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spk05: Greetings and welcome to the Core Group Holdings first quarter 2023 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 during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Charlie Brady, Vice President, Investor Relations. Thank you. You may begin.
spk03: Thank you, operator. On today's call, we'll be referring to the first quarter 2023 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 2023 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 identified 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 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 Romo Bauer, the company's president and chief executive officer.
spk04: Thank you, Charlie. Good afternoon, everyone, and thank you for joining us today. for our first quarter 2023 earnings call. With me is Paul Holtz, Core's Chief Financial Officer. As always, I'll start with a brief overview of the key events and announcements from the first quarter, followed by Paul, who will discuss our financial results, and we will finish with a Q&A session. Slide four presents some key announcements from the first quarter, which I will briefly highlight. First, we are pleased to announce that Core OmniSIM Safe has been selected as a winner of the M2M Product of the Year by IoT Breakthrough. This recognition underscores our commitment to developing products that effectively address the unique challenges faced by our customers. Core OmniSIM pairs global zero-touch provisioning capabilities with our industry-leading eSIM, secured by the GSMA Safe Standards. This allows core customers to meet the challenges of global connectivity in a carrier and device agnostic secure manner for massive IoT use cases. Consistently being recognized as a leader in customer satisfaction and innovation is a testament to our commitment to meet and exceed customer expectations. This year marks the fourth year in a row that core has been named a leader by Gartner in its magic quadrant for IoT connectivity. This recognition highlights our unwavering dedication to understanding our customers' needs and creating cutting edge solutions that simplify the complexities of IoT and empower customers to achieve their goals. To further support our customers, we are excited to launch ModGo, a fast solution that provides comprehensive visibility and support for IoT device deployment and logistics management. ModGo makes it easy to manage, order, and deploy IoT on the go, providing organizations with a single solution for managing their entire IoT ecosystem. With ModGo, our customers can focus on their core business objectives while we take care of the complexities of IoT behind the scenes. Now, let's turn to our first quarter financial results and 2023 guidance on slide five. We had a solid start to 2023 with first quarter revenue coming in above our forecast, and as expected, increasing sequentially from the fourth quarter by approximately 6%. On a year-over-year basis, revenue declined approximately 4%, primarily due to a difficult comparison to the first quarter of 2022, which was the highest quarter of non-core customer and 2G, 3G revenue in 2022, and had significant revenue from the LTE transition project at our largest customer. Absent just the LTE transition project revenue in 2022, first quarter 2023 revenue increased approximately 9% year over year, which is at the upper end of our pre-Twilio revenue growth guidance of mid to high single digits. Our 2023 second quarter will be the last quarterly year-over-year comparison impacted by the LTE transition project revenue, and the impact will be substantially smaller. We expect sequential quarterly revenue growth for the remainder of 2023 and year-over-year growth beginning in the third quarter. Gross margin increased 518 basis points year-over-year to 54% as we continue to benefit from optimization of our carrier costs and the absence of lower margin LTE transition project volumes with our largest customer. First quarter 2023 adjusted EBITDA of $13.3 million declined 13% from the first quarter of 2022, and adjusted EBITDA margin was 20.2% compared to 22.2% in the year-ago quarter. First quarter 2023 adjusted EBITDA was impacted by increased headcount costs compared to the first quarter of 2022 and by temporarily higher than normal audit and accounting costs that we do not expect to repeat. We are reiterating the 2023 revenue and adjusted EBITDA guidance we provided on our 2022 fourth quarter earnings call just a few weeks ago. We expect revenue to grow in the mid-teens, resulting in our revenue guidance range of $300 to $310 million. This includes the partial year contribution from the acquisition of Twilio's IoT business, which remains on track for a June 1st closing. It also includes the $24 million impact from the 2G and 3G sunsets in the U.S. and the LTE transition project at our largest customer, which we are confident we can more than replace from growth in our base business and the addition of new customers. Our adjusted EBITDA guidance of $60 to $62 million and adjusted EBITDA margin of approximately 20% are also unchanged. With that, I will now hand the call over to Paul to cover the financials in more detail. Paul?
