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spk00: Hello, this is the Chorus Call Conference Operator. Welcome to Vesma Network's fourth 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 and operate it by pressing star and zero on their telephone. Presenting today on behalf of Vesma 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 fourth quarter and year-end fiscal 2022 results. Lastly, the call will finish with a question-answer period for analysts and institutional investors. The press release announcing the company's fourth quarter and year-end 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 audited annual consolidated financial statements and accompanying notes for the years ended June 30, 2022 and 2021. 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, beliefs, 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 or are beyond our control. A number of important factors could cause actual outcomes and results to differ materially from these 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 volatility, including the impact of COVID-19 and the distinctive characteristics of ESMA's operations and industry and customer demand that may have a material impact on or constitute risk factors in respect of ESMA's future financial performance as set forth under the heading Risk Factors in the company's Annual Information Form dated September 22, 2022, 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 assumptions may prove 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. FESMA 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 proceed with his remarks. Please go ahead.
spk03: Thank you. Good morning and welcome, everyone. Thank you for joining us. Fiscal 2022 was a year of outstanding momentum for Vesma, as we captured the first wave of the global industry transition to distributed access architecture. I'll start today with a review of some of the financial and operational highlights of a remarkable year. Dale will provide more detail on our financial results, and then I'll return to talk about what lies ahead for Vesma. I'm very proud to report that fiscal 22 brought another year of record-breaking top-line performance, as we achieved the best quarterly and full-year sales results in our 34-year history. Fourth quarter sales climbed 70% to $60 million year-over-year, while full-year sales grew by an exciting 50.4% to a record $186.8 million. Importantly, we leveraged this growth on the bottom line, with profitability momentum outpacing what we achieved even on the top line. On a full year basis, gross profit climbed by 59%. Adjusted EBITDA rose significantly to 31 million, up a remarkable 152%, or two and a half times higher than a year ago. And adjusted net earnings ramped to 41 cents per share. That's a year-over-year increase of 51 cents per share. These are simply excellent results, and even more so while in the presence of ongoing global supply chain challenges. The distinctive success of our strategies and tactics for managing supply chain constraints is evident not just in our very strong top-line growth, but also in a gross margin that bucked sector company trends and strengthened 2.6% to 48.2% in fiscal 2022. Our record results were led by our video and broadband solution segment, and more specifically, of course, by the dramatic growth in our intra-DAA sales. As you know, Entra momentum was building coming into the year, and it continued extensively as operators worldwide increased their capital investment into DAA. Our total customer engagements for Entra climbed to 91 during fiscal 2022, up from 71 at the start of the year. And quarter by quarter, Entra sales grew from 16.6 million in Q4 last year to 40 million in Q4 this year. We ended fiscal 22 with full year Entra sales of 107.3 million. That was two and a half times the Entra sales last year. I want to comment on Entra's broader growth trajectory, which tells a story of not only our sales tempo, but also highlights how compelling the product family has become to Vesma. In fiscal 2020, when we first commit sales of our new DAA products, Entra generated sales of about 5.3 million, and that represented about 6% of our total sales that year. One year later, interest sales have climbed to $42.6 million, lifting Vestal's full-year FY21 sales to $124 million. And now, at the end of fiscal 22, interest sales at $107.3 million have propelled full-year consolidated sales to $187 million, driving our top-line growth to a striking 50% plus. And this is just the beginning of what we see ahead for Entrep. The industry is still in the early innings of DAA adoption. DAA is expected to become a multi-billion dollar market as operators worldwide undertake this transformational evolution of broadband access networks. Networks that we believe are the very foundation of global progress. And the industry is heading into this journey with Vesma widely recognized as a leading global DAA technology partner. All of this strongly cements our multi-year strategy to provide not just the industry's most interoperable and technically differentiated offering