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spk00: Hello, this is the Chorus Call Conference Operator. Welcome to Vesama Network's second quarter fiscal 2023 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 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 second quarter of fiscal 2023 results. Lastly, the call will finish with a question and answer period for analysts and institutional investors. The press release announcing the company's second quarter fiscal 2023 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 three and six months ended December 31st, 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, 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 volatility, including the impact of COVID-19 and the distinctive characteristics of ESSMA'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 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.
spk06: Thank you. Good morning and welcome everyone to our second quarter conference call. I want to start today by telling you that our second quarter performance exceeded our expectations. You'll recall that we entered Q2 expecting revenues to level out as we rebalanced Entra orders after a particularly strong first quarter. Instead, Entra sales continued to ramp up to a new record, led by our Entra optical fiber access solutions. Combined with solid results from the content delivery and storage segment, we achieved another quarterly revenue record and Q2 consolidated sales climbed to $76.2 million. That was up 75% year-over-year and represented yet another 4% sequential growth after the 22.5% quarter-over-quarter growth that we delivered in our record Q1. And we once again paired these record revenues with excellent bottom-line performances. demonstrating the leverage in our model. Q2 adjusted EBITDA of $15.8 million and earnings per share of $0.35 were up two times and six times, respectively, compared to the same period last year. Vesma has now achieved more EBITDA and EPS in the first six months of fiscal 2023 than we did in all of fiscal 2022. These are significant achievements, especially when you consider our ability to navigate the current supply chain environment while continuously increasing product output at existing and new customers alike. In our view, there's opportunity for even stronger performance ahead. Our Q2 results were once again anchored by our video broadband solutions segment and the tremendous success of our next generation Entra DAA solutions. Entra sales climbed to 55.7 million during the quarter, more than triple what we achieved in the same period last year. As I mentioned, fiber access was a big part of the story, but demand-driven in part by the wide rural broadband rollout underway in the U.S. We were successful in leveraging our supply chain strengths to help our customers expand their fiber networks to more people and to more places. And in the process, we reached a major milestone with one of our U.S. Tier 1 customers. That operator has now deployed a total of more than 20,000 Teji, Pod, Fibre to the Home ports using our solution. Our Record Q2 Entra results were further supported by solid demand for our cable access products, including RemoteFi and RemoteMacFi nodes and Entra Video, and by the ongoing shift to scale deployment by an ever-widening base of customers across both cable and fiber access. We're now actively selling Entra solutions to 50 operators, including some of the biggest cable and fiber network operators of the world. and our global engagements have widened to 101 customers from 80 a year ago. Entra continues to deliver on the vision we've had for the broadband networks of the future. Looking out at other factors in our Q2 results, in our commercial video product family, sales were lower year over year as customers lined up their network densification programs and prepared to shift to next generation platforms like TerraceIQ. This is a transition we've been working towards for some time. Additionally, a portion of our commercial video solutions have become DAA-driven and are now within our Etro family of solutions. Turning to our content delivery and storage segment, we achieved 13% sequential quarterly sales growth at CDS in Q2 as we started to see a resurgence in IPTV momentum and, more particularly, expansion activity. Those network expansions have always been a part of our model within the many new customers and IPTV network launches we've conducted in recent years. Three of our existing U.S. customers undertook significant expansions of their IPTV networks using our media scale solutions during the quarter, and we expect more to follow. Operators are starting to shift their focus back to IPTV expansion following pandemic-related priority on broadband. We're seeing significant subscriber uptake, licensing capacity increases on those nascent IPTV networks we helped build in recent years. And I'm pleased to report we also initiated sales of our new dynamic ad insertion solution during the quarter. This is an important capability for operators wanting to improve monetization of their IPTV linear services, which is most of them, of course. And we advanced technology and market development on our open cache architecture, which we believe can become a significant growth driver for the CDS segment. During the quarter, we completed the world's first successful multi-tenant test of an SVTA open caching standards compliant system with VESMA's media scale. Before I move on, I want to touch on what additional CDS achieved with this past quarter. which involved demonstrating the robustness and reliability of our streaming solutions at scale. During the FIFA World Cup, a major Tier 1 MSO in Latin America achieved both record streaming viewership and record performance using our platform to stream the tournament. This was achieved amid the explosive and record streaming magnitude that occurred during the World Cup, and the customer networks performed as designed to meet this exceptional demand. So, an important quarter with many achievements for our CES segment. Our telematics segment