spk09: Thank you, Romal, and good afternoon, everyone. Before getting into our results, I think it's worth mentioning two important milestones that were reached in Q1 2023. First, in February, we celebrated the one-year anniversary of our very successful BNP and Simon acquisition. These customers are now part of our organic growth going forward and are included in our DB&R calculation. Secondly, we finally reached the other side of the 2G, 3G network sunset in the United States. I'm happy to say the headwinds from the migrations associated with these sunsets and the impact of our non-core customers are officially behind us. which allows us to show the true organic growth of our business going forward. Now turning to our results. On slide six, first quarter revenue declined 4% year-over-year to $66 million compared to $69 million in the first quarter of 2022, but up 5.7% sequentially quarter-over-quarter. As previously communicated, the fourth quarter of 2022 represented a near-term revenue trough and we expected Q1 2023 to increase sequentially, which we delivered. By segment, IoT connectivity revenue of $43.5 million decreased 1% year-over-year and was flat quarter-over-quarter. As mentioned above, IoT connectivity revenue organic growth was masked throughout 2022 by the 2G, 3G sunsets and the churning of our non-core customer cohorts. Removing the effects of the non-core customers who no longer existed as of the beginning of 2023 and the estimated negative impact of lower pricing to existing customers as they migrated to LTE, IoT connectivity revenue grew approximately 9% year-over-year and 5% quarter-over-quarter. IoT solutions revenue declined 10% year-over-year to $22.4 million. The decline was driven by the difficult year-over-year comparison as the first quarter of 2022 included significant revenue related to the LTE transition project at our largest customer. To put this in perspective, in the first quarter of 2022, the LTE transition project revenue accounted for over $8 million in IoT solutions revenue. Excluding the LTE transition project revenue, IoT solutions revenue would have increased approximately 38% year over year. Total gross margin in Q1 2023 was 54%, an increase of 518 basis points year over year and remained flat with the prior quarter. In the last two quarters, gross margins were also the highest experience since we went public back in Q3 of 2021. IoT connectivity gross margins increased approximately 347 basis points year over year to 65.2%, and 40 basis points sequentially from the fourth quarter of 2022. IoT connectivity gross margins for the last four quarters have remained stable in the 65% range, driven by the continued optimization of our carrier costs. IoT solutions gross margins increased 640 basis points year over year and 373 basis points sequentially to 32.4% and was at the highest level since we went public. The increase is mainly driven by the absence of any lower margin LTE transition revenues from our largest customer in the quarter versus over $8 million in Q1 of the prior year. Total connections at the end of the first quarter were 15.1 million, an increase of approximately 100,000 compared to the end of fourth quarter of 2022. Some existing customers continue to see delays in hardware deployments due to supply chain issues. and the company also continues to focus more on higher bandwidth use cases, which bring higher revenue but lower connection. Dollar-based net expansion rate, or DBNER, for the 12 months ended March 31, 2023, was 107% compared to 122% in the prior year. As a reminder, DBNER measures the growth from existing customers in the trailing 12 months compared to the same customer cohort in the year-ago period, which is like a same-store sales growth rate. As mentioned earlier, with the anniversary of the BNP and Simon acquisition happening this quarter, these customers are now included in the calculation. DBNR year-over-year continues to be impacted by the LTE transition project revenue from our largest customer. Excluding total revenue from our largest customer, DBNR at the end of the quarter would have been 126% compared to 114% at the end of the first quarter of 2022. Operating expenses including depreciation and amortization in the first quarter were $44.3 million, an increase of $3.4 million or 8% compared to the same period last year. Excluding non-cash items like depreciation, amortization, and stock-based compensation, operating expenses increased $1.9 million. The increase was attributed to higher headcount and its associated costs. These headcount costs increases were partially offset by half a million in lower D&O insurance costs. First quarter interest expense, including amortization of the deferred financing fees, increased year-over-year to $10.2 million due to increased borrowing costs on our senior secured term loans. We expect interest expense will be approximately $10 to $10.5 million per quarter in 