant with the prior year trends.

20:49 And just as a reminder, that's the gross margin net of commissions payable to our channel partners. That's our margin. As you can see here, admin costs, so that's excluding any depreciation and amortization at this point, which is shown separately on the p and l here. That came in line with prior year as we continue to we continue with the cost control measures that we were put in place last year.

21:16 A tight tight control on costs, including headcount, so we've continued to pause on our headcount growth, excluding a small amount of graduate hires and any key replacement hires, of which we've only had a very few. And as a result, the headcount is slightly reduced to a 157 for the group by the end of the period from 160,000,000 at the period

21:41 prior year end, sorry. As you'll know, we capitalize 100% of our R and D costs and amortize these to the P and L over five years. So r and d amortization came in at 2,100,000 for the period, and that was as planned versus point 1.8 in the prior year. We've we've from I'll show you in a second on the cash flow. We've actually not increased the cash spend in in r and d, but in a period where there's no headcount increase, the amortization will will increase automatically as part of the calculation as a result of prior period headcount increases in the five years prior to the current year because of the amortization policy. So loss came in a loss before tax came in at 1,300,000, driven by that revenue per volume performance, the revenue volume shortfall and the increase in our r and d amortization.

22:35 All other costs were in line with prior year. For the fixed cost base, as I said before, continues to cause a negative operational gearing effect on the p and l, but as as we've also said previously, we need to retain this cost base to return to growth in future periods. The effective tax rate for the period was 24%, and EPS is currently a loss per share of GBP 1.13, driven by the trading performance on profit. So just on to the cash flow. Total cash outflow for the period was GBP 3,300,000, which reflects both the trading volumes in the period and movements in working capital, but also was affected slightly by month end cut off. We saw some significant cash balances coming days after the month end, which I'll cover in a second.

23:27 So as you can see here, working capital movements were £1,300,000 of an outflow compared to the £3,300,000 outflow in the prior year. And that's predominantly driven by an inventory investment. That's as a result of a planned buildup of some demo stock for our new product releases, including the Paragon 800 gig, and additional investment in relation to demand plans in line with previous order expectations, which do take some time to dial down through the supply chain, but shouldn't repeat into H2 or into the following year. And as trading volumes increase in H2, we

24:05 expect that inventory balance to start to reduce. Cash used in investing activities is principally cash spent on product development activities, which, as I said before, is capitalized and amortized over five years. And as you can see here, the investment in development spend in the period was £2,600,000 That was in line with the prior period with, as I previously mentioned, the cost control measures and headcount pause offsetting inflationary salary increases and a small graduate headcount increase in that team. The group, we had paid GBP 800,000 in tax in the prior period in FY 2024 to HMRC based on profit generated in FY '23.

24:53 As I just mentioned, days after the period, the half year end, 1,100,000 was received by us by the by HMRC in relation to that refund plus some additional cash receivable due back for the f y twenty four r and d tax claim as well. And that, alongside some other positive receivables movements from the September month end, brought the cash balance back up to GBP 10,300,000 at the October month end. We're still holding a significant level of surplus cash on the balance sheet, which we keep in high interest deposit accounts to maximize interest income. We still have no debt on the balance sheet and we expect H2 to be cash generative given the expected revenue growth and the run rate on costs.

25:40 And that should take us back to close to where we started the year from in terms of our cash balance. And I'll hand you back over to Tommy. Okay. Thanks, Ashley. So let's just have a quick look at our strategy and then do a spotlight on our kind of go to market activities.

25:58 So our strategy hasn't changed. It's still the same as before. As I mentioned earlier, we still believe there's significant underlying, growth opportunity in the build out of the mobile network or the growth of five g, and also in the cloud computing sector sector. So these are still the the main areas that we will continue to focus on in terms of looking for new opportunities and expanding our our current footprint. And, of course, we as we've mentioned before, we do kinda look for potential acquisition targets. It is you know, our industry is an industry where there isn't a huge number of companies that are working in it, but we continue to keep in touch with people. And in fact, in the last year, we focused more on strategic partnerships and and looking to see whether we can work with people. Obviously, when we had a a kinda overarching umbrella arrangement with Spirent, it made it hard for us to work with some of the other test vendors out there. Now that that's diminishing is maybe opportunity to work in in terms of a go to market with a kinda joint proposal with some of the other test vendors. So these are some of the things that we're looking at as well as continuing to look for opportunities to acquire businesses that would take us to new business. New business, in my mind, defined as either going to a new set of customers we don't sell to today or having something in addition as to what we have today to sell to the current customer base.

