KORE Group Holdings, Inc.

Greetings, and welcome to the Core Wireless Group First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Vijay Birgia, Investor Relations. Please go ahead.

Thank you, Operator. On today's call, we will be referring to the first quarter 2022 earnings presentation that will be helpful to follow along with, as well as the press release filed this afternoon that details the company's first quarter 2022 results, both of which can be found on the investor relations page at ir.corewireless.com. Finally, a recording of the call will be available on the investor section of the company's website later today. Please note that this webcast includes forward-looking statements Statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate, and similar expressions are forward-looking statements and are based on assumptions and beliefs as of today. The company encourages you to review the Safe Harbor statements, risk factors, and other disclaimers contained on this slide and today's press release, as well as in the company's filings with the Securities and Exchange Commission, which identify specific risk factors that may cause actual results or events to differ materially from those described in our forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after this webcast. The company also notes that it will be discussing non-GAAP financial information on this call. The company is providing that information as a supplement to information prepared in accordance with the accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation. I'll now turn the call over to Romal Baal, the company's president and chief executive officer. Thank you, Vic.

Good afternoon, everyone, and thank you for joining us today for our first quarter 2022 earnings call. With me is Paul Holtz, CORE's chief financial officer. The first and key objective of today's call is to provide an overview of our financial results for the first quarter 2022. I will start with a summary of our results and then Paul will take you through our performance in more detail. Second, we want to help the market understand the massive opportunity ahead of Core as the first publicly traded IoT pure play company. Last quarter's deep dive focused on our world-class IP. And this quarter, we will discuss CORE's connected health segment and the market trends driving our largest industry practice. We will then hold a Q&A session to round out the call. So let's move on to slide four to look at our Q1 results. First quarter revenue was $68.9 million, up 25% year over year. IoT solutions revenue was $24.8 million, up 70% year over year. DBNER for the first quarter was 122% up from the first quarter of 2021. But please keep in mind that this metric continues to benefit from the LTE transition project at our largest customer, which was nearly complete at the end of this first quarter. Additionally, we are reiterating our guidance which will result in Core beating our combined two-year revenue forecast from our GoPublic model by at least $50 million. Before discussing Core's connected health business, I want to take a step back and note that we delivered these strong quarterly results despite ongoing supply chain disruptions, the 2G and 3G sunsets, and geopolitical uncertainties. As IoT adoption accelerates, it will unlock massive value for Core and customers across our five focus verticals. With that, I will present a couple of slides to provide some business context, and then we will move on to the deep dive topic of this earnings call, which is our exciting connected health segment. Many of you have seen Core's seven by seven chart on slide five before. For those of you new to our story, I will say that this is one of my favorite charts because it represents the customer's IoT journey. No matter the use case, how simple or sophisticated, every one of these seven major steps has to be taken to deploy an end-to-end solution. This slide clearly showcases why IoT deployments are so complicated and how Core is making IoT easier to adopt with our one-stop shop approach to enabling end use cases and IoT applications. It should then come as no surprise that we build our capabilities along these steps. And we continuously think about how to embed more intelligence into our software and platforms so we can drive more efficiencies for our customers who need to adopt IoT to stay competitive in what they do. Slide six takes those same steps from the seven by seven chart and aligns them down the side of this page. And then we have prioritized how we are building out the horizontal or cross industry capabilities that we take to market. These capabilities include IoT strategy and technology selection, IoT connectivity, which is really a combination of connectivity management, device management, and data management. The series of managed services around device logistics and configuration represented by steps four, five, and six. And finally, analytics. For 20 years now, we have been building the world's leading IoT connectivity capability. More recently, we have introduced a comprehensive set of IoT managed services. Our analytics capabilities are in the early stages, but represent a significant opportunity for the future. We would classify our capabilities across steps 3, 4, 5, and 6 as advanced. And while the others are advancing, we are excited to further our capabilities in step 7, or analytics, because of the SaaS nature of these services. As should be clear, most of Core's global team members, or IoTers as we call them, are organized in teams that build and deliver these capabilities. We take these capabilities to market in two ways. The first is our regional go-to-market approach. Historically, this was the only way Core went to market, and we have organized our sales teams in this area by the Americas and Europe and Asia Pacific. However, with the expansion of our offering portfolio, it is critical to understand our customer use cases and become more of a trusted advisor. So we are increasingly going to market by industry. We started this just last year by launching two of our five target industries where we expect IoT to have a meaningful impact. In fact, over 80% of the IoT spent today is across these five sectors. We are already seeing a lot of traction with these initial industry practices, and this has strengthened our resolve to increase our go-to-market industries over time. which leads us to connected health. Core connected health includes both key industry sectors, healthcare and life sciences. Use cases in healthcare include cardiac rhythm monitoring, chronic disease management, and medical equipment diagnostics. Key use cases in life sciences include clinical trials with electronic data capture and digital biomarker telemetry. I will go into more detail about both our segments and use cases in just a moment, but first I want to set the stage by talking about the broad trends we see in connected health overall. As you can see on slide seven, connected devices in both healthcare and life sciences are growing rapidly. Industry analysts estimate that the connected health market will exceed $500 billion in 2025. Organizations that successfully deployed IoT devices delivered better outcomes, improved their patient experience, and realized significant cost savings. Given IoT's success in improving both patient outcomes and cost efficiency outcomes, it is not a surprise that IoT adoption and spending are expected to grow for the next several years. So what is the challenge? What is hindering IoT adoption? As you have heard us say before, launching an IoT end solution that can scale effectively and securely is incredibly difficult. And it is no different in healthcare where the connectivity needs to work while meeting stringent data privacy and security regulations like HIPAA. Slide nine shows the complexity that healthcare organizations must manage and overcome if they want to launch a device that leverages the full capabilities IOT this complexity requires considerable time and resources that even large blue chip organizations do not have certainly not with IOT experience and real expertise what core fundamentally does for our connected health customers is bridge that gap we have done this with scores of customers helping with different parts of our 7x7 services and now consistent with what you have heard us say before we are focusing on pre-configured enablement solutions, which focus on key problems that almost all companies deal with in these use cases. Across Connected Health, we have launched just such a pre-configured solution that, with relatively minor tweaks, can address several use cases across healthcare and life sciences. Our Connected Health Telemetry Solution, or CHTS, massively simplifies the complexities of IoT. overcoming significant barriers to entry, and shortening adoption times. Course capabilities enable superior coverage, reliability, and regulatory experience to provide real-time data insights to unlock significant value for customers and their patients. As IoT adoption accelerates, so too will demand for our connected health solutions, especially with IoT's rapid growth, We are confident that IoT adoption will continue to accelerate in both healthcare and life sciences, and we will show you why we think that in the next several slides. Slide 11 covers trends for chronic disease treatments. Chronic diseases include diabetes, hypertension, chronic