also turned in a meaningful quarter with the win of a new municipal contract in British Columbia covering about 100 vehicle subscriptions. It was also our best quarter to date for movable asset customer wins. We added 12 new customers in all for movable assets, which combined represent over 200 new subscriptions. And we significantly increased the number of movable assets being monitored to over 35,000 units. This represents a 200% increase over a period of just seven quarters. Telematics continues to be a highly profitable part of our business, with the segment achieving a gross margin percentage of 67.6% for the quarter. Another major highlight in Q2 was a highly successful common share offering we closed in December to provide further growth capital with gross proceeds of $17 million. On the day of closing, the company's share price closed at a market capitalization of approximately $464 million. Response to the offering was very strong, with subscription demand far exceeding our initial $10 million deal size, to which we responded with a $7 million upsizing, while still not filling the overall subscription demand. We're very pleased that even at a time of challenging equity markets, that investors have a clear thesis on our growth strategy, the trends in our business and industry, and our responses to strong customer demand and the supply chain factors. Overall, it was a highly busy and very successful quarter, and it sets the stage for an even stronger performance in the second half. I'll come back to tell you more about what we see in our outlook in just a few minutes, but first I'll ask Dale to provide more detail on Q2 and first-half financial performance. Dale?
spk05: Thank you, Sumit. For the purposes of this call, we assume that everyone has seen our second quarter fiscal 2023 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 December 31st, 2022, we generated record sales of 76.2 million. This was an increase of 75% over the 43.6 million in Q2 last year and an increase of 4% from the 73.4 million in Q1 fiscal 2023. The significant year-over-year increase reflects a sharp increase in video and broadband solution sales and the positive foreign exchange impact of a weaker Canadian dollar partially offset by lower content delivery and storage sales year over year. Within the video and broadband solution segment, we generated sales of 62.3 million. This was up 129% from the 27.2 million in Q2 last year and 2% higher than the 61 million last quarter as customers continued their transition to next generation networks using Vesima solutions. as well as our success in meeting the needs of Tier 1 customers undertaking larger scale DAA fiber access deployments during the quarter. Our Entra Next Generation DAA products contributed second quarter sales of $55.7 million, up a significant 202% from the $18.5 million in Q2 fiscal 2022, and up 5% from the $53 million in Q1 fiscal 2023. Second quarter sales for commercial video, which include Terrace QAM and Terrace Family Products, were $6.5 million, down 25% from $8.7 million in Q2 fiscal 2022, and down 10% from $7.3 million in Q1 last quarter. As expected, commercial video sales are moderately lower year over year as customers transition to next generation solutions. And as a portion of our commercial video solutions become DAA driven and are accounted for as part of the entra family sales. In the content delivery and storage segment second quarter revenues were 12.4 million or 17% lower than the 15 million in the exceptionally strong Q2 last year, but 13% higher than the 11 million in Q1 fiscal 2023. Segment sales for the Q2 fiscal 2023 period included $7.3 million of product sales and $5.1 million of services revenue. CDS sales reflect IPTV expansions with three existing customers during the period. As always, we note that quarterly sales variances are typical for the CDS segment. The demand for Vesma's IPTV and open caching solutions continues to increase as IPTV customers initiate network expansions and we expect moderate sales growth for the content delivery and storage segments in fiscal 2023. Turning to the telematics segment, as expected, sales of 1.5 million in the quarter were slightly higher than the 1.4 million achieved in both Q1 last quarter and Q2 of fiscal 2022. Consolidated gross margin for the second quarter, was 47.3%, up from 45.9% in Q1 2023, but down from the 50.1% in Q2 of fiscal 2022. This primarily reflects supply chain constraints, which resulted in higher expense costs. We target a gross margin percentage of 48 to 52%. Video and broadband solutions gross margin was 46% in the current year quarter. This was slightly lower than the 47% in Q2 of last year, but higher than the 44% in Q1 last quarter. The VBS gross margin primarily reflects significant stronger sales and product mix, partially offset by higher expedite costs. Gross margin in the content delivery and storage segment decreased to 51% from 55% in Q1 last quarter and from 54% in Q2 last year. The year over year change reflects a change in customer and product mix. In the telematics segment, gross margin of 68% in the second quarter was slightly lower than the 69% in Q2 fiscal 2022, but higher than the 66% in Q1 fiscal 2023, reflecting the increase in sales in the current quarter. Turning to second quarter operating expenses, the notable changes year over year were as follows. R&D expenses increased to 10.3 million in the second quarter, from 8.4 million in Q2 fiscal 22, as we continue to invest in research and development to support the launch of new products. The increase reflects hiring of additional R&D employees and higher licensing and prototyping costs, partially offset by an increase in capitalized development costs. Until these new products are commercialized, development costs are deferred to future periods. Sales and marketing expenses increased to $6.6 million from $4.6 million in the same period last year. This increase primarily reflects higher staffing costs as well as an increase in travel and entertainment as COVID-19 travel restrictions have lifted. G&A expenses increased to $7.5 million in the quarter from the $5.5 million in Q2 fiscal 2022, primarily reflecting additional staffing ERP implementation costs, software licensing costs, and professional fees. One-time costs of approximately $0.6 million will not reoccur. Total OPEX in Q2 fiscal 2023 increased to $25.3 million from $18.5 million during the same period last year. This reflects additional operating expenses tied to higher sales in the video and broadband solutions, combined with a 0.7 million increase in stock-based compensation, and 0.6 million in general and administrative one-time items. 