27:24 If you look at our product portfolio, our platforms, which looks familiar from the last time, through the period, we've continued to enhance all these products. Engineering teams are continually to add additional functionality, to align to standards, developments, customer requests, etcetera. The biggest change is obviously at the top left hand side there, the introduction of the Paragon Neo s, the larger one of the two. That's the 800 gig platform. It's actually heavily leveraged the the Paragon Neo. It's really the 800 part that's changed, but all the other REITs we've kinda leveraged between platforms to to get the value of that engineering. So these products are continuing to make good traction in the in in the market, and we're continuing to enhance and develop them aligned to customer requests and, obviously, changes in the in the technology road maps that we address.

28:19 I just wanted to take a minute to look at the two markets because I actually just gone back here. If you look at the lab sync and even the sync market as a different market from the the NAE, The the sync market was where we started in as a company, and we are well established. We are really regarded as a de facto standard for testing high accuracy times through the network. So we're well known across the market space and and, have a good global footprint, and I'll talk about how we maintain that in a minute. But the NAA is a market that we are developing into, and it's it's more about understanding how to go to market in that that sector and get additional customers. And really, when you look at it, there's a whole group. And what we find is that rather than present the the capability of the product as a a multipurpose toolkit with lots of great capability and the products are feature rich, it's more about thinking about each sector.

29:15 What is it the customers are trying to do? What's the problem? And how what we do is actually gonna make it better. And that can be quite different in terms of the the way you present it in different sectors in in terms of presenting to the space or defense as you would enterprise even though behind it, it's the same product that you're using. And as well as thinking about collateral and and good and how you present it in terms of information, it also means that we have to think of how do we get to these customers. Do we use our current sub channel partner network, or do we have to sign up with new people? Do we want to work direct? Is that the best way to do it? Or do we want to work through, like, in the defense sector through system integrators or prime contractors that are taking large project projects on for government agencies, bringing together lots of equipment, and then really trying to get our equipment built into that.

30:09 So it's been really important to to understand that, and it's something we've really been focusing on in the last eighteen months is our route to market. And one of the sectors that we focus on is space, and I've got I'm gonna ask now, Alexandra, to to play just a short video of two minutes to try and explain how we try and present the product very much bespoke for that that application. So, Alexandra, could you try and run the video, please? I'm Frank Karanek, and I work for CALNEX SOLUTIONS. CALNEX is a premier vendor of network emulators. We have the broadest range from very high speed network emulators to very flexible network emulators. But today, I'm here to talk to you about satellites. Satellites, SATCOMs in particular, throws quite a challenge at applications that have to use it.

30:58 From very high latencies in the geo environments to the moving feast that you get in the LEO environments where there's quite a bit of jitter caused by the movement of the satellites relative to the relative to the ground.

31:10 In the middle of that is LEO, which has a bit of the characteristics of both. But if you want to test in those environments, you're probably gonna say to me, well, we'll just do it in the real environment. We'll buy some satellite time and do it. Well, that's expensive, but there's another problem that's even bigger. The network is just whatever it is on that day. You'll either find a problem or not. And if you do find a problem, how will you get your developers to look at it in order to improve the application and retest it in the same environment? With our network emulators, you can do just that. In your lab or a corner of the office, you can effectively have a satcoms conditions created by our emulator of any network design that you like and any type. You probably want to test on the edge conditions where the network is bad and then when you produce an error, you can get your developers to look at it, and repeat it for them. And if they say they've made a fix, you can test that too. So controllability and repeatability are the watchwords of those environments.

32:03 So if you have other environments that are important to you like VSAT, we can do those too. So we control all the major parameters for these things, the bandwidth, the latency loss, and you can set those for everything you want. So what will this do for you? Well, if you don't do it, you're gonna produce applications that are going to need fixing at high cost and high amounts of time. We eliminate that by testing properly at the very beginning. So if you want to know more, come and talk to us at CALNEX SOLUTIONS. So hopefully, get a flavor there from Frank that how we try and present it very clearly into the customers currently, you know, in terms of how they are thinking about it, what their problems are and trying to and trying to present what the value that we can deliver to their very specific problems. And that's really been a major focus in our NAA program is that go to market approach. And as I said earlier, it has actually starting to bear fruit through the first half, and we hope that it will continue to grow our market through the next half and into next year.