kidney disease, and the other conditions listed on the left side of the page. The CDC estimates that 60% of Americans have at least one chronic condition. and forty percent of all Americans have at least two chronic conditions the cost of treating these conditions is broken out on the left as you can see treatment costs are already well into the billions of dollars with diabetes costs alone reaching a whopping 327 billion dollars these costs are a burden to patients and providers alike IOT has emerged as a critical tool to help contain these costs while improving patient outcomes. However, enabling IoT for medical devices can be difficult due to medical device regulations. Current regulations consider anything integrated into the wireless module firmware, including cellular modules, to be a fundamental aspect of the medical device. Because of that, any change or update to the firmware requires regulatory submission and approval even if it does not impact the core function of that device. This is a significant challenge in launching an IoT device. Many medical device OEMs and integrated therapy providers are looking for ways to enable IoT solutions using existing technology to overcome this regulatory challenge and improve their time to market. Core addresses this opportunity by adapting existing wireless technologies that are not integrated with the medical device. and therefore do not require regulatory approval for every update. Additionally, CORE leverages common gateway architectures that IoT enables within a variety of devices, including dialysis cyclers, oxygen concentrators, and infusion pumps. For example, CORE's sensor technology and scalable gateway architecture help enable an innovative congestive heart failure treatment that incorporates IoT solutions. Congestive heart failure has two traditional crisis indicators, weight gain and blood pressure. Unfortunately, a congestive heart failure crisis may have already begun by the time the two crisis indicators manifest. Core's healthcare solutions help address this issue. Core enables our customers to launch a pulmonary artery pressure sensor, which is a remote patient monitoring device. The pulmonary artery pressure sensor incorporates a Bluetooth sensor, which is inserted into the pulmonary artery. Once the device is running and connected, it provides real-time analytics to healthcare organizations without the need for a patient to show up at a healthcare facility. This device provides life-saving medical alerts 10 to 14 days ahead of traditional crisis indicators. This IoT-enabled medical device is an incredibly powerful tool that can prevent a potentially fatal health crisis and the associated treatment costs. In parallel to these trends in chronic disease treatments, there have been three trends driving IoT adoption in life sciences. The first is the movement towards electronic data capture from patients who are otherwise manually inputting data. In the past, clinical trial data was captured by having patients physically fill out a form. After that data was painstakingly collected, it had to be sent to the clinics for analysis. This whole process could take between 12 weeks to more than a year. With electronic data capture, this process can be done in real time. With the data ready for analytics, as soon as the data collection stage of the trial is complete. The second trend is incorporating digital biomarker data into clinical trials. This is a growth area that is just getting started. Historically, the lack of an off-the-shelf plug-and-play solution was a roadblock to IoT deployment in clinical trials. However, Core's recently launched CHTS solution, which allows devices to easily and reliably connect and transmit biometric data, bridges that gap. These two trends are resulting in trend three, which is an explosion in DCT, or decentralized clinical trials. While the industry was cautiously evaluating DCT technology before the pandemic, COVID-19 forced rapid industry adoption. As you can see on the chart on the right, approximately 28% of CROs ran DCTs before the pandemic. That figure increased substantially during COVID and is expected to continue growing with 95% of CROs planning to increase the use of DCTs within the next 12 months. However, the exponential growth in sensors used in clinical trials is not limited to DCT. Industry analysts estimate that up to 70% of all clinical trials will require sensors by 2025, which means that 70% of all clinical trials will utilize IoT by 2025. This is a massive opportunity for CORE, and we have positioned ourselves accordingly. In summary, these three powerful industry trends are driving IoT adoption in both our connected health sectors, and we are confident that these trends will drive growth in that business for the next several years. Based on these trends and market insights, slide 14 summarizes CORE's go-to-market strategy for the two key industry sectors that comprise connected health. In healthcare, we have remote patient monitoring, medical equipment diagnostics, and medical alert monitoring, and within life sciences is clinical trials. I will not spend time detailing each use case, but as you look across those 12 boxes, you should recognize some use cases we just talked about, including chronic disease management and DCT. And I want to highlight a critical point. While there are 12 different use cases on this page, CORE is not building 12 different solutions. Rather, we can build once and deploy many times because of the commonality across these use cases in the areas we serve. On slide 15 is another view with some of our top priority use cases. As you can see, we can serve customers deploying end solutions in these areas with a variety of our seven by seven services as showcased by the green check marks. We are actively recruiting and developing our sales team to have the ability to sell multiple services to each customer. And then, we overlay our innovative pre-configured solutions. As discussed and as we have solved the problem for one use case, we can integrate that solution architecture into a common base. Then with slight tweaks to that base, we can go to market in several ways targeting multiple use cases. So our investments in our technology are extendable and scalable across different use cases. For example, the only thing we must alter between our chronic disease management our cardiac rhythm monitoring, and medical equipment diagnostic solutions is the sensor interface on our gateway. So now let's look at our CHT solution, which is outlined at a very high level on slide 16. On the far left, you can see Core's cellular gateway, which can interact and receive data from various medical sensors and devices. That data is transmitted to Core's connected health data telemetry platform, Core's role in the process includes medical device and sensor integration, gateway device management, global connectivity management, and data telemetry to the customer endpoint to ensure that data is delivered quickly and securely. However, it is important to note that core's role ends with data telemetry to the customer, as represented by the vertical dotted line on the slide. Once our customers acknowledge and accept the data, We purge it from our platform. Core is an IoT enabler. It is our customers who use and apply that data we help collect. Moreover, as you can see on the right side of the slide, data telemetry is helpful across a wide array of use cases. A simple way to think about our CHTS solution is that essentially everything in orange on the left side of the dotted line enables all five use cases on the right including chronic disease management, medical equipment diagnostics, and clinical trials. With CHTS, CORE has created a product where 80% of the solution is standard across use cases and only 20% must be tweaked. So in summary, the beauty of CHTS is that it is simple to install, cost effective, and allows us to target a variety of use cases. Slide 17 provides an overview of our connected health practice as it stands today. and what we think the business can do longer term. Healthcare costs are rising, and IoT is one of the best equipped technologies to reduce healthcare costs while improving outcomes and patient experiences. Those trends drive massive adoption and spending in IoT and create a massive opportunity for core. We are allocating our time and capital in proportion to that opportunity. These investments are already paying off. We have a large and growing customer count and a large customer pipeline with numerous cross-selling opportunities. We are confident in our connected health business and expect it to grow more rapidly than what we included in our GoPublic forecast through 2025. That forecast is represented on the left side of the page. On the right side of the page is our stretch goal of growing at more than 30% CAGR in connected health. In conclusion, I will say that we are very proud of our connected health team, and further, we believe that this innovative and strategic approach to helping our customers adopt IoT is extendable across industries. As 5G matures and IoT progresses, we expect additional use cases to open up, and we will launch new industry practices to attack them. and work to ensure that CORE is the best positioned service provider to unlock value for those use cases. With that, I will now hand the call over to Paul to cover the financials in more detail. Paul?