2023. Net loss in the first quarter was $18.5 million compared to $11.6 million in the same period in the prior year. The year-over-year increase in net loss was mainly due to higher interest expense and lower income tax benefits. Adjusted EBITDA in the first quarter was $13.3 million, a decline of $2 million or approximately 13% compared to the same period last year. Our adjusted EBITDA margin in the current quarter was 20.2%, down approximately 200 basis points compared to the same period in the prior year. This was due to higher headcount costs from hiring throughout 2022, but also due to approximately 1 million higher professional service fees related to the 2022 year-end audit and related reporting in the Form 10-K. We view the additional professional service fees for the most part as non-recurring and we do not expect them to repeat in the future. Moving to cash flow. Cash provided by operations in the three months ended March 31st, 2023 with approximately 2 million. This compared to 4 million cash used in operations for the same period in the prior year. The change is mainly due to less annual bonus payments being made in Q1, 2023 compared to the same quarter in the prior year. At the end of the first quarter, cash was 30.6 million compared to 34.7 million as of December 31st, 2022. This change was primarily related to the timing of interest payments related to the backstop. Prior to passing it back to Romul, I wanted to quickly discuss our organic growth in both IoT connectivity and IoT solutions over the past couple of years. Going forward, this picture should be much clearer as headwinds like the US 2G, 3G sunsets, churning non-core customers, and the adjustments from our largest customers, LTE Transition Project, will all finally be behind us. We have added slide 8 to show the organic growth separately for IoT connectivity and IoT solutions. Over the last three years, IoT connectivity has had a compound annual growth rate of 12.7%, while IoT solutions was 7.4%. Both are after adjusting for the various items detailed on slide 15 in the appendix of this presentation. While we still have an estimated revenue hole of over $24 million to fill in 2023, we continue to expect both segments on an unadjusted basis to grow organically in the mid to high single digits. And with that, I'll pass it back to Roma.
spk04: Thanks, Paul. As you can see, Net of the transitory effects we have been discussing on our earnings calls since going public, we are a double-digit organic growth story. To highlight that we remain on track to generate this level of growth, we recently began sharing our bookings and sales pipeline statistics. On slide nine, we present a snapshot of our global sales pipeline as of March 31st, 2023. Our sales pipeline now exceeds 1,400 opportunities with a potential estimated total contract value, or TCV, of over $500 million. In the first quarter, we generated $28 million of closed-one TCV, so we are off to a solid start to the year, and we are focused on driving toward a year-end 2023 closed-one TCV that exceeds 2022's level of $102 million. If we accomplish this, it will be the fifth consecutive year of growth in our key sales metric of TCV. Slide 10 showcases a few examples of our wins in the first quarter that contributed to the closed one TCV of $28 million. These recent contract wins highlight the success of our growth strategy and demonstrate the expansion of new use cases for our products. Core OmniSIM continues to gain traction in the market and was a key driver in the decision of a leading advertising technology company to transfer all of their North American business to Core, which added over $10 million to TCV, and there is potential for future growth at this customer. Our unique solution enables this customer to utilize multiple MNO profiles on a single eSIM and manage them from an edge device as well as the ability to use online APIs. Furthermore, CORE was successful in winning a contract with the TCV of approximately $2 million to provide hardware, connectivity, and forward and reverse logistics for a new connected health customer launching a remote patient monitoring or RPM service in the second quarter of 2023. CORE's ability to provide a complete solution was a key driver in winning the contract. This customer has multiple additional projects of a similar size that are expected to begin in 2023 and is also evaluating the use of our connected health telemetry solution, or CHTS. This win and the potential adoption of CHTS demonstrate how Core is differentiating itself from the competition with pre-configured solutions that reduce the complexities of IoT deployment. We are also excited to announce that Core has been selected to provide fixed wireless access services to a major restaurant chain with over 700 locations. This contract involves upgrading these locations to 5G technology and has a TCV over $1 million with the potential to double. This