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 13.2 million or 17% of sales from 9.7 million or 22% of sales in the same period last year. The increase reflects higher staffing costs and increased costs for software licensing and prototyping in the current year quarter as our next generation products move closer to commercial development. We reported an operating income of $10.7 million in Q2 fiscal 2023 as compared to operating income of $3.3 million in Q2 fiscal 2022. The significant increase was primarily due to higher VBS sales partially offset by higher expiry costs resulting from supply chain constraints and increased operating expenses to manage the year-over-year increase in sales. Net income for the second quarter increased to $8.1 million or $0.35 per share from $1.5 million or $0.06 per share in Q2 fiscal 2022. Turning to the balance sheet, we ended the second quarter with $8.1 million in net bank overdraft. The decrease in cash in the quarter mainly reflects a buildup of inventory by $26.3 million in the quarter other working capital increases of 0.4 million, capital expenditures of 0.4 million, deferred development costs of 5.2 million, dividends paid of 2.5 million, withholding taxes on PSUs of 1.4 million, and other debt, interest, and cash taxes of 1.8 million, partially offset by adjusted EBITDA of 15.8 million, and net proceeds from common share issuances of $15.9 million. Just to expand on the common share issuances in the quarter, which we completed at a pivotal point in our growth story, the net proceeds from the issuance of the $15.9 million were used to support our working capital requirements in response to the anticipated high demand for our next generation solutions and to navigate supply chain constraints while minimizing debt service costs. It's important to note that the common share offerings are oversubscribed, demonstrating the belief in our path forward and ability to grow revenue and capture market share. Moving on, working capital increased to $89.1 million from $58.6 million as at June 30, 2022. 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 used in operations for the first quarter was $12.2 million, as compared to cash flow from operations of $1.4 million during the same period last year. The $13.6 million increase in cash used in operations reflects a $21.5 million decrease in cash flow from non-cash working capital driven primarily by the buildup of inventory to support growth and minimize the impact of supply chain constraints. Partially offset by a $7.9 million improvement in operating cash flow year over year. Now back to Sumit.
spk06: Thank you, Dale. Turning now to our outlook. In our video and broadband solution segment, we anticipate continued acceleration of the heavy demand we're experiencing for our enter products. Competition in the broadband space remains fierce, and it's driving significant network investments to increase capacities and speeds. Our broad portfolio of DAA products gives customers a great deal of flexibility to dial in between cable and fiber access, whichever fits their needs, and empower them to compete with leading offerings on both download and upload broadband speeds. We're now seeing scale deployment of our solutions ramping up among multiple customers and translating into a broad pipeline of customer purchase orders and forecasts. This gives us excellent visibility going forward, and we expect entry momentum will continue building in the second half and beyond. I do want to caution that ongoing global supply chain disruptions continue to have the potential to interfere with timely order delivery, while also increasing expedite costs and putting pressure on margins. but we also continue to manage these challenges effectively. Heading into Q3, we've increased our investment in working capital to support the inventories we'll need to meet this anticipated demand. Turning to our commercial video family of products, we anticipate moderately lower sales in fiscal 23 as customers complete the densification of their networks using our legacy products and prepare to transition to next-generation platforms like TerraSite Q. And as I mentioned earlier, As we go forward, we also expect a portion of our commercial video solutions to become DAA-focused and accounted for as part of intra-family sales versus commercial video. Looking at the content delivery and storage segment, we expect demand for our IPTV and open caching solutions will continue to build. While we're anticipating moderate growth for this segment in fiscal 23, we see this making way for higher growth potential over the mid to longer term. Our large base of IPTV customers is providing an in-built growth platform as operators begin to initiate IPTV network expansions and our newer open caching and dynamic ad insertion solutions are expected to become an important driver of CDS performance over time. Finally, in our telematics business, we expect consistent incremental growth from the fleet tracking market and increasing demand for our newer movable asset tracking services. Overall, we remain highly confident in our market position and in Bessema's ability to capture the major multi-year opportunities in the fast-growing DAA and IPTV markets. Our futures never look more compelling, and we're very excited about what we can achieve, not just in fiscal 23, but in the years ahead. 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 Steven Lee with Raymond James. Please go ahead.