Thank you, Romo, and good afternoon, everyone. Per slide 18, we had a solid start to 2022, and we are well on our way to meeting the upper half of our 2022 revenue guidance range. Total revenue for the first quarter of 2022 was $68.9 million, an increase of $13.6 million, or 25% compared to the same period last year. Revenue for the quarter was comprised of the following. IoT connectivity revenue of $44.1 million represented 64% of total revenue, an increase by $3.4 million, or 8% compared to the same period last year. The increase was driven by organic growth of our existing IoT connectivity customers net of LTE price adjustments, as well as from newly acquired customers, including customers from the BMP and Simon acquisition. These increases were offset by revenue loss from the devices retired due to the various network sunsets by U.S. carriers, which began in early 2022. The remaining $24.8 million of total revenue came from IoT solutions, which represented 36% of total revenue and increased by $10.3 million, or 70%, compared to the same period last year. IoT solutions revenue was mainly impacted by organic growth from our existing IoT solution customers and the additional revenue added from the BMP and Simon acquisition. The overall gross margin percentage in the first quarter was 49.3%, compared to 55.9% in the same period last year. This decline in our overall gross margin percentage was primarily due to the growth in IoT solutions revenue, which comes at a lower gross margin percentage compared to IoT connectivity revenue. We also continue to see margin pressure within IoT solutions in the first quarter year-over-year due to the growth at our largest customer, which has lower than average gross margin. Increase in hardware costs from supply constraints and continue higher shipping and labor costs. IoT connectivity margin remains flat year-over-year at 62%. Total connections at the end of the first quarter were 15.3 million, an increase of 2.4 million, or 19%, compared to the first quarter of 2021. Dollar-based net expansion rate, or DBNER, for the 12 months ended March 31, 2022, was 122% compared to 108% in the prior year. As mentioned last quarter, we expect DBNER to decline as the LTE transition project with our largest customer concludes. However, We expect DBNER to remain above 100%, and we expect to grow this metric over the long term. Operating expenses in the first quarter were $40.8 million, increasing $10.2 million, or 33%, compared to the same period last year. Increased salary and benefit costs, higher stock-based compensation, costs associated with the BNP and Simon acquisition, and go public company costs drove the increase in operating expenses. Net loss in the first quarter was 10.9 million compared to 1.1 million in the prior year. Adjusted EBITDA in the first quarter was 15.6 million, a decrease of 0.9 million or 5% compared to the same period last year. The decrease was primarily due to the increase in costs associated with going public that didn't exist in the prior period. Our adjusted EBITDA margin for the quarter was 23% compared to 30% in the previous quarter. Now moving on to cash flow core use 4 million from operations in the three months ended March 31 2022 this compared to the business using 12.3 million cash for the same period in the prior year. As a reminder cash flow from operations will vary quarter to quarter based on the timing of payments accounts receivable receipts and prepayments of inventory. Note the first quarter of every year will typically have lower cash flow from operations as annual incentive plan payments are made during this quarter. Cash equivalents stood at $31.9 million compared to $86 million at the end of December 31, 2021. This change was primarily related to the financing of the BNP and Simon acquisition. With that, I'll pass it back to Romo.

