Calnex Solutions plc

and throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time by the Q&A tab situated in the right-hand 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 received in the meeting itself. However, the company can view all the 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 the CEO. Good morning, sir.

Good morning. Good morning, everyone. Thanks very much for taking the time to dial in and listen to our results. So before we go into the results, I'll just take a few minutes to introduce Calnex to the people who are less familiar with the company. And then we'll go in and talk about the recent period, what the results were, and progress we've made during that period across a number of areas. So CalNIC Solutions brings clarity and confidence and set into the world's networks and applications. What we do is deliver test solutions that allow equipment vendors or people building networks to prove the performance of the equipment or the networks and ensure it's going to work under all conditions. You can see on the left-hand side the type of companies we've sold to over the years. We started selling a lot to telecoms customers. So you see the telecoms vendors, Cisco, Ericsson, Nokia, key players there that are using our products, as well as the operators like AT&T and BT, and component manufacturers like Broadcom, Qualcomm, et cetera. But we also have been selling to the data center and the enterprise market. And on the right hand side, it shows just some of our heritage and where our spread of business is at the moment. So very much it started in telecoms where the company started. As I said, really proven performance of equipment to the international standards. But a lot of the equipment and standards that come out of telecoms are adopted by many industries across the world. And that's allowed us to move into places like cloud computing and data centers. as well as moving more into government and defense type infrastructures as well providing the same solutions so we are a company that's sold in 68 countries around the world we use a partner network which we'll talk about later that gives us that global footprint and we're on a lean model where we outsource our contract manufacturing to a contract manufacturer So what areas of test do we generically focus on? We focus on design validation and conformance test. So you can think of this as somebody that's building a new switch or a router or a piece of equipment. And the R&D engineers, as they're building the equipment and get the prototypes and the early production units, need to put it through its paces to check that it's going to do exactly what they expected, meet the specification, and also prove that it meets any international standards that they're going to claim conformance to. So that's really the area that we focus on. And it's an area where effectively having the right tools at the right time, you enable your customers to get their new revenue streams to market quicker. And it's not just a bit quick and time through, but it's robustness that they know that once they release it into manufacturing, they won't have yield problems. And once it's deployed in the networks around the world, it's not going to have problems in terms of operational problems. So the right tools at the right time, you can command a healthy price because you're basically enabling your customers to enable revenue streams. So that's the primary area we focus on. The one other area we focus on is shown here in the far right, and that's that high level maintenance and monitoring. So it's not so much about building networks, but once the network's there and running, either monitoring its performance, or if there's a fault after you've determined it's not a straightforward fault that can be fixed by just replacing equipment, you have to do a deep dive to understand what's happening. We provide the tools to give that deep insight to allow that sort of work to be done. So that's who CalNICs are. So let me go straight into the review from the first half of FY26. For the period, we closed revenue of £8 million, which was up from 7.3 the year before. We made a slightly less of a loss this period than we did for the same period the year before. And we continue to have a healthy cash balance of over £10 million. And we plan to distribute a dividend of 0.31p per share. Through this period, we've continued to innovate in our products and continue to push ahead with our building our market presence. So at the end of the last year period, we launched our 800 gigs product, which was market leading and we continue to use that to build momentum in the telecom space. But we've also seen strong demand for our other product portfolios in the US government and defence space. And we're doing a lot of ongoing activities, which I'll talk about later on, to really understand what's happening in the cloud and computing world as an effect of AI. we are not directly involved in ai but we're in the vicinity of ai in terms of really trying to understand where the opportunities it's going to create as they try and build out the infrastructure to to deliver the ai that the that's needed by the modern world As I said, telecoms was a place we started, still a very key market for us, and it has been subdued over the last few years and it continues to be. But we continue, we are starting to see a slow increase in business there from deals and in terms of engagement with customers, there is more and more deals coming our way in terms of customers want to talk about upgrading units or buying new units, which is a healthy sign. But we expect it to continue to be a subdued market going forward. in saying that we've actually secured access to a set of chips that allows us to start working on a 1.6 terabit version of the paragon neo this is the next uh rate that's gonna is already starting to get deployed and it is a technically a very complex product to do so it will take us around 18 months so we expect to release it towards the middle of calendar year 27. But it's a key for us to continue to follow the technology waves as we have over quite a few waves now from 10 gig right up through 100 gig, 400, 800 and now 1.6 terabits. So an important part of our portfolio going forward. The other thing that we've been focusing on recently is an internal structure on how we go about doing business. and we'll talk about our channel partners in a minute