of DAA technology, but also the most complete breadth of fiber and cable access solutions. And I'm pleased to report that we continue to build on our portfolio with multiple new DAA achievements in fiscal 22. Just to provide a few examples, we announced the world's first generic access platform or gap node, which sets the industry standard for unified access with a modular platform. We also introduced a new generation remote MACFI cable access module, the most flexible and highest capacity cable access platform on the market. And in partnership with Charter Communications, we demonstrated the reality of 10G DOCSIS 4.0 over hybrid fiber coax cable access networks, clocking blistering symmetrical downstream and upstream speeds in the process. And then we went on to beat our own record. So even as we've been capturing the first wave of industry DAA adoption, we've been preparing to lead the next. So this is truly an extraordinary moment in time for ENTRE and, of course, for Vesma. Looking now at other contributors to our fiscal 2022 performance, within the video and broadband solution segment, FY22 is another excellent year for our Terrace QAM, commercial video hospitality platform. We saw significant continued uptake during the year as our lead tier one customer continued to expand its hospitality footprint while preparing again for a migration to the next generation Terrace IQ platform. In our content delivery and storage segment, we maintained strong annual sales performance of 43.5 million in line with FY21 results. This was achieved despite supply chain and material shortages and pandemic related project delays that slowed some industry-wide transitions to IPTV. The year also brought some important achievements for that segment, including winning and executing the largest IPTV deal in our history. On the innovation front, we continued to advance our media scale family with multiple product enhancements, and another highlight of the year was demonstrating our standards-compliant open caching solution. As I mentioned last quarter, open caching is a significant new development for our service provider and streaming customers because it delivers video that looks and performs better on consumer viewing screens, while at the same time offering compelling business advantages to both streaming providers and operators. We believe open caching is an important component of the future of video streaming, and we're continuing to lay the groundwork for it in partnership with leading global content and service providers. In telematics, we continue to build on the segment's profitable recurring revenue contribution as we broaden deployments to municipal government customers. We also expanded our presence in the movable assets tracking market. We added 39 new asset tracking customers in fiscal 22 and more than doubled the total number of movable assets we monitor in the year to over 23,000 asset tags. In all aspects, fiscal 2022 was a pivotal year for Vespa. and we ended in a very strong financial position. Even after investing heavily in R&D and organic growth and returning cash to our investors in the form of regular dividends of 22 cents per share, we ended the year with 12.9 million in cash and a very strong 58.6 million in working capital. This positions us well to support the significant new growth we see ahead. I'll tell you more about that in just a few minutes. First, though, I'll turn the call over to Dale to provide our financial overview. Dale? Thank you, Sumit.
spk05: For the purposes of this call, we assume that everyone has seen the fourth quarter and fiscal year 2022 results, news release, MD&A, and our financial statements posted on BESMA'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 June 30th, 2022, we generated sales of 60 million. This was an increase of 70% over the 35.3 million in Q4 last year and an increase of 18% from 50.9 million in Q3 fiscal 22. The year-over-year increase reflects a sharp increase in product sales from the video and broadband solution segment driven by our new Entra family of products, partially offset by lower sales in the content delivery and storage segment. Within the video and broadband solution segment, for the fourth quarter of fiscal 22, we generated sales of 49.4 million. This was up 111% from the 23.5 million in Q4 last year and 34% higher than the 37 million in sales last quarter. Further deployments of our next generation DAA products contributed fourth quarter ENTRA revenue of $40 million, up 141% from $16.6 million in Q4 fiscal 21, and up 30% from $30.8 million in Q3 fiscal 22. In all, ENTRA DAA platforms are now being sold to 45 operators across six continents. Commercial video product sales grew to 8.8 million, an increase of 31% from 6.7 million in Q4 fiscal 21 and 43% from 6.2 million in Q3 fiscal 22. The increase in commercial video sales reflects continued strong demand for our Terrasquam platform as operators continued their commercial rollout for the current generation. This was partially offset by the anticipated tapering of demand for Terrace family products, including