Thanks, Paul. Again, we had a great start to the year, and I am very proud of our global IOTers. I will now wrap up with a couple of thoughts on where we are going, and then we will open the call up for Q&A. Core is growing our connection count and executing against our 2022 guidance. The first two industry verticals we have launched to initiate phase two of our overall transformation last year are gathering momentum and receiving market and customer recognition. And we are just getting started. We are excited about building out our other focus verticals as 5G matures and IoT adoption accelerates. When we went public, the model we were using had us generating $457 million in revenue for 2021 and 2022 combined. At the time, this was seen as an ambitious goal. On the last earnings call, I said that we expected to outperform this GO public revenue forecast by at least $50 million. And I am pleased to say that after this strong quarter, we are reaffirming that message. Despite volatile market conditions, Core has continued to execute and deliver on the promise of the decade of IoT. With that, let's start the Q&A.

Thank you. And I'll be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in question here. One moment, please, while we poll for questions. Our first question today is coming from Mike Lattimore from Northland Capital Markets. Your line is now live.

Great, thanks. Yeah, great start to the year, you guys, and thanks for the health care overview. That was helpful. So I guess, yeah. Romo, so on the, you know, you reiterated your guidance for the year. You just had a very strong first quarter. And, you know, some of the strength was this large customer. So should we sort of assume, you know, revenues maybe decline a little sequentially in the second quarter before resuming growth thereafter? Or how should we think about that general pattern, let's say?

Yeah, no, thanks, Mike. And a really good question to kick us off with. And, you know, appreciate that you're following the story closely, and therefore you know that we've been transparent now for several quarters in a row about the fact that we have this very large engagement on the LTE transition with our largest customer, right, call it customer number one, and that's been running and is substantially complete now as of the end of the first quarter. So obviously, you know, the thought process would be, you know, that's a significant, set of millions of dollars that we need to fill to ensure that we're not sequentially declining quarter over quarter. Now, we've got both organic and inorganic help in doing that. We've been obviously focused on organically growing our business. The team's certainly been focused and we've been seeing reasonably good traction despite the supply chain and other constraints. And then inorganically, Obviously, we pulled off the BMP Simon Tekken sort of halfway through the last quarter. So we'll get, you know, a full quarter of that helping us as well. So we're, you know, we're working real hard to not have the sequential dip. And yet, obviously, the year sort of sets up like that, doesn't it, because of our big one-time engagement with customer number one.

Got it. And I think you mentioned that maybe you're tracking towards the upper end of the year guidance, is that what you said?

Yeah, I think that's right. We sort of pointed to that in Paul's script, yes.

Okay. And then, I guess just on EBITDA, EBITDA was strong, came in above our estimates, and the margin was up nice sequentially. I guess maybe elaborate a little bit on what drove that, and should we think of that kind of margin as being a new baseline off of which to kind of build going forward here?

Yeah, I'll just kick off with a couple of high-level comments, and then I'll let Paul finish up on the question or on the answer to that question. As we sort of pointed to on the last earnings call, Q4 was a real sort of low point on margin. It was the peak, if you will, of that one-time engagement at customer number one, which obviously is sort of some of our lowest margin work that we do, given their volumes. but also on the connectivity side, we had a series of one-time kind of true-ups and things like that that happened in the year that caused that margin to look, you know, even on the IoT connectivity line, to look relatively low. We, you know, sort of said we were going to improve it from there, and we're starting to show what we can do here in Q1, and I suspect there's a A little bit more improvement to come from there, but I'll let Paul address some more detail.

