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spk00: Hello, this is the Chorus Call Conference Operator. Welcome to Vesma Network's first quarter fiscal 2022 earnings conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Analysts and institutional investors who wish to join the question queue simply press star and one on your touchtone phone. You will hear a tone acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. Presenting today on behalf of Vesama Networks are Sumit Kumar, President and CEO, and Dale Booth, Chief Financial Officer. Today's call will begin with executive commentary on Vesma's financial and operational performance for the first quarter of fiscal 2022 results. Lastly, the call will finish with a question and answer period for analysts and institutional investors. The press release announcing the company's first quarter fiscal 2022 results as well as detailed supplemental investor information are posted on Vesma's website at www.vesma.com under the investor relations heading. The highlights provided in this call should be understood in conjunction with the company's interim condensed consolidated financial statements and accompanying notes for the first three months ended September 30th, 2021 and 2020. Certain statements in this conference call and webcast may constitute forward-looking statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management's intentions, Belief or current expectations with respect to market and general economic conditions. Future sales and revenue expectations. Future costs and operating performance. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and slash or are beyond our control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include but are not limited to the current significant general economic uncertainty and credit and financial market validity, including the impact of COVID-19 and the distinctive characteristics of Bessemer's operations and industry and customer demand that may have a material impact on or constitute risk factors in respect of Bessemer's future financial performance as set forth under the heading risk factors in the company's annual information form dated September 23, 2021. a copy of which is available at www.cdar.com. In addition, although the forward-looking statements in this earnings call are based on what management believes are reasonable assumptions, such as assumptions may provide to be incorrect. Consequently, attendees should not place undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. VESMA disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events, or otherwise, except as required by law. At this time, I would like to turn the conference over to Mr. Kumar to provide his remarks. Please go ahead.
spk03: Good morning and welcome, everyone. Thank you for joining us. Fiscal 22 got off to a strong start for VESMA. I'll start today with an overview of some of the highlights from the first quarter. Dale will provide a more detailed review of our financial results, then I'll return to discuss our outlook going forward. To begin, I'm pleased to report that we grew revenue by 19% year-over-year to $32.4 million in the first quarter, anchored by expanding deployments of our next-generation distributed access architecture products to a growing base of customers worldwide. Our gross margin also strengthened to 48.5% from 42.4% in Q4, which is a significant achievement in a period of supply chain challenges. And we achieved adjusted EBITDA of $4.3 million, which nearly doubled what we generated in Q1 last year. Our strong financial performance was led by our video and broadband solution segment, where we increased first quarter revenues by 80% year over year to $24.3 million. VBS sales also grew sequentially 4% quarter over quarter, even as we responded to continued supply chain challenges. Our next generation DAA solutions accounted for about 75% of VBS segment sales, with Entra sales setting a new quarterly record of 18.1 million. That was up 246% year over year, and it was 9% higher sequentially than what we achieved in Q4. First quarter Entra sales would have been higher still if not for external freight and logistics issues. Specifically, we had some scheduled and in transit orders that our carriers failed to deliver in time to be included in Q1 results. Those delays impacted Q1 interest sales by over 2 million. Drilling down on interest sales a little deeper, our results benefited from our growing customer base. By quarter end, we were actively selling to 39 operators, including some of the world's largest tier ones, And our global engagements have widened to 77 customers. Order size also grew, with several of our customers either starting or continuing their shift to scale deployments. And our sales were derived from all across the Entra portfolio. While it was another particularly good quarter for our 10-gig EPON fiber access products, we also saw strong demand for our remote MAC-FI, remote PHY, and interactive video controller products as well. As you know, Vesma has the industry's broadest