opportunity highlights the scalability of our products and services, as well as our ability to penetrate diverse markets and adapt to the unique demands of various industries. Lastly, a core customer headquartered in Australia is expanding their mobile personal emergency response system, or MPERS, business to the U.S. after signing a multiyear contract with the U.S. Department of Veterans Affairs. Their device will be available free of charge to any member of the VA in the U.S., and CORE is proud to play a role in helping to support our veterans. To support the customer's empire solution, CORE will be providing managed connectivity. This is an example of CORE's commitment to expanding our global footprint and underscores our ability to support customers as they grow and enter new markets. In conclusion, these recent contract wins illustrate CORE's robust growth strategy and our ongoing success in expanding into new use cases for our products. We look forward to building on these achievements as we continue to innovate, grow, and create value for our shareholders. Slide 11 is our evolution roadmap, of which I am sure many of you are familiar. It outlines our transformation from solely providing IoT connectivity to embracing a holistic approach, delivering comprehensive IoT solutions for our customers. As we are witnessing the evolution and growth of the IoT landscape, driven by advancements such as massive IoT, accelerating 5G adoption, and edge computing, we have expanded our capabilities and product offerings to meet the diverse needs of our customers who are seeking to harness the power of IoT. As we reduce the complexities of IoT deployment, we are increasingly helping our customers make sense of the tremendous volume of new data they are generating from their IoT solutions. The amount of information flowing through our global IoT network, the core data cloud, represents a significant monetization opportunity and is the main reason we are building out broader analytics capabilities. Although analytics is a small part of our business today, it is growing and becoming a key component of our product offerings. Our platform empowers customers to derive valuable insights from the vast amounts of data generated by connected devices, enabling them to make informed decisions and optimize operations. With the acceleration of 5G adoption, we anticipate a surge in massive IoT deployments, further enhancing the scalability and efficiency of our solutions. Additionally, edge computing and edge analytics have become integral components for reducing latency and improving processing capabilities ultimately leading to improve user experiences. Over the next several years, AI paired with IoT will become a powerful tool. We have already begun leaning into this as we believe the synergy of AI and IoT, or AIoT, will allow us to tap new markets and expand our reach into new segments. Finishing on slide 12, we are off to a good start to the year. with solid first quarter results, which included sequential quarterly revenue growth and year-over-year expansion of gross margin by over 500 basis points. Our team's dedication and hard work generated $28 million in TCV and increased our global sales pipeline to over 1,400 opportunities with a TCV of over a half billion dollars. As a recession-resistant company, With more than 80% recurring revenue, we are well prepared to navigate economic uncertainties. We maintain focus on high growth end markets such as connected health and expansion to new markets and use cases, some of which I mentioned earlier. Based on our current performance and pipeline, we remain optimistic about our revenue and EBITDA guidance for the remainder of the year. Our commitment to delivering value to our shareholders continues to be a top priority as we look ahead to the coming quarters. In closing, I want to convey my appreciation to all our employees around the world, the core IoTers, for their continued hard work, loyalty, and dedication to core and our customers.
spk07: With that, let's start the Q&A.
spk05: Thank you. And ladies and gentlemen, at this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk07: One moment please while we poll for questions.
spk05: Our first question comes from Lance Vitonza with TD Cowan. Please state your question.
spk08: Hi, thanks guys for taking the question. Nice job on the quarter. Romo, I'd like to start with sort of the underlying growth environment. And I hear you that Core's performance has been quite good and if you adjust, the growth is really quite visible. But that being said, how would you describe the overall pace of corporate IoT deployments? Is that meeting your expectations or is that still a bit sluggish? And are you sensing that the murky macro environment is perhaps causing corporate customers, corporate users to perhaps defer or delay or perhaps even cancel some potential deployments? Yeah, it's a great question, Les.