Yeah, exactly. I'd go there that we had indicated that Q4 was kind of our low point on both connectivity and the IoT solution side of things that we see improvement. Now as the number one customer gets back to kind of normal baseline volumes, you'll see we get higher margins from that business versus the one-time LTE project And then on the connectivity side, we just keep getting better and better at optimization, pricing, better pricing from the carriers and so forth. So we hope to continue to see additional margin improvements as we go along.

Great. Thanks a lot. Good luck this year.

Thank you.

Thanks, Mike.

Thank you. Next question today is coming from Lance Patanza from Cal, where your line is now live.

Hey, thanks, guys. And first off, yeah, congrats on the strong quarter. You beat our revenue and even that's what I believe we're street high. Could you remind me that I know you said you had about half a quarter of BMP, Simon. Could you could you remind me the date that that closed and then exactly how much revenue did that add in the quarter? And I guess more broadly, what I'm trying to get is I know you had some some positive items right with the large customer one. still impacting the quarter, that was a positive. You had the M&A, that was a positive. But I imagine you also still had some negative headwinds from the 2G, 3G sunsets and maybe from the planned attrition as well. And so I'm just wondering if you can kind of talk about the puts and takes there so that we can try to get a sense for really what the true underlying growth was that we saw sort of in the core business. in the first quarter. You know, you reported 21%. Is the right number 20%? Is the right number 15%? Or is the right number 30%? I don't know. Thanks.

Yeah, and the nature of your question is year over year there, is it, Lance, on the quarter?

Yes, thank you.

So let me go back to the first part of the question, which is more about BNP Simon. Look, I've got to tell you, they've started out relatively hot. They're between $5.5 and $6 million for the quarter in revenue, and that's only in about half the quarter because I think the close date was February the 16th, so right at about half the quarter. A little bit of early sort of low-hanging fruit to be had as we bring the companies together, bring some capabilities together, but take nothing away, no credit away. from how well they performed in March, and that's been helpful, as you said, to meeting some of the other holds. Look, in general, though, Lance, you got it, right? I mean, obviously, vis-a-vis the first quarter last year, our number one customer revenue is all upside in this quarter. We had none of it in Q1 last year because the project started sort of in the June timeframe, really, late June timeframe, so really it was It was really Q3 last year that we first felt the revenue, right? So the ups are that and then sort of that half a quarter of BMP. The downs are what we expected, right? The sunsets are causing that kind of forced churn, if you will, and reduced our pool levels, which, you know, again, we've said we would weather well, and we are. I mean, the fact that we're up even sequentially quarter over quarter is almost 700,000 connections, right? I mean, yeah, there was something that thought the sky was falling as of 2-22-22 and AT&T 3G sunset started, but both because the sunset has been time phased and managed and B, because we're ready to really handle this, you know, I think we've done even better on connectivity than we thought the business would do. So we've held up really pretty well on Q1, but I'll let Paul get into any more specifics.

Yeah, the only thing I would add on the connectivity side of things, we did see customers hold out pretty much on the AT&T side right to the very end of the sunset. So in any of our modeling for both the AT&T 3G and the Timo and Verizon CDMA sunsets, we have it modeling that they would drop during the year, not waiting right till the end. So by a lot of the customers on the AT&T side waiting right till the end of February here. It did give us a little extra revenue, and if the customers on T-Mobile and Verizon and Sprint do the same thing, then there could be some upside to our model also for the rest of the year.

Okay, thanks. That's helpful. And then just one more for me, if I could, and that's on the cash front. It's $32 million a quarter end. I know you have the revolving credit facility as well. is that enough liquidity for you? Is there, was there anything drawn on the revolver and quarter end? And, and I know all you mentioned that, you know, there's some seasonal items that depress cashflow in the first quarter. Could you talk a little bit about the outlook for free cashflow and your cash position sort of over the balance of the year?

Yeah. Yeah. So as we did not draw on the line at all during the quarter and and don't plan on doing so right now. But going forward, as I mentioned, sorry, in Q1, we do see a lot of our annual incentive payouts at the end of March, so that does always bring down our cash for this particular quarter. Going forward, we see free cash flow increasing around adding about $10 million a quarter, $10 to $12 million. It all depends. on how much we got to prepay from an inventory perspective and stuff. We're seeing a lot more of that as a supply chain. Really, that's really how the supply chain is affecting us most is vendors are asking us if we want the product, we got to pay for it right away. So depending on how much that continues, BMP on their side of things are also seeing that. They have a lot of prepays there. So depending on how much we have to do for inventory, It will vary between $10 to $12 million a quarter in free cash flow. Thanks for your help.

I appreciate it. Thanks, Ronald.

Thank you. Next question is coming from Scott Ciro from Roth Capital. Your line is now live.