spk01: Thank you. Hey guys, I have a couple of questions for you. Your 48 to 52 target range for gross margin, do you just need more revenues to get you there or do you need an actual easing on supply chain and component inflation?
spk06: I think those are both good points to reflect on when we think about moving back towards our targeted range. The supply chain remains a factor. We anticipated going into the beginning of the constraints a little over a year ago that we could expect upwards of 2% to 3% influence on our margins from both the supply chain and the air freight and things like that, so the expedites and the air freight. You know, we still had the presence of that, as Dale outlined, in our second quarter. You know, and we're, like others, are, you know, optimistic about improvements in calendar 23 and seeing some signs of that. But that is a factor. And then, you know, when we think about the top line ongoing growth, that likewise is a factor. You know, when we have our manufacturing facility, as an example, the building costs, the fixed costs of support staff, supply chain procurement operations, you know, we also get to spread those costs thinner as our output continues to grow. And we do think that can be a meaningful, you know, improvement to margin. And as always, you know, mix is a third major factor and we'll continue to, you know, develop that as we go forward.
spk01: So did you say, so based into your gross margin today, there's like, two to three points of margin from expedite costs and so on?
spk06: Yeah, I wouldn't say, you know, and I don't have a pinpoint number for us for today, but, you know, we do have an influence remaining with us in the second quarter, you know, and we do still anticipate that it's going to be a factor in the second half as well. But you could think in order of magnitude, you know, one and a half to two and a half percent is there.
spk01: Got it. Okay. And then my, my second question is on your GNA, uh, actually grew a bit year over year. Can you just remind us what's in there and does it start to plateau? Thanks.
spk06: Yeah. So, uh, Dale, if you want to jump in at any time, that's fine. So, you know, I think we're, we, we thought of one type aspects in the second quarter, um, you know, about 500 K and overhead rate adjustments at, uh, You know, 400K and increased software license expenses. We're doing our big ERP, you know, replacement program as we speak here with a new set of tools in our operations. About 200K of that was one time. About 600K and increased salaries and bonuses and incremental headcounts. We also had our annual pay increases that were effective as of September, so we had a first full quarter of that in the second quarter. Some winter-related costs on utilities and whatnot that were a factor, and some training cost increases that reflected the majority of it. Dale, I'll turn it to you on how we think about it going forward.
spk05: Yeah, so the other point, Steven, is that all amortization other than deferred development cost amortization is lumped into G&A for us. So that's why we don't separate out our amortization on our P&L. So that's one consideration you should have. And then going forward, I would say that we're looking at probably a reduction of, you know, in the next quarter of that $600,000 of one-time costs we talked about. But we will be increasing our expense probably in Q4, which will relate to some more additional amortization and a bit of headcount as we continue. We're continuing to ramp up, and so we will be adding headcount strategically as we move forward.
spk01: That's great. Thanks, guys. Thanks, Stephen.
spk00: Our next question is from Jim Byrne with Acumen Capital Partners. Please go ahead.
spk04: Yeah, thanks for taking my question, guys. Congrats again on a real solid quarter. I assume that you mentioned in your remarks there just about the CDS segment and specifically kind of Terrace IQ and the growth to come. Maybe, could you help us maybe quantify some of that growth? Are we talking VBS type enter growth or is it mid-single digits in fiscal 24 and beyond? Where do you think that ultimately falls out?