portfolio of cable and fiber broadband internet access network technologies, which enables us to meet the full range of our customers' requirements and provide multiple varieties of DAA solutions globally based on any specific customer needs. It's been an important part of our success in the DAA market, and we continue to expand our differentiated portfolio. Subsequent to the quarter end, we announced the world's first commercially available generic access platform, or GAP node. This is a new technology that sets the SCTE's standards for unified access with a modular platform supporting open ecosystems and the evolution of the broadband access network. GAP is a paradigm shift for the industry, both in terms of hardware openness and capacity delivery. Closed access ecosystems inherently limit growth by stifling innovation. Vesna's mission of enabling limitless broadband access is greatly enhanced by leading standards like we are for GAP. We also announced a new generation remote AQFI cable access module, marking the most flexible and highest capacity cable access platform available on the market. So, our enterprise portfolio just keeps getting bigger and better, and with it, Our reputation as one of the world's foremost providers of DAA network access technology continues to grow. Looking at other contributors to the strong BBS segment growth, in our commercial video family, it was another very good quarter for Terrace QAM, with sales increasing to $4.8 million. That was up about 10% both year-over-year and quarter-over-quarter, as our lead customer continued to expand its hospitality footprint. That helped OSTEP. the continued and expected tapering of demand for some of our legacy Terrace family products, including the TC600E, as customers look forward to next-gen IPTV-driven commercial video solutions like Terrace IQ. Turning now to our content delivery and storage segment, while demand for our MediaScale X solutions remain very strong in Q1, we continue to deal with supply chain logistics impacts as well as pandemic-driven project delays affecting our customers' operations and schedules. As an example, an order for a large IPTV expansion project at one of our customers was anticipated in Q1, and ongoing scheduling shifts led them to defer finalization of that project. While it's not unusual to have significant revenue fluctuations in the CDS segment due to the large size of orders and variations in customer project timing, We've seen more of it than usual these past few quarters. The truth is that global shortages, schedule changes, and delivery delays are being felt all across our industry and sector. Vesma has been less impacted than some, due in part to our foresight to predict market demand by leveraging our strong balance sheet, which supports our ability to manage inventories. But we're not immune to these influences and both our content delivery and storage segment and our video and broadband solution segment have felt pressure due to demand growth. Even with our growth planning and build out of robust inventories in preparation for strong volume growth, the sheer amount of growth and demand occurring for Vecima is eclipsing that. Turning back to the CDS segment, on another positive note, it was a good quarter for CDS services revenues. which represented about two-thirds of the segment's sales in the first quarter. Services generally carry higher margins than products, so this also helped to lift margins in the segment and for Vessima overall. On the R&D front in CDS, we also continue to advance our MediaScale X portfolio with further enhancements of dynamic ad insertion features and open cache functionality and 4K content processing. So, some important achievements for the CDS segment in Q1. In our telematics segment, the first quarter brought continued solid performance as our subscriber count hit an all-time record high, and we increased our engagement with municipal government fleet customers and our growing base of asset tracking customers, while achieving an excellent EBITDA margin of 35% in the trailing 12 months. We added eight new restoration industry customers during the quarter, and we're now monitoring over 12,000 units with our Bluetooth tags in total. The telematics business also did an initial rollout of the Driver Vehicle Inspection Report, or DBIR, for a large municipal government customer in Q1. The DBIR confirms that the driver has inspected the vehicle and identified any issues which must be rectified, and it assists motor vehicle carriers in satisfying transportation regulations in the US and Canada. The application is based on handsets or tablets and ensures that customers keep vehicles in good condition. and provides a high level of safety assurance. In addition, that functionality creates a future revenue stream opportunity for all customers and municipal governments in particular. Overall, it was a great start to what we expect will be another growth year for SMA. And now I'll turn the call over to Dale to provide more detail on our first quarter financial performance. Dale?