33:06 I just wanted to compare and contrast that to our go to market for the sync products. As I said, all this in the sync world, we're well known. They know who we are. So it's not about kind of taking the product and actually trying to explain who we are and what the value is. It's more about staying present and staying relevant in the market. So we do a lot of work to kinda keep our name up there. We we do white papers through with some of the standards bodies like IEEE. We recently there was a timing conference in Europe, but it happens once a year. We did a joint presentation with NOS, who are the operator mobile operator in Portugal. We're actually with our one of our new products, SyncSense. We got it installed in their lab. They ran some tests, and then they presented the results. So it's about showing that we're well connected into the industry.

33:53 We've done press releases with China Mobile where we've done testing for them, and we've done other things like creating kind of semi bespoke brochures, going after different groups, and working with different key players within the industry. So we need to stay relevant to the market, we need to stay engaged because, you know, it's not just about selling. We we need to know where the industry is going, stay track and understanding which technologies that that our customer base is looking at, what they're gonna pick up and what they're gonna need tomorrow and next year and the year after. So very much it's a different approach in terms of that very front end engaging with customers in the two product lines. And really, what we do is try and make sure we understand how to keep that engagement, either develop new engagement with customers develop engagement with new customers, sorry, or stay engaged with customers we already have.

34:46 So to just wrap it up, you know, the macroeconomic environment remains unpredictable for us and challenging, especially in the telecom space. But we have got new product initiatives that have been delivered, and they've they've been delivered on time, which allows us to really try and develop revenue from these in h two and also f y twenty six. We expect the telecoms market to remain challenging through f y twenty f y twenty five, but, you know, we don't we're not banking on it coming back. We expect that it will come back. We're delighted when it does come back, but we're not building plans as soon as it's coming back. We're making sure we are looking for growth from what we are doing. But when it does come back, we're well positioned to take advantage of the the growth back into the telecom sector because we've remained connected and relevant in that sector.

35:38 Of course, during this time, we've taken the opportunity to try and diversify our market base going into some of these new applications for our NAA to spread our base, which will be create hopefully more stability in the company and more growth in the future. And that's why we believe that we can continue to deliver the the financial performance that we have in the market expectations. So at that point, we shall move on to some Q to speak to questions. May have just raised the Q and A tab, which is situated on the top right hand corner of your screen. Just part of the company, take a few moments for you to questions that have been submitted. Recording of this presentation. Normally, the copy of the slides and the published Q and A can be accessed via investor dashboard.

36:24 As you can see, we have received questions throughout today's presentation. If I can hand back to you, just read out the questions and get responses to it. Appropriate to do so I'll pick up from you at the end. You got some questions? Good to go, Ashley. Yeah. I've got a couple of questions here that I can answer, then I'll hand over to Tommy. So first question here from David. Has change from spirant to new distributors impacted order intake? That came in during the presentation, so I think Tommy covered off some of that when he was talking about the channel change. We we haven't stopped dealing with Spirent completely. So we've come out of the reseller agreement, but we are now acting on a more of a memorandum of understanding, deal registration format with them. So we're still very much engaged with Spiron.

37:17 So that's that's effectively aiding the or maintaining order intake levels while the new distributors get up to speed. So it's working quite nicely with that sort of phased phased approach. So hopefully that answers that question there, David. Next question here is from NW. What impact will USA tariffs have on revenues and margins? Very hard to say at the moment as as we don't know what level those tariffs or what the what the can make up or detail of those tariffs would look like. At the moment, keeping a very close eye on it. When if the if the tariffs are are low enough, we would be able to we would look at passing that on through price increases to to cost to end customers.

38:05 Over a certain level, those tariffs that may we may have to take some of that cost ourselves, which would which may impact margins, but it's very hard to say at this moment in time due to the fact that we don't know what what level they they will be. But as as things progress, we will be keeping a very close eye on that and modeling that through, so we will communicate more on that as we as we start to understand it ourselves. Okay. I'll pick up one here from Stephen Key. In the newer markets like cloud cloud computing and defense, how does the sales pipeline compare with historical performance in the telecom sector? Stephen, it's kind of something you have to learn how to work with these customers. You know, we've had some you know, the ones that we find most challenging to get used to, is probably the system integrators that are working with government agencies.