the TC600E. Content delivery and storage segment sales were 9.2 million in Q4, down 12% from the 10.4 million in the fourth quarter of fiscal 21, and 26% lower than the 12.5 million in Q3 of this year. This lumpiness reflects the timing of large orders. And these quarterly sales variances are typical for the CDS segment. Sales for fiscal 22 were additionally impacted by pandemic-related project delays, as well as supply chain and material shortages. The total CDS segment sales included $4.5 million in product revenue and $4.7 million in services revenue. Turning to the telematics segment, sales in the fourth quarter were at $1.3 million, slightly lower than the $1.4 million in the same period last year and in Q3 of this year. Gross margin for the fourth quarter was at 48%, with a gross profit of $28.5 million, an increase of 90% from the $15 million in Q4 fiscal 21, and up 19% from last quarter's $24 million. Gross margin was within our targeted range of 48% to 52%. Gross margin was up from the 42% achieved in Q4 fiscal 21 and from the 47% last quarter. The improvement in gross margin reflects a higher margin product mix, foreign exchange improvements, and higher sales in the VBS segment. These gains were slightly offset by lower CDS sales and supply chain issues during the period. Video and broadband solution segment gross profit grew 147% to 23 million from the 9.3 million in the same period last year and 42% with the 16.2 million in gross profit last quarter. Gross profit margin of 47% was significantly higher as compared to 40% in Q4 fiscal 21 and slightly higher from Q3 fiscal 22 gross profit margin of 44%. The year over year increase in gross margin reflects significantly higher sales together with a higher margin product mix. Gross profit in this content delivery and storage segment for Q4 decreased slightly by 2% to $4.6 million with a gross margin of 50% from the $4.7 million and 45% in Q4 fiscal 21. On a sequential quarterly basis, CDS gross profit was 33% lower than the 6.9 million generated last quarter. The year-over-year changes in gross profit and gross margin reflect a lower percentage of high margin software sales in the product mix and a decrease in sales in the current quarter as compared to the prior year quarter. In the telematics segment, gross profit in the fourth quarter was 0.9 million with a gross margin of 66%. similar to the $1 million in gross profit and 68% gross margin in Q4 fiscal 21 and the gross profit of $0.9 million and 63% gross margin last quarter. The year-over-year decrease in gross margin reflects higher product costs in the current quarter. Turning to fourth quarter operating expenses, the notable changes year-over-year were as follows. R&D expenses increased to $11.4 million from $5.4 million in Q4 fiscal 21, primarily reflecting the hiring of additional R&D employees, the amortization of deferred development costs, higher licensing and subcontracting costs, as well as decreased capitalization costs. We continue to invest in research and development to support the launch of new products. Until these new products are commercialized, development costs are deferred to future periods. Sales and marketing expenses for the fourth quarter increased to $6 million from $3.6 million in the same period last year. This increase was due to higher staffing costs as well as increased travel, entertainment, and trade show costs as travel and business restrictions related to COVID-19 were eased. G&A expenses increased to $6.5 million in Q4 2022 from $4.3 million in Q4 fiscal 21, primarily reflecting the additional staffing, ERP implementation, software licensing, and subcontracting costs. Other expense was $0.8 million in Q4 fiscal 22, a decrease from other income of $1.5 million in Q4 fiscal 21. due to U.S. federal grant credits received in fiscal 21 compared to an impairment of deferred development costs in the current period in our CDS segment. Total OPEX and Q4 increased to $24.7 million from $11.6 million during the same period last year. This increase primarily reflects higher operating expenses in the video and broadband solutions and the content delivery and storage segments. Video and broadband solutions operating expenses increased to $15.8 million from $6.1 million in Q4 fiscal 21. The $9.7 million year-over-year increase primarily reflects additional expenses for research and development, sales and marketing, and general and administrative activities, all related to sales growth. Content delivery and storage operating expenses were higher at $8 million in Q4 fiscal 22 as compared to $4.9 million in Q4 fiscal 21. Increases reflect year-over-year higher expenditure on research and development, sales and marketing, and general and administrative activities related to planned sales growth. 