spk05: Thank you, Sumit. For the purposes of this call, we assume that everyone has seen our first quarter fiscal 2022 news release, MD&A, and financial statements that are posted on Vesma's website. I will present the relevant numbers in discussions around overall results, market segments, operational expenses, and the balance sheet. Starting with consolidated sales for the three months ended September 30th, 2021, we generated sales of $32.4 million. This was an increase of 19% over the $27.3 million in Q1 last year and a decrease of 8% from $35.3 million in Q4 fiscal 2021, primarily reflecting lower content delivery and storage sales. The year-over-year increase reflects the growth of the video and broadband solution segment. driven by our new Entra family of products. Within the video and broadband solution segment, we generated sales of 24.3 million. This was up 80% from the 13.5 million in Q1 last year and 4% higher than the 23.5 million last quarter as customers began their transition to next generation networks using Vecima solutions. Further deployments of our ENTRA Next Generation DAA products contributed first quarter revenue of $18.1 million, up a significant 246% from the $5.2 million in Q1 fiscal 2021, and up 9% from the $16.6 million in Q4 fiscal 2021. A shift to scale deployments and expanding customer engagements during the quarter were the key factors in this growth. as multiple Tier 1 customers deployed our Enter Remote PHY nodes, Remote Map PHY nodes, and 10G EPON solutions across their networks. Commercial video family sales were 6.1 million, down 20% from 7.7 million in Q1 fiscal 2021, and down 9% from 6.7 million in Q4 last quarter, as expected, reflecting tapering demand for our legacy TC600 and TC600E products. This was partially offset by continued strong demand for our TerraceQAM platform as operators continued their commercial rollout for the current generation while preparing for the next generation TerraceIQ platform. In the content delivery and storage segment, first quarter revenues were $6.8 million as compared to $12.5 million in Q1 last year, and 10.4 million in Q4 fiscal 2021. Segment sales for the Q1 fiscal 2022 period included 2.3 million of product sales and 4.5 million of services revenue. These pronounced fluctuations in content delivery and storage sales are typical due to the large size of orders and the potential for customer timing adjustments. In recent quarters, this has been further exasperated by supply chain challenges affecting both our and our customers' operations. The underlying demand for Vesma's Mediascale X solutions remains strong, and segment sales are expected to regain momentum in Q2 in fiscal 2022. On a full year basis, we continue to anticipate high single to low double digit growth for the content delivery and storage segment in fiscal 2022. Turning to the telematics segment, as expected, sales of 1.3 million in the first quarter were on par with the 1.3 million achieved in the same period last year and down slightly from the 1.4 million last quarter. Gross margin for the first quarter was 48.5%, up from 46.2% in Q1 2021 and 42.4% in Q4 of fiscal 2021. The year-over-year improvement reflects a higher product margin mix, partially offset by continued foreign exchange headwinds related to a strengthened Canadian dollar and increased expediting costs related to supply chain constraints. Video and broadband solutions gross margin was 47.2% in the current year quarter. This was higher than the 43.5% a year ago and then 39.6% in Q4 fiscal 21. The stronger BBS gross margin reflects a higher margin product mix, partially offset by foreign exchange headwinds related to a strengthened Canadian dollar, and increased expediting costs related to supply chain constraints. Gross margin in the content delivery and storage segment increased to 50.2% from 47.2% in Q1 last year, and 45.1% in Q4 last quarter, reflecting a higher percentage of service sales in the product mix. In the telematics segment, gross margin in the quarter decreased to 63.4% from 65.3% during Q1 fiscal 21 and 67.6% in Q4 fiscal 21, reflecting higher product costs in the quarter. Turning to first quarter operating expenses. The notable changes year over year were as follows. R&D expenses increased to 8 million in the quarter from 6.3 million in Q1 fiscal 21 as we continue to invest in research and development to support the launch of new products. The increase reflects higher staffing costs, software licensing costs, and amortization of deferred development costs. Until these new products are commercialized, development costs are deferred to future periods. Sales and marketing expenses increased to $4.1 million from $3.0 million in the same period last year. The increase in sales and marketing expenses primarily reflects higher staffing costs to support the increase in sales year over year. G&A expenses at $4.7 million in the quarter were on par with the $4.7 million in Q1 fiscal 2021. Total OpEx in Q1 increased to $17.5 million from $14.2 million during the same period last year. This reflects the increase in R&D and sales and marketing expenses previously discussed, as well as the increase in share-based compensation as the second tranche of our performance share-based units vested in the quarter. I note that reported R&D expense in a period is typically different than the actual expenditure. That's because certain R&D expenditures are deferred until product commercialization. Adjusting for deferrals, amortization of deferred development costs, and income tax credits, actual R&D investment for the quarter increased to $9.6 million or 30% of sales from $8 million or 29% of sales in the same period last year. This increase reflects higher staffing costs, increased software licensing costs, and a general increase in overhead as we move our next generation product families closer to commercial development. We reported an operating loss of $1.8 million in Q1 fiscal 22 as compared to an operating loss of $1.5 million in Q1 fiscal 21 as operating income from the video and broadband solutions segment was offset by a decrease in contribution from the content delivery and storage in telematics segments. Net income for the quarter was $0.7 million or $0.03 per share. This compares to a net loss of $0.8 million or $0.04 per share in Q1 fiscal 21. Turning to the balance sheet, we ended the first quarter with $17.9 million in cash. The decrease in cash in the quarter mainly reflects the build-up of inventory by $7.7 million in the quarter, other non-cash working capital of $0.9 million, capital expenditures of $0.9 million, and cash taxes on performance share-based units of $1.1 million. Working capital decreased to $41.8 million from $44.8 million at June 30, 2021. We note that working capital balances can be subject to significant swings from quarter to quarter. Our product shipments are lumpy, reflecting the requirements of our major customers. Finally, cash flow from operations for the first quarter decreased to cash used of $4.5 million from cash provided of $3.4 million during the same period last year. The $8 million decrease reflects a $10.2 million decrease in cash flow from non-cash working capital, and a $2.2 million increase in operating cash flow. Now back to Sumit.