spk04: Thank you. Look, you know, it's sort of hard to tell where supply chain and the issues we've been seeing, and we still hear from some customers, although, again, in certain segments, there's sort of light at the end of that tunnel. But where the supply chain constraints for our customers to get their devices and deploy and grow is ending where the macro, you know, caution or conservatism may be kicking in, et cetera. You know, that said, I'm delighted to say that we haven't, you know, seen enough sort of, you know, real proof or even anecdotal conversation out there to, you know, to at all worry about reiterating, which is what we're doing, our guidance today, right? So we sort of came into the year and said, we will see the $24 million hole, right? We will put twice that on the top line and sort of overcome and get to mid to single high. The first quarter actually did better than that. As you saw, if you just take out the one-time LTE stuff at our largest customer, you're already at 9%. If you then add in the other stuff, you're kind of in the low W digits. I'm not ready to go there yet either and say organically we'll go low double, but it's a good solid start to the year. good activity in the funnel, good wins. Certainly some conversations about slowing down the aggressive top-line growth-oriented solutions out there, but those are being replaced by efficiency-oriented, you know, automation-oriented kinds of use cases. So we're not really feeling like we need to be more cautious than we already were coming into the year, given that we knew there was going to be some, you know, potential macro effects this year.
spk08: Thanks, and you actually started to go to my next question, which is on page two of the press release, I thought you did a really nice job of laying out the three factors and sort of quantifying them in terms of the, you know, what the growth rates would have been. I'm wondering if you could actually just confirm the dollar amounts like you did for the LTE. You know, you said the LTE not only would have normalized revenue, would have increased 9%, but you called out that it was an $8.6 million impact. And I'm just wondering if you could do that for the non-core customers and then for the IoT solutions revenue. Because I attempted to do that myself, and I was getting much larger numbers than even low to mid single digits in terms of the growth rate. So I must be – or low to mid teens, excuse me. I'm getting much larger numbers. So could you step me through those numbers?
spk04: Yeah, so, and Paul will keep me honest, just shy of four, it's about 3.8 million, is that right?
spk09: Yeah, and we've added in the slide in the deck, you actually can see the numbers on the appendix on page 15. But yeah, the non-core customers was 3.4, and then the LTE pricing year-over-year was about 350,000. You mentioned something on the IoT solution side of things that there's, other than the The LTE transition project, there's nothing to adjust there. There's no non-core customers in IoT solutions.
spk04: Right. But if you add the 3.8-ish, 3.75-ish to the 8.6, right, I think you go from 9% to the sort of 13% range. That's just kind of the math I was doing.
spk08: Great. No, that's super helpful. Thank you. And then maybe just on the Twilio acquisition or investment in the core, however you want to look at that, Any update there? I might have missed this. I apologize. But could you just update me on the timing and the status? And with respect to the nice increase in the TCV, do you think that that is – is there been any sort of favorable impact perhaps just on the anticipation of that transaction? Or no, is that still sort of to come?
spk04: Yeah, look, I think any benefits of – of the combination and the synergies that we've talked about before are certainly to come. Um, but, uh, you know, the, you know, the, the, the, I'll say the direction to, uh, close the conviction that it's the right thing for us all remain in place. Um, we had targeted June one as the close date and, uh, you know, as a company and as a leadership team, we're, running, I think, two or three cadence calls a week. And, you know, I was on the one this morning. And it seems like all signals are green to close June 1. So we're looking forward to getting this thing done, to welcoming that team and their customers.
spk07: Great. Thanks, guys. I'll get back in queue.
spk05: Our next question comes from Mike Lattimore with Northland Capital. Please state your question.
spk06: Hi, this is Aditya on behalf of Mike Lapimore. Could you give me some color on how the ARPU has been trending, especially the organic ARPU? Has it been stable for this year?
spk04: Yeah, I think largely speaking, we continue to see the stability in ARPU. I personally wouldn't necessarily have bet or said strongly on an earnings call a year ago, 15 months ago, 18 months ago. In fact, I didn't say that we would expect to be flat over 2022 because I expected us to have the pressures of that 1.2 million 2G, 3G SIMs that we still had that were going away that were typically at much higher ARPU, right? And we did feel that impact, but we made up for it with higher bandwidth use cases starting to creep in. And we're actually, if anything, seeing more momentum with that this year And, Paul, I'll let you make any color commentary you want, but generally speaking, very encouraged by the stability in ARPU and continue to believe that in the mid and long term, you know, there could be upside if our focus on connectivity and our focus on high bandwidth continues to pay off.