spk06: Yeah, I mean, so like we said, you know, we're starting to see this transition back to expansion in the IPTV networks. And we've been, you know, anticipating that for some time. We had, you know, 35 plus new network wins over the last several years in CDS. And, you know, to some extent, it's, you know, in some ways pandemic related that those operators got very focused on the broadband side of their networks. And in so doing, you know, there's a little less of timing adjustment when they began to have more subscriber uptake into the IPTV networks that expand those systems. Only a portion of the envisioned capacity was purchased up front by these new IPTV customers and we've been waiting this end, anticipating this expansion. as they move more and more subscribers over from legacy set-top driven video services over to the IPTV fabric, you know, and we look at the total base of their video subscribers moving towards IPTV, we've got, like we say, that inbuilt growth. But, you know, as we stand today, you know, what we're saying is that the culmination, the start of the culmination of that you know, reflects probably a modest growth profile this fiscal year, you know, where we're expecting it to be in the range of maybe 7% to 10% growth annually in the CDS segment. But then we expect that to begin to gain some momentum as we go forward in fiscal 24 and likewise. You know, ENTRA-type growth, you know, the – you know, significant wrapper having VBS, you know, that kind of growth is hard to match. And, you know, we do expect to drive up the growth rate in the IPTV based on those IPTV expansions, adding in some potential growth, you know, material growth drivers like the open caching solution, the dynamic ad insertion, that we can start to drive that growth upward in a longer term, fiscal 24, fiscal 25. But again, you know, quite a high bar from the edger growth to try to match that.
spk04: Yeah, no, fair enough. That's great. Maybe just remind us on your productive capacity today of getting product out the door. What are the governors on that growth? Is it inventory? Is it supply chain? Is it people? Is it space, floor space? Maybe just walk us through some of that capacity constraints.
spk06: Yeah, and, you know, by and large, definitely it has been supply chain at UC that we've been aggressive in going after that. We've been successful, too, in driving the kind of growth rates we have, you know, year over year and quarter over quarter even to where we're at this new level at 76.2 billion in the second quarter. So, you know, but we are, like we said, investing in the inventory. That's based on great visibility from our customers into their forecasts. and keeping great cognition of where the supply chain sits today. Some of our core silica that we use still has very extended lead times as we stand today, so we need to manage for that. I think that's the major factors that we control the materials flow in the right direction. Capacity floor space-wise, we feel pretty confident there. We've got the facility in Saskatchewan. I'm not going to put out a percentage utilization basis, but suffice it to say that we've got a lot of room to grow in that facility. On an incremental basis, getting the labor we need there, we've been quite well. quite effective at that, and we feel like we can linearize that growth in labor as necessary as we continue to grow. Then, of course, we're using some contract manufacturers that are the tier one. We're a lady type contract manufacturers, and they have, of course, as you might imagine, tremendous scale capacity available to them. We're just looking at going incremental as we continue to grow there. Outside of the materials factors that we're continuing to watch, we feel quite confident in our capability to continue growing on a capacity basis.
spk04: Okay, that's great. And then maybe just lastly, you mentioned on the interest side, a big driver in this quarter was the fiber access. Maybe just Help us understand, is that one or two customers kind of placing some large orders, getting some stuff at the door that has been backlogged? Maybe just help us understand some of that fiber drive.
spk06: Yeah, fiber access has been a fantastic movement for us. You know, multiple customers there, multiple Tier 1 customers there, and, of course, the A catalyst that's happening now is that we're seeing a lot of fiber expansion, fiber to the home expansion activity, particularly in the U.S. There's a lot of government funding at work. There's a lot of emphasis on curing the digital divide and covering underserved areas. that weren't covered with broadband before. And we're pleased to see that our set of customers are being very responsive to that and doing a fantastic job of expanding availability of broadband and leveraging fiber and making the most of that funding. So, you know, there are some, by their nature, we have some major tier one customers that are a big factor at our fiber access, but it is distributed across several customers.
spk04: All right, that's great. That's it for me, guys. Thanks. Thanks, Jim. Thanks, Jim.
spk00: Our next question is from Jesse Pitlak with Cormark Securities. Please go ahead.
spk03: Hey, good afternoon. Just coming back to kind of the major tier ones in the cable and fiber access business, can you just maybe give us a sense on how they're pacing their deployments? You know, the eight that you signed, are they all now ramping or some just beginning to ramp and Are they all under expansion or just kind of any sense we can give on how they're all progressing?