spk03: Thank you, Dale. Before I move to our outlook, I want to comment on some recent industry recognition for BESMA. At the General Session Spectacular at last month's SCTE Cable Tech Expo, one of our industry's highest profile events, Vesima was highlighted by our operators as a key strategic partner enabling the next leap in broadband technology. At SCTE, we showcase Vesima's new generic access platform and cable and fiber access network advancements, describing how Vesima, together with leading operators, is working to enable the next leap in broadband, advanced speed, fidelity, and service quality across broadband networks. We're driving the 10G future. As I've said for some time now, Vesma has emerged as a true industry leader in DAA, and recognition like this at our industry's flagship event highlights that standing. Turning now to our outlooks, in our video and broadband solutions segment, we anticipate accelerating momentum for our enter products in fiscal 2022. We're exceptionally well positioned to capitalize on the vast opportunities in the distributed access architecture market. with the world's most complete DAA portfolio and a growing list of Tier 1, 2, and 3 MSO customers. Our confidence is further supported by a growing backlog of purchase orders and binding forecasts that are providing excellent visibility into strong demand levels going forward. We expect to continue growing both our sales and our share of the DAA market in fiscal 2022, and we're very excited about what we can achieve this year. I should add that long-term forecasts are a new development in our industry and one that's helping us better manage supply chain issues. The foundation of that is customer confidence in their network rollout plans. With increased visibility into demand levels, we can plan our inventory needs further in advance. That benefits both us and our customers. In our Terrace family of products, we anticipate continued demand for the current generation Terrace QAM, making the way for the long-term migration to the next generation Terrace IQ, alongside the overall network transition to IPTV. Looking at the content delivery and storage segment, we're anticipating measured growth in fiscal 2022, despite the rollout delays at the start of the year. We're already regaining sales momentum in Q2. And in our telematics business, we expect consistent incremental growth from the fleet tracking market and increasing demand for our newer removable asset tracking services. Again, I want to caution that the global supply chain disruptions could continue to interfere with timely order delivery, while also increasing expedite costs and putting some pressure on our margins. Overall, however, we anticipate a strong year for Vesma as our next-generation solutions gain even more momentum. We remain highly confident in our market position and in Vesma's ability to capture the major multi-year opportunities in these fast-growing DAA and IPTV markets. That concludes our formal comments for today. We'd now be happy to take questions. Operator?
spk00: Thank you. We will now begin the question and answer session for analysts and institutional investors. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Our first question is from Jim Byrne with Acumen. Please go ahead.
spk06: Good morning, guys. Thanks for taking my question. Good morning, Jim. I just was hoping, and thanks for those opening remarks. You certainly answered a lot of my previous questions here, but you quantified the BBS impact due to some timing and logistics issues. If you're willing to quantify that on the CDS side from the first quarter, that would be super helpful.
spk03: Yeah, I think on the CDS side, as I worked to highlight, there was maybe a little bit of a second-order effect in the sense that our customers, of course, these projects are driven by not only our products, but by But by, you know, a series of interoperable, you know, equipment such as, you know, customer premise equipment and whatnot. So, you know, the timing adjustments that we saw were a few factors, you know, pandemic delays and scheduling new project rollouts. as well as perhaps some second-order supply chain movements from partners of ours in the ecosystem, and maybe less influenced by logistics and freight than what we saw in the ENTRA and BBS.