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 12.7 million or 21% of sales from 8.9 million or 25% of sales in the same period last year. The increase reflects higher staffing costs and higher costs for software licensing, subcontracting, and prototyping as our next generation product families move closer to full-scale commercial deployment. In our bottom line results, we reported an operating income of $3.8 million in Q4 fiscal 22 as compared to $3.4 million in Q4 fiscal 21. The $0.4 million increase was mainly due to an increase in contribution from the video and broadband solution segment from next generation Entra DAA products, partially offset by an increased operating cost from the CDS segment. Adjusted EBITDA grew to $11.1 million from $5.7 million in the prior year quarter and up from $8.1 million last quarter. The fourth quarter foreign exchange gain was $1.4 million compared to a foreign exchange loss of $0.7 million in the prior year period. Net income from continuing operations for the quarter was 3.5 million or 16 cents per share from a net income of 1.4 million or 6 cents per share in Q4 fiscal 21. Overall, a very strong quarter. Turning to the balance sheet, we ended the fourth quarter with 12.9 million in cash up from 10.6 million in the third quarter. Working capital increased to 58.6 million from $54.9 million in Q3 fiscal 22 and $44.8 million in Q4 last year. We note that working capital balances can also be subject to significant swings from quarter to quarter. Our product shipments are lumpy, reflecting the requirements of our major customers. Other timing issues like contracts with greater than 30-day payment terms also affect working capital, particularly if shipments are back and waited for a quarter. Finally, cash flow provided by operations for the fourth quarter was $10.4 million, as compared to cash flow provided by operations of $12.9 million during the same period last year. The $2.5 million decrease reflects a $7.6 million decrease in cash flow from non-cash working capital, driven primarily by the building of inventory to support growth and minimize supply chain constraints, partially offset by a $5.1 million increase in operating cash flow. So just to summarize, another strong quarter with continued sales growth and solid gross margin and adjusted EBITDA in the midst of challenges due to the global supply chain. Now back to Sumit.
spk03: Thank you, Dale. Looking at what lies ahead for BESMA, we see multiple growth engines driving the future. In our video broadband solution segment, of course, our enter products have captured a clear edge in the vast DA and fiber broadband market. And we are very well positioned to leverage and build on this lead. We have the world's most comprehensive DA portfolio covering both fiber and cable access, and we've built some of the industry's best technology. We've also been selected as the technology partner to a growing list of global MSOs, including a number of the world's largest cable operators. These operators are increasingly expanding scale deployment. We expect market demand and sales of our Entra DAA products to continue to ramp up in fiscal 2023. This outlook is supported by a very broad order book that provides excellent visibility into customer expectations and growth for the year ahead. I remind you again that this is still just the opening act for DAA. There's more to come. not just from our existing entry portfolio, as we continue to capture this first wave of DAA adoption, but also from our new technologies and the subsequent waves that we expect to follow. In other parts of the VBS segment, like before, we see continued solid demand for our content current generation Terrace QAM, making way for the long-term migration to next generation Terrace IQ, as our portfolio of commercial video and hospitality solutions remain essential for operators in their enterprise service bundles. In our content delivery and storage business, we anticipate moderate growth in fiscal 2023 as the macroeconomic challenges ease and demand momentum builds. Over the longer term, we see higher growth potential in CDS. The IPTV and OTT streaming services markets are on pace to significantly grow in the next several years and will depend on reliable and scalable solutions like those provided by our media scale portfolio. We also see significant long-term growth potential for our newer open caching solutions to evolve into an important driver of CES performance. Finally, in our telematics business, we anticipate consistent incremental growth from the fleet tracking market and increasing demand for our newer removable asset tracking services. Overall, we see a very exciting future for VESMA as our multi-year investment, technology, and growth strategy is realized. My one note of caution remains the ongoing challenges related to current global supply chain disruptions that could temper our near-term growth or margins. But again, we're managing these pressures exceptionally well today. Overall, we're highly confident in our market position and in Vesma's ability to capture the major opportunities that lie ahead of us as we evolve the world's networks to deliver on the promise of limitless broadband connectivity and entertainment. That concludes our formal comments for today, and we will 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 Steven Lee with Raymond James. Please go ahead.