spk09: Yeah, nothing really to add there other than, yeah, I agree that we're seeing the potential for ARPU increases from an organic perspective because of the higher bandwidth use cases. Obviously, during this year, the 2G, 3G sunsets were at a higher ARPU than typically that we've seen. But again, it's by customer-by-customer basis. A lot of the newer connections that we are seeing are higher bandwidth. And even some existing customers with different use cases are using more data that's leading to higher ARPU. So it's very encouraging that we're seeing going forward.
spk06: All right. And could you also give some color on how the pipeline has been for the eSIM?
spk07: The pipeline on eSIM, yeah.
spk04: Look, Aditya, I'll tell you, there isn't a customer-facing conversation, right, that I can think of that doesn't sort of begin with eSIM, right? We are... presenting, we are campaigning, you know, with kind of a core OmniSim as the leading proposition and really, you know, seeing tremendous market reaction, customer reaction when they understand the flexibility it provides us. In fact, you know, we obviously haven't been able to do a lot with Twilio's IoT customers yet because, you know, because Obviously, you know, we aren't closed yet, and we will remain competitors until we close, et cetera. But even some of their customers, you know, in early introduction calls with us, several that I've been on, have been very encouraged by what they've heard and are looking forward to sort of the cross-sell opportunity of core OmniSIM into them. Now, that said, the volumes are obviously still small, right? I mean, you know, of our 15-odd million connections out there, Only about 10% are eSIMs today. I expect in three to five years, it'll be more than 50% that'll be out there of whatever our total connections will be. But, you know, the marketplace, the conversations are all very encouraging.
spk07: All right. Thank you. Thank you.
spk05: Our next question comes from Meta Marshall with Morgan Stanley. Please say your question.
spk02: Hi, this is Mary on for me to Marshall. Um, I have a question on the BNP and Simon IOT acquisitions. Um, how are these acquisitions performing compared to expectations?
spk09: So we, we typically, now that we're in the one year anniversary, not going to be breaking out, um, those numbers separately, but they they've been for our expectations. As we talked about throughout last year, they were above our expectations. and they continue to perform very well here in the current court.
spk07: Awesome, thank you. Thank you.
spk05: Thank you, and a reminder to ask a question, press star one. Our next question comes from Walter Pajczyk with LightShed. Please state your question.
spk01: Thanks. I think you had mentioned in your comments about the elevation of SG&A being hiring some of the accountants to clean up some stuff and that that would come down. But I think if I'm doing the math right, I might be doing this wrong, but take your revenue and then look at the EBITDA guidance. And assuming your SG&A is, I guess, coming down, in order to get to the EBITDA guidance, that I think implies you're expecting... gross margin contraction. So I suspect the answer might be just you're sandbagging the numbers on EBITDA, or is there other, is there, am I just, am I doing the math wrong? Or like, what are the moving parts within SG&A and gross margin that we should think about as to why EBITDA guidance would not be higher?
spk07: Yeah, thanks, Walt.
spk04: So let me, I guess I'll try to add a bit of color First, just on steady state organic core revenue gross margin EBITDA defaults. So we have been building towards and fully anticipated gross margin improvements. We have been investing in a bit of headcount both on the sales side and on the finance and accounting side to get public ready and SOX compliant and all those things. So largely, you know, that gross margin improvement that we just put on the table here, Q1, and the headcount costs and all that would largely have kept us relatively sort of in the same place or flat with where we were last year. The surprise or the difference that happened in Q1, anyway, was a largely, we think, one-time million-dollar-odd extra accounting professional services fees from from our filing process that, as you saw, was slightly delayed, et cetera. We don't think that'll repeat, so we do think EBITDA will improve, because if you just took Q1 EBITDA and multiplied by four, we actually don't get there, right? We don't get the guidance. To your point about, you know, why isn't it higher, remember once, you know, Twilio comes in, that's an EBITDA dilutive unit this year. In fact, it was double-digit EBITDA negative last year where it was. It will be much better than that here because we're obviously, you know, taking on less losses, immediately going to work on improving their gross margins and so forth, and they will be accretive next year. But that might be the other part of sort of what you're missing in terms of why isn't this better.