38:58 So what I mean by that is, you know, you get to know customers. They you know, every company has its own characteristic. If if, we get told we've won a deal, some you can almost guarantee with some companies, you'll get the paperwork the next day. There's other companies, you know, it'll take two or three weeks before it comes through, and you get to know that. I think, obviously, with these defense guys, we're kinda it is part of the the learning process to understand. You get told you've won the deal, and then a month later, you still haven't got it through. So there is a kind of difference in terms of learning the the kind of signature characteristics of different sectors, different customers in terms of how they work. But I think that's just part of the kind of learning process of going into to new customers. And and, you know, we've always had because of the the high value of our products, we're used to engaging directly with customers, so it's not unusual for us to find that there is a difference slight difference in behavior from sector to sector and also from customer to customer.

39:57 I'll pick up the second one from one from Marcus here. Other plans to on door onboard additional channel partners to sustain H2 Momentum? Definitely. You know, I think we've this year, the focus was to have a channel that we could switch the Spirent business or the business that we've been putting through Spirent away from there. We've done that. But in terms of going into these sectors, especially in AA, unless they're on telecoms, then we do expect to continue to sign up additional partners, different system integrators, etcetera, that actually have good connections into end customers. So, you know, we would see our channel networks always changing. There's always a bit of flux going on year in, year out where partners where good partners suddenly seem to put less time into products, so you move to a different partner. That's kind of the natural channel management you expect to see. So but we do think we can definitely expand further by continuing to look to to create some new relationships as well.

40:58 Got one, Ashley. Yeah. Got one here from Marcus A. Are there any plans to expand r and d capacity or new product lines? At this moment in time, Marcus, we are it it's in when markets are slower and our revenues aren't as high as we'd like them to be, We we aren't looking at adding any more heads into r and d spend. The majority of that is is headcount. We aren't looking to add any more heads into that until we can see significant growth on the horizon. However, the r and d team that we do have will be looking at constant development of the of the product lines that we do have and and new iterations of those product lines as well. So there's a lot of activity happening within our R and D team at this moment in time, even without having to add any more capacity at this point in time.

41:56 And the last question that we have here at the moment, has the strategy changed to move away from sparring to partners with other third parties resulted in a significant increase in direct costs and additional requirement for staff for staff time in operating the new structure? Has this reduced resulted in a reduction in speed and efficiency. Yeah. There's a couple of angles to that. First of all, from a pure money point of view, you're right. There is additional cost in terms of working with more partners. Spirent provided a lot of value in terms of logistics, shipping relationships, contractual relationships that we've had to replicate. But of course, the third party small partners don't take the same level as margin of as pilot, so we were we did actually plan to hire additional people into the structure. At this point, we haven't really done a lot of hiring, just the kind of general situation, and also waiting to see how the the new partnership starts to work out.

42:59 Do we need more technical support? Do we need more channel managers? And so we we would expect to put more cost in there, but, actually, we believe net to the bottom line, because we're getting more margin at the top level, net to the bottom line, it'll be at least neutral, if not positive. And has this result in a reduction in speed and efficiency of operation? No. I don't think so. I mean, obviously, signing new channel partners is something that, takes a bit of time, and it's one of the initiatives for the next year is to get is that channel management. Now that we've got a lot more partners, I think we need to look at the way that we manage partners in terms of onboarding them, training them, continually updating them, making sure they get the right information for the type of customers they have. So there's always an opportunity to improve the way you do things, and through channel management is something we will look at going forward. But I don't believe it's had an inherent impact in the way we do business. It's just a different set of challenges.

44:01 Perfect. Tommy, Ashley, thank you very much for answering those questions from investors. Of course, the company can review all the questions submitted today, and we will publish those responses out on the Investor Me company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to you both, Tommy, could I just ask you for a few closing comments? Sure. Well, as I said, I think the year has played out much as we expected at the beginning of the year. We expected H1 to be challenging. It was challenging, but we were pretty near our numbers. And we expected to be the one that we created growth. We go into that still with our expectation. We've got our new products of we've been pretty successful at bringing key new products out. So we've given ourselves a really good chance to continue to grow the market, a new approach to to in the NAE with a a strategic approach to the market in terms of route to market, in terms of where we present ourselves is also going well. So we feel that we should be confident going forward as we as we go into the second half that we can deliver the results that we've advised the market.

45:05 So thank you very much for your attention today and for joining us, and we'll see you next time. Bye. Thank you both for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This won't take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of CALNEX SOLUTIONS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.