spk06: Okay, that's great. And then, you know, I noticed some of your peers have reported, you know, pretty dramatic declines in their gross margins in the quarter. You guys seem to be relatively immune, certainly relative to our expectations. Maybe you could just comment on how you were able to achieve that and do you think you can still sustain at these levels?
spk03: Yeah, so I think as we saw a nice kind of bounce up in gross margin over the quarter and was driven by a few factors. First and foremost, the VBS segment growth and powered by ENTRA had led us to an increase in gross profits. With our relatively fixed manufacturing capacity and cost of goods sold and whatnot, those fixed costs, I would say, were spread out further with respect to our margins in BBS. That was one factor. You know, there was a general, you know, another factor I would say is that in the fourth quarter we had started talking about, you know, we saw these expedite costs starting to come into the fold. We may have, you know, point in time had a little bit more influence of those expedite costs in the fourth quarter. So, and another factor, you know, I think is mix, of course, as always. You know, we had increasing remote MACFI penetration in the first quarter. That was a positive influence on mix. And, you know, the fiber access products continue to have a strong proportion of the entry family revenues in the first quarter. And as we've said that that's favorable to our margin mix profile as well. And even with CDS, you know, though we had the impacts of the the sales project delays to the top line. One thing I highlighted is services margin is a higher component of CDS sales in the first quarter and services margins are generally north. I think lots of positive influences that can demonstrate what we're able to do even in the midst of managing supply chain very strongly. We're putting a lot of the focus and frankly investment in that when you think about things like expedite costs. Looking forward, with demand profile, growing the way it is and building, especially in the DEA products and the entry lines and VBS, we're still being relatively aggressive in what we're trying to do to manage the supply chain. I think, like you said, others have been influenced quite a bit by this global constraint, and we continue to maintain a posture of investment. So that, we expect, we'll continue to have the potential for for overall expedite cost-driven headwinds in fiscal 22. But the mix, as you see, is also transitioning in parallel. So, you know, we expect, you know, our target range is 48 to 52%. We landed very nicely in that range in the first quarter. But, you know, across the year, we're still being cautious to suggest that, you know, we're going to be a couple of points below as we manage the supply chain.
spk06: Okay, that's excellent. And then you talk about your expanded product portfolio. Where does that leave future acquisitions? And maybe just touch on your M&A pipeline and what you're seeing out there right now.
spk03: Yeah. We've made some great strides after we've consolidated and I've been talking about this over the last few quarters since we acquired the cable view from Nokia last year that we've consolidated the engineering teams and we're effectively got a very focused and BAA specifically focused engineering team through the merged kind of organization that allows us to lead in technology development. And you've seen that in some of the stuff I've talked about with our, with our gap node and our new Mac fine module and all these factors that are helping to move us. So, you know, that, you know, the, the, the new organic, you know, organization has, has the opportunity to be a market leader. And I believe we're demonstrating that. But at the same time, you know, our philosophy remains on M&A that, you know, we're in a great position to be, the consolidator, if other vendors are changing focus, we're positioned well, we have customers that given our standing in DAA place us in good standing to be a home for any assets that are changing hands. And, you know, there might be some incremental technologies that can further advance us, but we've got, you know, this core pillar of the broadest portfolio of DAA cable and fiber access products today, you know, and I don't think there's any material technology-wise that we need to drive, but I'm looking at it more as a consolidation movement as we go forward.
spk06: All right. That's excellent. Thanks, guys.
spk03: Thanks, Jim.
spk06: Thanks, Jim.
spk00: Our next question comes from Jesse Pitlock with Quarmark Securities. Please go ahead.
spk07: Hi, guys.
spk00: Hey, good morning, Jesse.
spk07: Hi, Jeff. First, maybe we could just start on the investment in the strategic inventory that you made this quarter. Can you just maybe comment, were these investments related more to inventory for entre products, or is this more on the CDS side of the product suite?
spk03: I think overall investments were blended across the two segments. When we think about the context of managing supply chain constraints, I think that's and the VBS side is more driven in that direction. Of course, in the CDS side, you know, I mentioned a large customer project that didn't finalize in the quarter while we may have expected it to. So that may have been a little bit more of a normal course in inventory preparation for that project that influenced our CDS component of that inventory increase. But, you know, the bulk of it is looking at getting ahead of supply chain on VBS And, you know, of course, when we have the logistics issues at the end of the quarter, those products that had shipped left the door and were in transit and our carriers didn't meet the commitments they made on dates for delivery, those remained in inventory.