spk07: Thank you. Sumit, can you give us an update on the supply chain? Is it improving? And also inflation impact on labour and components. Thanks.
spk03: Yep, yep. The supply chain, you know, still in a constrained state. We see that on a global basis. We are seeing, you know, some signs of improvement for sure. I think one of the most important factors I've talked about is that, you know, a year and a half to two years ago, we had this step function change in lead times from, you know, these 16, 20 weeks, you know, the old normal to the new normal, 52-week-plus lead times. But now we've crossed over the – the change that that represents in terms of having our pipeline of orders in place based on very excellent visibility from our customers that, you know, we're working with us as strong partners to manage this and provide us forecasting visibility out consistent with some of the lead time scenarios. So as we kind of approach calendar 23 and, you know, start to get into those orders that we've had in place for a long time, that gives us a lot of momentum in the supply chain side. And meanwhile, we are seeing certainly, again, going through 23 signs of improvement, generally speaking, from the supply chain. But of course, it remains in the short term very important. We're spending a great amount of time managing it. We're being very agile about it, and that's been a big part of our capability to grow like we have. Inflation side, we've seen over the last year significant cost increases in parts. able to you know modify our designs to make substitutions where necessary and to partner with our customers to mitigate that so we're comfortable you see that represented and and you know what the margin profile has been um you know reminding everyone that i expected two to three percent headwinds relative to our target range as we entered fiscal 22 we outperformed that um you know by delivering right it right at our target range at the getting in there. So I think, you know, we're doing really well to manage that.
spk07: Got it. And Sumit, when you said you're still in a constrained state, so does that mean you left revenues on the table in Q4 as well?
spk03: Certainly, of course, there's a backlog, and the backlog across time is very large. And yes, there were orders in Q4 that had we had more material, we certainly would have been well-positioned to increase the sales.
spk07: All right, great. And then I know you've provided this metric before, but how much of your engagement today is MACFI, EPON?
spk03: Yeah, so... Just to take a quick peek at that one more time. So, yeah, our remote PHY is about 25%. Our e-fund is about 25%. Our MAC PHY is about 50% of the 91 engagements we have. So, you know, we have very balanced, you know, distribution. And that speaks to our kind of capability to address the full spectrum of the distributed access, you know, ecosystem relative to where the operators want to go on that journey as they move to 10G services. And, you know, you're seeing the engagements well diversified there.
spk07: Thanks, guys.
spk03: Really solid quarter.
spk07: Thanks. Thanks, Stephen.
spk01: Our next question, Acumen Capital. Please go ahead.
spk02: I assume that was me. I think my phone cut out there. This is Jim here with Acumen. Congrats on the quarter, guys. Hey, Jim. Thanks, Jeff. Thank you. Just kind of a follow-on, I guess, to that last question from Stephen. Noticing your three largest customers now exceeding $100 million in revenue for the fiscal year up significantly. Just kind of want to get an idea of, you know, what drove that growth amongst those three customers? Was it just wider engagement, wider deployment, or, you know, a shift in any of the product sales?
spk03: Yeah, I think, you know, We are seeing wider engagement scale up in some of those deployments. One of those particular leading customers in particular, we have multiple enter products in various categories of their services that they're wrapping up in parallel. The fiber broadband has been really incredible, one of those lead tier ones, and what they've been able to do. to provide broadband equity by expanding their network to cover rural populations in North America. That's been really material for us, and we're showing ourselves to be a very important fiber access vendor, which is great. That's a step in the journey for operators to go in that direction in the long term, and as we're doing it happening now with some of the funding that's in place, Vestal is penetrating that very effectively Another one of those customers is scaling their DAA deployments. They've got a remote PHY model today. They may evolve that in the DOCSIS 4.0 generation towards MAC PHY or continued remote PHY. Again, the flexibility is important to us, so we're seeing on the cable access some real strength with that other leading customer that you see there in those top ones for us.