Hey, good afternoon. Thanks for taking the questions. Ronald, I appreciate all the color that you provide on the healthcare front. Maybe just to dive in on some of the financials, I just want to clarify a couple of things. Paul, I'm not sure if I heard a number in terms of legacy connections or still to be sunset 3G connections, but I think the expected number was somewhere in the ballpark of around half a million. Is that kind of where we were on the supply constraint front? I'm not sure if you quantified the number. I know it's difficult out there in terms of getting modules. I'm wondering, you know, if you could quantify the impact in terms of what was left on the table. And then two other elements. On the ARPU front, Romilly, you know, you've been talking about that stabilizing. Do you continue to see that stabilizing and perhaps improving? now with the mix going forward, and also embedded in guidance this year, services revenues. Should we be expecting a sequential increase over the course of this year? And then I had a couple follow-ups.

Okay. Wow. Let's see if we can keep these straight. I'll answer a couple that I think were more aimed at me. And, Scott, keep us honest, all right, if we forget.

You know I do.

So the first one that I think you aimed in my direction was ARPU – Certainly, we're seeing that stabilization. I'm not, again, I'm nowhere near ready to say, you know, there's upward momentum here or anything like that. But, you know, vis-a-vis the levels that we were at at Q4, are we relatively in the same zone from an ARPU perspective in Q1? We are, and we're not seeing any alarming trends that would suggest that's not happening is one answer to one of your questions. on the ARPU. Is that good enough there, Scott, before we go to the next one? That's perfect. Yep. On the 2G, 3G total connections, let me try to walk a bit of a waterfall here, right? Because I think you've been diagnosing this at every step of the way. So we disclosed that at the end of the year last year, we had about a million 2G, 3G SIMs that were facing sunset at some point this year between AT&T 3G and the old Sprint 2G network, CDMA networks, obviously Timo 2G, 3G, and then Verizon CDMA, right? So about a million of that and about a half of that was on AT&T. Again, AT&T has run a very sort of time-managed process where we still actually have a few connections up and running a couple of months later. So I'm not ready to call that 500K down to zero just yet, but we're getting real close. It's not going to go on forever, this extra little gravy train that we got here. But to your point, if the reason you were asking about the half million was you were thinking, okay, that AT&T part is all gone now, not quite is the answer to that, Scott.

Does that help? That's perfect. All right. I forgot.

Services increase. Like from a revenue standpoint, should we expect services revenues to be increasing sequentially throughout the year?

Yeah, yeah. And I think, Scott, we've talked about this before too. We do expect services to ramp up as the year come on now. How much that will be will be determined by each quarter. But we had talked about on the hardware side of things, too, depending on when orders come in, a particular quarter may have a ton of hardware revenue versus services in it. So it will vary. But to answer your question, overall, the services – in dollar terms, I'll put it not as a percentage, are increasing as the year goes on.

Great. And then the supply chain impact, right? You know, there's certainly been difficulty getting modules in certain business segments and been constraining, I think, some of the new connections coming online. I'm wondering if there were some thoughts around quantifying that.

Yeah, so the best we can do for you, Scott, is kind of, you know, what we've said is the last few years,

pretty regularly grown volume at about 20%, right? This year, we're pointing to something closer to 10. And maybe we beat that by a smidge. Again, our sales teams are out there, you know, fighting hard, et cetera. So, but it's, you know, if indeed that comes true, that we're closer to 10%, that's obviously a difference, right? So what's causing that? About half of that is what we just talked about, right? The million-odd SIMs, the forced churn, if you will, or $750K or that anyway that we'll lose this year, presumably. And so the other, and I'm just doing the math on 20% of $14.6, $15 million is about $3 million, right? So half of that, 10% is one and a half. Let's say half of that is the forced churn from the sunsets. The other half, three-quarter of a million. You know, the only thing we can really point to is the supply chain issues, the fact that our customers aren't able to get their devices, deploy those devices, and so we're not getting the revenue, right? If we can get more precise over time with that, we'll certainly share it. But again, it's a largely indirect type of impact. Now, the only direct impact I can tell you we're seeing, and it's disappointing, but this too shall pass, is eSIM adoption. Any new technology has sort of been put a little bit to the side where our customers are just focused on beating into their supply chain and their vendors or getting... you know, supplementary, complementary-type products to meet their needs. So the overall eSIM adoption curve that we were hoping would really start to take off this year is slower than we'd like to see, perhaps pushed back into 2023, 2024, when the supply chain opens up and the newer devices come back in focus.

Okay, very helpful. And then if I could, given all the color on health care, So I know we could flush out a couple things a little bit more. In terms of your expected growth rate, if you look at your customer set today, you've been doing very good in cardiac telemetry, and now with the acquisition you've added CROs. What do you think that gives you with the existing customer base today versus needing to add new logos, right? I think the range, if you do the math of connected devices and the growth in the marketplace, looks like it's 20% to 30%, you know, 30% being the aspirational number for you, I think, by 2025, 2026. Kind of help us understand some of the give and takes in there. And also, diabetes keeps showing up in your presentation as part of a chronic condition. Historically, that's not been part of your product portfolio and offering or customer set. I'm wondering, is there an opportunity for you there, or given where things like constant glucose monitoring have evolved from Bluetooth to smartphones, that that's not a market that you necessarily play in? But it seems like cardiac telemetry is still very strong. CRO, it seems like it's just very early days in getting started. So a lot in there, but I was wondering if you could kind of flush out how you see the evolution there and if diabetes is part of it. Thanks.