spk07: Okay, thank you. And then maybe just as a segue, in terms of the actual delayed shipments that you experienced
spk03: have they been resolved now can you confirm if shipments have been delivered as expected and and you know was this really more of just an isolated event or is this something that could become a bit more persistent um yeah it was a little timing driven and what happened normally you know carriers have been um you know in our in our entire history very very um good at achieving their commitments and you know when we were at the end of the first quarter at the end of september uh you know we had Some that didn't make those commitments for what appeared to be the first time and that we can remember in recent history. So, of course, those shipments did mature subsequent to quarter end. They were in transit in a few days. I think that we're all aware of the macro factors that are trickling into logistics and some of the port delays and things like that that are happening. So it is something that we're being... you know, more active in getting ahead of managing while we're earlier in quarters. Not that we weren't before, but that was the first time we had a material impact in this domain. So we intend to, in addition to all the other focus we're putting on supply chain logistics has popped up as something that we're going to manage aggressively going forward.
spk07: Okay. Yeah, I can definitely appreciate the kind of the broader macro issues that you're contending with And then just lastly, maybe on cable and fiber access, can you just maybe comment on what you might be seeing budget-wise from your tier ones, just kind of as we enter calendar 22 here? You're obviously having some excellent visibility into demand and just, you know, can you even talk about how that, you know, how that budgeting process is kind of shaping up relative to maybe the prior year?
spk03: Yeah, I think, you know, consistent with some of the themes that emerged to drive, you know, our interest sales up significantly until, you know, 46 million plus in fiscal 21. We're seeing ongoing movement from customers to invest in the broadband access network. They, too, and I mentioned this, are very cognizant of supply chain factors and working to crispen their forecast thereof and budgets thereof. in order to stay ahead of it and give us the visibility we need to give them, you know, the supply matching their demand. So, you know, all things stated, I think that the budget activities and forecast activities signaling to us that DAA is continuing to grow and the foundation of that is, of course, the investment in the access network. All those factors that we talked about, the investment in rural broadband, capacity constraints in the access network that remain pressured by the increase in consumer internet consumption. That was a step function increase in the pandemic over and above an already rapidly increasing trend in broadband consumption. So all signals that we're seeing from customers give us a strong confidence that we're going to continue to drive this growth in ENTRA over the course of fiscal 22.
spk07: Fantastic. Thanks for the answers. I'll leave it there.
spk05: Thank you, Jesse. Thanks, Jesse.
spk00: Our next question comes from Ola Pregel, a private investor. Please go ahead.
spk01: Yeah, good morning.
spk00: Good morning.
spk01: Good morning. You used up cash, about $10 million since the previous quarter, and out of that was $7.7 million. Now, do you see a further decrease in cash going forward in the next few quarters or months? would it stabilize at this?
spk03: Yeah. So I think you can see that, uh, you know, we're, we're positioning for ongoing growth and, and that creates the opportunity for, of course, leverage on, on the OpEx and pre-cashflow from operations as we continue to grow. Um, you know, naturally you would expect to lever up and drive more pre-cashflow into the business. But at the same time, you know, things like, um, staying ahead of supply chain and the investments in inventory we're having to make are significant relative to the size of our sales today. CDS projects moving around in time require us to stage inventory thereof. So we are, the percentage of our cash balance that can be influenced by timing adjustments is, you know, is there. But, you know, no concern that, you know, we're already on a point of driving ourselves into further leverage and free cash flow to work there. And, you know, we have no debt naturally as well. So there's lots of paths to funding our working capital investments on the cash balance.
spk01: Okay, so that's not necessarily the reason that the preliminary prospectus of $150 million was posted on CETA. Maybe you can give us some color on what your plans are. I also see that it may include some further sales included in that preliminary prospectus of Maybe insiders?