spk01: I think that's precisely probably what I missed. So can you just refresh – So can you just refresh my memory in terms of the components of the improvements in Twilio? I think what you just said was that you have opportunities to improve their gross margin going forward. That might be the kind of thing that was missed, or is it a combination of improving their gross margin as well as the OPEX for that entity that you're bringing on?
spk04: Yeah, certainly from their performance as a part of Twilio last year, right, so for the full year 2022, we will improve on the OPEX as well, not least because, right, we're not taking on any of their, really, their support function staff, right, the finance and all of that. We have a company, we have a team, we're ready to take that on. Also, you know, we're taking on kind of, you know, a smaller... or a portion of their global team, not everybody that they had when Twilio was in full flight investing in that business heavily over the last few years, et cetera. So we've been, I'll say, prudent and yet making sure that we're not taking on massive losses this year. The improvements going forward will be largely driven off of the gross profit line. Like everybody we're getting, we're not looking to do any more cost synergy side with those people. But the gross margin improvement opportunities are obviously tremendous given our far greater reach, our number of our M&O relationships, the fact that we have better leverage in negotiating power, and on and on. So while it will be a multi-year process to get there, we think we can, you know, we think we can get them closer to our margins than we would go the other way.
spk01: And then just separately, you know, there's a lot of dialogue in the market and things seem to be moving very fast in space and fast in terms, you know, for space terms, which obviously it might be slow relative to kind of what you're used to on the terrestrial side of things. But the end game seems to be driving down the cost of componentry because of these directed device. Like if you're getting this, embedded into Android phones and iPhones, Qualcomm's embracing it. You have other satellite constellations, I think, looking to take this on. I'm just curious when you start to have those conversations with your customers in terms of integrating that in, or is this really just going to be a nice incremental market for phones and not... I mean, it seems like it has to kind of pour over into... the IoT space if you're hitting scale component guys. Just curious if you've had any preliminary discussions on that or how you see that market evolving.
spk04: Yeah, it's a really good question, actually, and one that we ask ourselves a lot, which is when do we begin to migrate our focus, which admittedly over the last few years has been terrestrial, cellular, and unlicensed cellular ESAM, right, getting the leadership position and that sort of stuff. Now, by the way, it's not like we don't do anything with satellite, right? We have several satellite partners and relationships with the likes of Intelsat and others. And so it's been a where required, you know, we will bring those into bear. So If I'm tracking supply chain, if I'm tracking containers, and for a while you're going to be on the ocean, I'm going to need some satellite. Or if I'm, you know, enabling drones to deliver COVID vaccinations to remote parts of the world, I'm going to need satellite. And so we can, we have been solutioning those and delivering those solutions, but it's not certainly a significant portion of revenue and connections. So we're watching the space closely. We've had encouraging dialogues with several players in the space. We think some really interesting things can come from these private 5G type networks enabled by satellites and some of our board and other relationships provide us unique relationships into some of these players. So it's exactly like you say, Walt, it's a matter of time before we go there. And like always, right, every six months, certainly during the business planning strategy cycle each year, we sit back, we look at our opportunities, we try to prioritize based on where there's ROI, right, and put resources there. And like in every other market, IoT will frail the consumer market, the phone market, by a few years. So, you know, we'll hopefully be moving more resources towards that. If not next year, my guess is 2024. Sorry, 2025. Yep. Got it. Thank you. Thank you, Walt. Thank you.
spk05: Thank you. There are no further questions at this time. I'll hand it back to management for closing remarks.
spk04: Thank you, Diego, and thank you, everyone, for taking the time to listen to our earnings call. We look forward to updating you with our second quarter results in May.
spk07: August. Sorry, August.
spk05: Thank you. Have a good evening.
spk07: Cheers.
spk05: Thank you. We conclude today's conference. All parties may disconnect. Have a great evening.
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