Yeah, so the first thing I'll say is absolutely diabetes is a part of it. In fact, several of our customers, you know, in the remote patient monitoring space are either focused in diabetes, continuous glucose monitoring, or started there. and then have started to expand, right? And so it's definitely an area of focus. In fact, one of my most favorite kind of IoT for good type projects that we ran, gosh, that first summer and fall of 2020, right, the relatively early months of the pandemic, was when we implemented on behalf of just one of these glucose, continuous glucose monitoring type customers, a sort of remote monitoring solution in hospitals, Because it was sort of these crazy days where the medical staff didn't want to necessarily go and visit these patients just to get their blood sugar levels, right? Both because they were at risk, but also because these sometimes aging patients were being put at risk just to get their blood sugar, right? And so we actually rapidly installed remote continuous glucose monitoring solutions in hospitals for this customer, and also to save on you know, all the PPE and stuff that was in short supply in those days. But anyway, I digress. The point is we are in continuous glucose monitoring, absolutely. In terms of, you know, how do we think about that 20-ish percent CAGR versus 30-ish percent CAGR? Do we only double our connected health practice or do we triple, right? Look, I think, you know, one way to think about this, perhaps overly simplistically, is we probably don't need a whole lot of new customers to do what we said we would do in our forecast when we were going public, right? Especially with the fact that we want a very large CRO, which took almost a year to win and feels like it's taken almost a year to get the contract done, but it is done now. And we may even see revenue the second half of the year. But also with, as you say, with the BNP Salmon acquisition, the CRO engagement there, you know, between us and them now, We're able to cross-sell into a number of the very large players here. And, of course, you saw the data on the exploding number of trials using technology. So we feel very good about that space. And in general, you know, even if we were to suddenly stop winning new customers, which won't happen, we're not worried about the forecast. Now, to me, it's how much of that upside can we go get.

Very helpful. Thanks so much, guys.

Thanks, Scott. Thanks, Bob. Thank you. Next question is coming from Matt Nicknam from Deutsche Bank. Your line is now live.

Hey, guys. Thank you for taking the questions. Just two, if I could. First, maybe a higher-level question. Maybe, Ronald, if you can talk about the state of customer demand to start the year, whether you've seen any sort of belt tightening or pullback from customers, just given some of the rising concerns around the macro backdrop. And then just secondly, more of a follow-up for Paul, I just want to clarify, that statement around $10 to $12 million in cash flow, is that an improvement relative to 1Q, or is that more of an absolute number we should be modeling? And is that cash flow from ops, or is that free cash flow? Thanks.

Sorry, I'll go first. Sorry, that was an absolute number from cash from operations, so going to a positive 10 to 12, which is obviously an improvement rate from negative 3 in this quarter to a positive 10 to 12. Great.

And then on the macro question around sales and demand, I mean, you know, if there is incremental to the supply chain type issues, any belt tightening that we're seeing or that's happening, we're not really seeing it, Matt, right? I mean, I can tell you that Our inbound demand is actually up. It's up almost a third, you know, the first quarter of this year versus first quarter of last year. So, you know, pipelines are relatively full. Salespeople are relatively busy. It's not happening. And perhaps that's because, you know, IoT can drive and does drive cost efficiencies as much as it drives great insights and everything else, right? I mean, you know, just back to Connected Health for a second, you know, the fact that you can save lots of dollars while getting data quicker, while serving customers in their homes or wherever they're comfortable being, I think that's an important aspect of what we do. And that's what's kept us resilient through this entire pandemic. I mean, you know, go back two years in time and, you know, everybody was panicked and we were pulling cash out of our revolvers and all this stuff. And Yeah, sure. Travel, tourism, some use cases tightened up, but we had explosions in connected health and remote education and other use cases. And so that's likely the case here. And it ties back, Matt, I think, to our strategy of being this broad enabler. We're not in any one business. I'm not dependent on the dynamics of any one use case. Some of our customers across the 3,600 of them are going to do really, really well, almost no matter of the state of the economy. And I think the strength of the business just keeps showing through.

That's great. And congrats on the quarter. Thank you both.

Thank you. Cheers, Matt. Thank you. Next question today is coming from Mita Marshall from Morgan Stanley. Your line is now live.

Perfect. Thanks. And congrats on the quarter. Paul, maybe a couple of quick questions for you and then a question for Rommel. Paul, you noted that the Simon and Business Mobility Partners came in at $5.5 to $6 million this quarter, and maybe some of that was front-loaded. I just want to get a sense of, you had been expecting $50 to $20 million as the contribution for the year from those two acquisitions. Is that something that can be greater than that at this point, or just how to think about that? And then the second question was really, You know, looking at the connections or the average connections for the period and the period total end connections, you know, it's up 6% quarter over quarter and 5% quarter over quarter. Just trying to get a sense of how we should see that correlate to kind of the IoT connectivity revenue or, you know, is that a forward indicator? Just how to think about what we see in the increase in connections versus kind of the increase in connectivity revenue. And then I have a follow-up.