spk02: Okay, that's great. Notice Alberta added to their rural deployment fund. Just help us understand how that potentially works on your end and also, I guess, the rest of the government subsidies and programs, what you're seeing today or anything new in the last number of months.
spk03: Yeah, you may have cut out just for the start of that. Can you repeat on the increase that you saw?
spk02: Yeah, the government of Alberta added to their rural fund, I think another $50 million or something like that. Yeah, right, right.
spk03: Yeah, and we're seeing that quite widely, and it speaks to, of course, this wide global recognition that broadband is essential. It's a key element of how society functions today. We need equity and access to broadband, and many, many jurisdictions are focused on that. You know, we are seeing, of course, that our capability to provide solutions there, our 10-gig remote OLTE pond for fiber-to-the-home solution, for example, in the node form factor, that's very, you know, efficient for cable operators in particular to deploy to tap into some of those funding initiatives to grow and expand their networks to cover rural areas in particular where some of that funding is directed. And, you know, it relates to how as we've, you know, built the product strategy that we're allowing fiber deployments to embed almost natively in how we control and how we provision even the cable networks. There's a very nice evolution for a cable operator in particular as they're looking to serve
spk02: fiber to the home in the green fields for the business as usual and for the funding program so that's been a very good movement for best of all and then lastly uh i know the i don't recall the name of the expo um is was just ending and uh just maybe any key takeaways or any sort of product developments or or initiatives that that came out of that uh that recent expo
spk03: Yeah, so I think one of the highlights, of course, is that, you know, Charter showed a DOCSIS 4.0 demonstration. There's a press release related to that, you know, in a private booth. And we were one of the vendor partners that were involved there. And with our remote MACFI node, we were showing, you know, with six amplifiers behind the node, which is very important to how practical deploying DOCSIS 4.0 will be in the future with the FDD or ESD, extended spectrum, taking frequencies up to 1.8. It gets a bit technical, but the ability to place DOCSIS 4.0 DA node at the location where nodes are today and still have the cascade of amplifiers behind it and provide symmetrical multi-gigabit speeds, you know, eight and a half downstream, five and a half upstream with six amplifiers. It's very powerful. you know, indication of how the industry can move towards 10G over the cable plant. So that was very, very important for us. You know, we also announced an expansion to our fiber, fiber, you know, access products with our 10 gig XGS pond shelf that we announced at the show. You know, that is as important as the fiber broadband continues to grow. You know, some of the operators are That's effectively a different management standard for fiber to the home that we've brought into the portfolio with that new product that we introduced and some increased density as well. So those are some of the highlights from the show for us.
spk02: Okay. That's it for me. Thanks. Thank you. Thanks, Jim.
spk00: Once again, analysts and institutional investors who would like to ask a question should press star and one on their touchtone phone. We will pause for a moment so any additional callers may join the queue.
spk01: Our next question comes from Jesse Pitlack with Cormark Securities.
spk00: Please go ahead.
spk04: Hi, thank you. Just on the cable and fiber access business, can you just give us a sense of how far along are your earliest customers with respect to their ultimate deployments?
spk03: Yeah, you know, we think that things are still quite early. You know, sometimes we say it's not even the early innings, it's the warm-ups. So, you know, there's been heightened activity. Of course, you see that in our results. But this is, you know, a multi-year, you know, multi-billion dollar investment cycle that's going to take place. first moving to DAA at scale, then, you know, starting the evolution to DOCSIS 4.0, continuing with the fiber build-outs and whatnot. You know, so things are relatively early. And as, you know, of course, we've talked about the supply chain has put somewhat of a ceiling on, you know, output, even though we've been growing fantastically in that. Despite that, there's still, you know, more to be done there in terms of catching up with the native demand that is actually happening today from the operators. And we do feel like they're quite early in the long-term cycle, the market cycle that's going to take place to evolve the networks for multi-gigabit.
spk04: Okay, thank you. And then just, you know, engagements are up to 91, obviously a very, very impressive number. But is there some level where we should expect for this to begin to naturally plateau? And then, you know, second to that, just on customer orders, can you just confirm if you had any sales conversions following the quarter or would it still be at 45 today?