but that's changing quite a lot but we've brought some new leadership individuals into the the company we've recently just hired a new vp of sales and earlier in the year we brought in a vp of markets and products and and they're really helping to look at the way we go about business how we engage with our customers and how we what engage with our partners our sales partners to basically sell our products so if you look at this map it looks the same as it's probably looked for a few years in terms of the countries we're working but there is quite a lot of change happening if you're familiar with calnex you'll know that we used to work very closely with spirant um in terms of up to about 70 percent of our sales went through spirant they were acted as a channel partner so when it was announced last year that they were going to be acquired by keysight it was clear that we couldn't continue to work with them so we've been migrating a channel to a different set of partners so we've been successful in doing that and bringing on a number of new partners that basically give us the same coverage but also looking to enhance the coverage that we get by bringing in new partners that for example are focused on the the defense sector in north america to give us a much stronger footprint going forward We've also invested, well, Ashley will talk about how we've controlled expenses. We have done targeted hires and particularly in the sales and marketing side and we've invested in partner manager in the US as well as a person focusing on the federal market in the US again to give us better traction into that market space. And while we used to work with Spirant, along the way from when it was first announced that Keysight was going to acquire them, if you're familiar with the market, you'll know that the regulator required Keysight to spin out part of Spirant and we weren't allowed to acquire the whole company. And that part is now part of the Aave. And that deal was just closed literally just two or three weeks ago. But the part that went to VIAVI is the group that we worked with. And as we go forward, we have continued to work with them and we hope to continue to work with them in a new way going forward. Because they've just really effectively arrived in VIAVI, these discussions are just getting underway. But all parties are keen that we maintain the strength that we had, the relationship we had before. It will be a refreshed relationship in terms of the way we want to go forward, but hopefully it's a win-win for both parties. And it's interesting that Biavi is a company that we had already started working with early in the year. They approached us that they wanted to sell solutions to the customers in the O-RAN space, really using their product along with our product to give the market-leading solution to the market space. So we've signed a contract with them, the wireless group in Biavi, and to sell that and that's just getting underway and hopefully it'll bring us new business before the end of the financial year and definitely an fy 27. so at that point i'm going to hand over to ashley to talk about the financial results actually thanks for me

So just in terms of a summary overview and just to reiterate what Tommy just covered in his introduction, our financial performance in the period was a steady progression on the prior year in terms of revenue growth and profitability. So revenue grew 9%, as Tommy just mentioned, with growth experienced across all regions. And I'll go into more detail on that on the next slide. Gross margins remained resilient and came in two percentage points above prior year at 76%. That's really just driven by product margin mix rather than anything else. Our gross margins do tend to fluctuate one to two percentage points year on years depending on what bundles we've sold and what products we've sold. And then, as Tommy mentioned, we continue to manage overhead costs and R&D investment cash costs tightly, with those costs coming in a little above last year, very much in line with plan. The revenue growth and the slight uplift in margins dropped through to the other profit measures, with underlying EBITDA and loss before tax showing improvements on the prior period, as you can see, and cash was neutral. on the prior year before dividends, we continue to maintain a strong balance sheet. We do expect those cash flows to be positive in H2 in line with expectations. So just before I take you through the next few slides on the current year, I just thought it would be useful to briefly remind you of our revenue model as I've done in previous presentations. So as some of you may know, we have two revenue streams. Our main revenue stream is what we call bundled hardware and software. And we also have a smaller revenue stream for software support program revenues. So on the bundled hardware and software piece, a typical customer We'll purchase one of our hardware products with a number of software options included at that time, and that's invoiced as a bundled sale to that customer. And that customer can come back for upgrades or additional options that are added to the existing hardware through the provision of a license key. uh through their really through the the their time um dealing with us and we sell these as standalone software sales or upgrades bundled hardware and software sales pricing and combinations can differ from or from order to order as it really just depends on the hardware product being purchased and the numerous software options that the customer can choose from And each customer, as you might expect, can purchase different combinations of software options for each hardware product, 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 vary from order to order. And that revenue is recognised on point of sale effectively, on delivery to the customer. So either the delivery of the hardware or the delivery of software license key. And that, as I said, makes up the majority of our revenues. And then the second revenue stream comes from software support programs. So each of our products comes with a standard warranty period, but that can be extended for an extra fee. And customers can also buy software support programs. And that revenue is recognized over the life of a product because sometimes they can buy it for more than one year. So if a customer purchases a support package that spans, say, two to three years, the revenue that's