So I'll start with the connection question. So yeah, depending on when we actually see the connection, so if we have a customer who obviously lights up a bunch at the end of the quarter, that's going to obviously help future quarters here. And we have been seeing it probably pretty evenly throughout the quarter other than this one because of the AT&T sunset during the quarter. So There were some drops and some increases, but then March we saw it pick back up again into the positive territory. So I think it's more of an indication of future connectivity growth. Now, in the quarters to come, supply trains and all that sort of stuff will affect how many we're going to continue to add. We're also concentrating a lot more on kind of the high bandwidth use cases. which sees a lot less connections, but higher revenue dollars, which will also help the top line. So hopefully that answers that one. On the first question for BMP, adding 5.8 million during the quarter, that was more than what we were expecting. We think it is a little bit front-end loaded. They had some of their larger customers start out the year ordering a little bit more, maybe worried about supply chain and stuff like that. So you were correct when you issued a 15 to 20. I think ours was a little bit higher than 20. But we do expect now, based on the strong Q1, that we'll be a little bit north of the $20 million in revenue, maybe mid-20s now. So hopefully that answers that question.

Got it. No, that's super helpful. And maybe, Ramal, just for you, you laid out a pretty – impressive opportunity on the healthcare side, yet OPEX growth is somewhere in the range of 5% for the year. I just want to get a sense of where you're finding that additional efficiency to go after some of these customers. Is it some of the hires you've made in the past that can go after that? How are you best allocating resources to go after that opportunity? That's it for me.

Oh, that's great. And thanks, Meeta. And look, I think, first of all, just to maybe add a little bit more on BMP Simon, you know, in general, the IoT solutions business line, which is, of course, the vast majority of the revenue of BMP Simon, you know, is very different in nature from the recurring IoT connectivity, right? That more SaaS, ARR-like business where it's a run rate business, right? And so, it's really, really dangerous to take the first half a quarter and start multiplying it by whatever, seven, and saying this is my year, right? Now, that said, we're going to keep helping them with cross-sell opportunities from other industries, and I think they'll do better in the core umbrella. That was the whole case for why we acquired them, and so we hope they do better, right? I'm just saying it's really dangerous to take the month of March and multiply by 12 in that business. Okay, so on connected health, So, Samira, I guess here's the macro couple of points, and then I may not be answering the question, so please come back on and let's just get to the bottom of it. To me, a couple of things. First, we decided through the business planning of October, November, December last year that we were going to put organic investments to work in the first two industries that we had launched just earlier last year, right? I mean, we said, look, there's enough return on this investment dollar to be had in connected health and in fleet and launching a new industry entirely organically was perhaps, you know, not the way to go. At least the way we modeled our return on investment, return on capital, et cetera, we thought it was better to put more resource into what we have, okay? And by the way, also onto those horizontal capabilities you saw and building those out and continuing to be the, you know, trying to be the industry leader in all things eSIM, OmniSIM, et cetera. the OPEX increase that you're talking about, I mean, there's a lot of, you know, just public company costs and finance costs, right? I mean, to nudge Paul here and, you know, he's costing me $2 million here now, a quarter, right? I mean, that's a big chunk of this, right? And so, you know, what we just have to find a way, you know, to do, and we will, is is to absorb the extra costs of being public and make sure that the balance and remainder of the investments are going to where we think the highest return is. And certainly Connected Health will be one of those. And look, I mean, one last thing I'll say on this. As a private company, we were running a lot closer to 30% adjusted EBITDA margins, right? You know, as a SaaS company in the public markets, we've sort of, openly said 2020 would be great, right, and kind of, you know, or a little bit more than 20 or, you know, what have you, 20% growth, 20% just EBITDA, this year's margins we've pointed to at 24. We may take that down another point or two in the future to make sure that the top line is going above 20% while the EBITDA is still staying at above 20%, which I think is the gist of your question, right, which is where are we going to put incremental costs to make sure we can grow into this opportunity set, but If I didn't answer it, please get back in the pipeline, Nita.

Yeah, no, I mean, I think that that's helpful. It was more the opposite question of, you know, are you feeling like you're getting to, you're basically talking about having to, a lot of those increases in OPEX are to a company being a public company. I guess I'm just trying to get at, do you feel like you're able to make all of the hires that you need in order to go after the scope of the opportunity you've laid out?

Yes. Yeah, no, I appreciate that. And I think we're pretty good on that. I think our board leadership team is very aligned on the opportunities. And I don't know that we would, you know, artificially restrict. I mean, if we had to, if we thought the best use of another couple of minutes of EBITDA this year was to go do something different and come out and say, you know, we're going to just barely meet our guidance or something like that, we would, right? But that's not That's not the issue we're facing. We certainly feel like we can staff what we think is a responsible set of investments.

Okay, perfect. All right. Congrats, guys, and move on.

Thank you. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.

No, thank you very much for joining our call and for those excellent questions. We certainly appreciate the engagement. We'll talk to you at the next quarter. Have a great summer.

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.