spk03: Yeah, I'm not going to report on the conversions until next quarter, Jesse, but, you know, that's continuously happening. We've had to, of course, manage the supply chain side as well in terms of new customer adoption for deployment. So that's relatively important to align our availability of product with new customer adoption. So I'm not going to dial that in much more right now. 91 engagements, that's continuously growing. It's up from I think 50 in a year or so. There are quite literally hundreds, maybe even thousands of cable operators globally. You know, we look at that 91 as when we see the coverage of some of the Tier 1s, that's very important. Many of that are already in there in terms of that count. So, you know, we see the potential for that engagement level to continue to rise for us, but we're very pleased with the makeup of the 91 today.
spk04: Okay, and then just last one from me. Obviously, you had a substantial build in working capital in fiscal 22. How should we kind of be thinking about the working capital requirements and the evolution of it through fiscal 23?
spk03: Yeah, so, you know, of course, growing at these 50% type rates as we are is one factor. Managing 52-week lead times on supply chain is another factor that we very much, you know, with the visibility, the order kind of, commitments we have and forecast commitments we have from customers, you know, we need to continue to fuel our working capitals to fuel this growth and to fuel our ability to respond to customer needs. So, you know, we feel comfortable that, you know, we're well positioned. We've got lots of, you know, access to capitals we need, but, you know, it's working capital for us is really, you know, very strong and, you know, money in the bank inventory there that we're building, and it's helping us to grow like we are and manage the supply chain. So, you know, as we see the trend going forward, we do expect to have, you know, more inventory commitments. But, again, the growth is consistent with the rates that we've been showing.
spk04: Okay. Understood. That's all for me. Thanks, guys.
spk03: Thanks, Jess. Thank you.
spk00: Our next question is from Ole Prigio, a private investor. Please go ahead.
spk06: Yeah, good morning, gentlemen. Very good quarter.
spk03: Thanks, Ole. Thanks, Ole.
spk06: There's one thing that I noticed that Dale mentioned about the $12 million in research and development that was brought forward because of... you only use that when you're ready to sell the product. Is that correct?
spk05: The $12.7 million is really the cash R&D spend that we had in fiscal 22 is the way to look at that, Oli. Okay. The number on the... on our income statement is before or has that capitalized amount going to our balance sheet. But what I was reporting on the 12.7 was the actual cash spend. So I hope that helps in the quarter.
spk06: Okay. I understand. But does it mean that you're going to be spending that type of money on research and development going forward each quarter? Yes. Yes, it does. Okay.
spk05: That's investing in our clients.
spk06: Maybe I misunderstood what you were saying. That's my fault. No, that's fine. Anyway, you have this proposal that you may be raising a lot of money. I think you filed on CEDAW. And do you see that taking place this year or perhaps next year?
spk03: I'm not going to be able to comment very specifically. Of course, we have, you know, the vehicle in place. You know, the market situation is what it is. We're growing fantastically. So, you know, it's important.
spk06: But there's no eminent need for it.
spk03: There's no eminent need. And, you know, that's there if, you know, the... valuation metrics make sense, and we want to put some liquidity out there.
spk06: Right. Now, the telematics, what kind of revenue are you getting out of the telematics, and is that getting to the point where it might even be worth a spin-off or something, or is that a possibility?
spk03: Yeah, so telematic sales of somewhere around $5.5 million recurring revenue, you know, nice bottom line on that business as well in the margin, you know, and, you know, strong asset and, you know, we're committed to it and, you know, as the opportunity arises, you know, we would be open to different options on the business, you know, I think. We're happy to grow it as well. We're doing great on municipal government customers and asset tracking. So like the rest of the Vespa business, of course, it's at a much smaller scale, but our R&D investments are bearing fruit, and we like the metrics and the recurring revenue of the business. Okay.
spk06: All right. Thanks.
spk05: Okay, Oli. Thank you. Thanks, Oli.
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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