associated with those future years is deferred on the balance sheet and then released over the relevant number of years that that package covers. So hopefully that gives you a little bit of background on our revenue streams. just on to the geographic and product revenue performance in the period on the slide here as you may know we've got three regions so that's the americas north asia and rest of world and within rest of world we include europe middle east india southeast asia and australasia as well So as you can see from the disclosure notes in the R&S, the split of revenues across the regions was broadly in line with the prior period. America took up 38% of total revenues, the rest of the world were 36%, and North Asia were 26% in the period, so not too different from last year. The Americas region does continue to be the most impacted by the subdued telecoms market, but we did see a 5% growth in revenues from that region in the period compared to last year. And that was driven by sales into the cloud-based and government sectors, which have been the focus for us while the telecoms market has been slower, as Colin was saying. We also continue to manage the US tariff situation, working with our resellers to agree pass-through of these costs to our end customers through transparent discussion up front through the sales cycle. The rest of the world region was the least affected by the slowdown in the telco end markets, if you remember from previous presentations, and is able to take advantage of a more diverse end market non-telco sector mix, which has assisted with growth in the period. And that region came in 9% higher in this half compared to last half in terms of revenues. Timing of shipments at the end of Q4 did mean that that region benefited from opening backlog roll-off in the period as well. And the North Asia region continues to operate against the backdrop of the US-China geopolitical tensions, which hasn't changed very much since the last time we presented. So as a result, China still remains challenging for us as a country. However, we have seen some really good performance in Taiwan and Korea as we continue to focus on growing business in the other regions within North Asia outside of China. From a product line perspective, so LabSync, that's our Paragon Neo and Paragon X products, that does continue to be impacted by the slowdown in the telecoms market, although the demand for the 800 gig Neo remains encouraging and we have seen some good demand for our more mature Paragon products as well, which is encouraging. Our plan for Sentry Sales, so that's our network sync product aimed at use in data centers, are continuing as planned. And we received a significant repeat order at the start of October from a major hyperscaler, which gives us a good start to H2 for that product line. And the NAA product line, that's the SNE and the NE1, is seeing good traction in the government and defence sectors where we're seeing use cases for both the potential use cases for the SNE and the NE1 for those customers. So just onto the income statement itself. I've covered quite a lot of the main drivers in the previous couple of slides, but just to kind of walk down the bullets here. So as I said, revenue growth of 9%, and that's coming from all the regions. That's effectively driven quite a lot of the performance in the rest of the P&L, but it's been supplemented by that slight improvement in the gross margin at 76% compared to 74% last half. As I mentioned, so admin costs, we show that separated out from R&D amortization in this table here, just to aid disclosure. Admin costs did increase as a result of planned headcount additions, and that's those targeted hires that Tommy was talking about earlier, and just inflationary cost increases. But as I said, they are very much tracking to plan. R&D amortization has increased slightly on last year. That's very much due to R&D headcount increases in the prior years, just due to our five-year amortization cycle. We haven't seen a huge uplift in heads within the R&D team. So that's effectively that R&D amortization of five years coming through to the P&L. And just one last thing to put out here, so you've got more information, the effective tax rate is 25% here. It's shown as a credit, just because we're in a loss-making position. As that loss-making position flips into profit, that tax credit will become a charge. Then just on to the cash flow. So net cash flow from operating activities was 2.8 million compared to 0.1 million in the previous year. It was 0.1 million of an outflow, sorry. And that's been driven by the improvements in EBITDA and the profitability improvements I just talked about and positive working capital movements. The working capital movement, 1.2 million is really predominantly due to movements in the debtors balances. So we had a larger than a larger debtor balance at the end of last year, just due to the timing of shipments and orders coming in at the end of Q4. So that was just larger than normal. That's all kind of rolled off in this half. So that's creating that good cash inflow there. an investment in r d of 2.8 million that's the the cash cost of r d the cost of our um r d engineers slightly above prior period um 0.2 million but that's very much just driven by inflationary cost increases nothing else exceptional happening there um 0.5 million of dividends paid in the period very much in line with with prior period trends and we are awaiting a 0.7 million r d tax credit due from hmrc in relation to last year's tax credit due that was originally expected for period end and so we're expecting it over the in very shortly in this in this period continued and that continued improvement in revenue volumes in h2 in line with uh expectations will generate positive cash flows um as we go through h2 And just to pull all that together, we've seen good revenue growth and gross margin improvement, which supports the improvement in the profitability through this half. We do continue to invest in our R&D programmes where we see revenue growth potential and we are keeping a tight control of overheads and overheads are tracking to plan. We are making targeted hires in the front end global sales and marketing teams, as Tommy mentioned, to support our continued growth. And we are confident in delivering continued growth in H2 and the FY26 results in line with market expectations. And I'll hand you back over to Tommy.