spk03: Sure. I think one of the factors that we've talked about is that our trading volume is something that we have a low overall float relative to where we think comparable companies may be, and we're working to address that. That's a factor driving that movement. Working capital is something I've talked about. in various conversations over time that as we're in high growth mode and in parallel high demand growth from our customers based on what we're offering in DAA along with supply chain constraints that are happening in parallel, we do want to be aggressive in deploying working capital. So that is a correct kind of connection as well that the prospectus may give us an opportunity to continue to invest aggressively in working capital in favor of design wins in DAA, which ultimately will create leverage and drive cash flow as I was talking about earlier significantly.
spk01: Yeah, well, I believe that it would be very useful to investors that there is more liquidity in the market, certainly. So do you have any plans or do you see any useful plans in getting listed in the U.S.? ?
spk03: Yeah, so no plans at this time. And what I will say again is that, you know, with respect to the shelf perspectives, there are many issuers that are doing that, and it is a quite common practice to have that vehicle in place, have, you know, your annual information form continuously updated, being continuously reporting, to enable you to move quickly, depending on market demand for equity, if that emerges. So, you know, that... That is something that is good practice for us as we consider if there is an opportunity to do a financing, to drive our working capital, to drive our liquidity. And with respect to the U.S., I think that's always something that remains in mind for the future and is possible for us under this vehicle.
spk01: Okay, great. Now, I'd like to know about what is the difference, like I said, the next generation of Thayer's IQ. Could you give us some indication of what that entails?
spk03: Yeah, so what happens in the commercial video environment is that you need to make an adaptation of the video signals so that you can send a video lineup within a property without requiring things like set-top boxes that drive costs higher and drive speeds lower of deploying into the commercial vertical. These customers are bundling video services with broadband services in these hospitality-type properties. So that necessitates an adaptation of the video signals at the equipment closet, if you will, the entry point into the commercial property. In the current generation, we fed that with proprietary digital video technologies from the network. And as we've talked about, the overall network that's feeding these properties is moving to IP video. So Terrace IQ effectively allows us to adapt that IP video once again through the property without requiring any set-top boxes or things like that. And that remains the case, the use case that has always been strong for Best and Most Terrace platforms across commercial video. Very high margin businesses for our customers as well, driving this triple play bundle that they do in the commercial vertical. We also have a very strong deployed base between the Terrace QAM, the TC600, and the TC600E, where we are the market leader with 80% plus market share and tens of thousands of platforms deployed globally. Each and every one of those sites can be upgraded to the Terrace IQ as the shift in the network to IPTV requires that an operator make the upgrade.
spk01: Okay. Well, traditionally, the first quarter, based on previous years, has always been the slowest point. And the second and third quarter, usually much better. And do you see that going for continued practice? Sure, sure.
spk03: Generally speaking, there is a little bit of seasonality, and you're correct. The first quarter or the third calendar quarter is a period where things can get a little slower. There's many reasons for that. Second quarter, of course, is kind of a calendar year-end quarter for the customers, in many cases a budget year-end quarter, and a preparation quarter for the next calendar year. So that creates a lot of tailwinds in the seasonality, and that's very typical for our industry. So, yeah, no, that's a good footnote that this has been the case in the past and is a trend.
spk01: Yes, and since we're already – almost halfway through the current quarter, it should be favorable. Now, yeah, anyway, that's probably it for me. Thanks.
spk03: All right. Thanks, Oli.
spk01: Thanks, Oli. Bye.
spk03: Bye-bye.
spk00: Once again, analysts and institutional investors who would like to ask a question should press star- and one on their touch tone phone. We will pause for a moment as any additional callers may join the queue. Our next question comes again from Ole Pregel, a private investor. Please go ahead.
spk01: Yeah, I just forgot. Assuming, do you see your profit margin continue, or was that just a one-time event?
spk03: Yeah, I think, you know, in terms of EBITDA margin, which is, you know, the best kind of proxy we use for profit margin is that, as you've seen, you know, the mix was driven by the top line and the gross margin profile And then down through the OpEx cadence we're on now has provided a sign of, you know, we're approaching the mid-teens and EBITDA margin. And I talked a little bit earlier about the sales volume as it continues to grow, driven by ENTRA and things like that, that we're looking at leverage on the OpEx. So you can read into that that, you know, we expect... tailwinds to the EBITDA margin going forward.
spk01: Okay, great. Thank you.
spk03: Okay, great. Thank you.
spk00: As there appears to be no further questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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