spk06: Yeah, you know, for some of the majors, you know, we have a little bit of a spectrum there that, you know, we're seeing. And of course, you know, in calendar 22, we were all contending with supply chain and parallel. So that was a factor that we can't ignore. But, you know, we have, as we hit the second half of calendar 22, we Some of them that were further along in their pipeline of deployment plaids have progressed and will continue to. Others are ramping up as we see today and they haven't gotten to a full quarterly pace of deployment by any means. We see this combined ongoing growth that those that have started earlier and have reached some scale. considering that they wrapped in the second half of calendar 22. We'll see them continue to go at a fast pace, and we see others wrapping up.
spk03: Okay, understood. And then just in terms of backlog, I know you guys are looking to give a formal figure, but can you maybe just comment on the sequential performance and maybe the level of forward visibility that you're seeing?
spk06: Yeah, sure. So, You know, we've never directly published that, as you know, and we still don't plan to. And as we know, the conditions do shift, and we've all observed that, again, with the supply chain, the lead times, the macro factors that I'm sure everyone's very familiar with. So, again, I won't be getting too specific on it today, but, you know, stay more towards some of the color aspects that I've tried to offer before. So suffice it to say that, you know, the backlog does remain very significant. You know, substantial, of course, enough to give us some really high confidence in our growth plans. And then, you know, when you couple that further with some more recent customer engagement activity and progress on some of your continued DAA programs, incremental deployments, you know, we think that the fact that we've been so successful at the supply chain management at delivery, the growth, and by that token, you know, we've also filled lots of orders. you know, and strongly supported those customers where other vendors may not have been able to. So we've naturally had, you know, some of the backlog retire, and that's a very great thing for us. So, you know, order of magnitude, you know, continue to think about it as multiple quarters of backlog at the current top line rate. And another factor of, you know, is the services, the support and the maintenance. While those may not, you know, beyond backlog, yet they are very recurring in nature. And, you know, on a run rate basis, that also is something that you can say is, in a sense, backlog. We expect those contracts to continuously renew, and that'll add to the scope of the backlog. So multiple quarters. Okay.
spk03: And then maybe just lastly on the CBS business, kind of understanding some of the comments made earlier, You know, is there anything that you can do to kind of accelerate your customers and kind of shift back to focusing on expanding their IPTV deployments? Or is it just kind of waiting for them to kind of realize that they need to do this? Or, you know, are there any technical issues that could maybe be slowing them down? Or can you just help us think through this a bit more?
spk06: I think, you know, and it ties a little bit to... Some of the strategic conversations we've had ever since we acquired the CDS business from Good Carrot is that there's this interplay of broadband and IPTV. I reflected on it a bit in the sense that we had a lot of focus on broadband during the pandemic that perhaps delayed some of the IPTV. But one thing we've been saying on the broadband is there's tremendous competition for capacity and speeds amongst our customers and their competitors. And one thing that IPTV, of course, can do is relieve a significant amount of capacity that isn't then made free and made available for broadband. So there is that interrelationship. And we think, you know, as it relates to broadband and freeing up capacity, everything that, you know, has always been Part and parcel of moving to the IPTV fabric is something that can be a tailwind to their catalyst to their expansion activity. Of course, IPTV services are much better. They're streaming. Everything's on demand. All the recordings are in the cloud. I think investors are going to be very familiar with how streaming IPTV works relative to the old world of legacy set-top box, QAM-based video. that, you know, is also taking up a lot of capacity. So we just think, you know, operators have always recognized this. We just need to see the timing of their focused land back here. Understood. Thank you. Thanks, Jesse.
spk05: Thanks, Jess.
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. Our next question is from Dave Kang with B Reilly Securities. Please go ahead.
spk02: Thank you. Nice quarter. Just a quick question on the supply chain situation. You've quantified the impact on your margins, two to three points. Just wondering if you can quantify how much of your revenue was unfulfilled because of component shortages?
spk06: Oh, yeah, thanks, Dave. You know, I don't have that number at hand. You know, I will say that certainly we made a lot of progress in Q1 and Q2. So, you know, we felt quite positive about our capability to fulfill ours. And very importantly, when our customers are making these large programs, labor, construction associated with rolling out new access networks, we always want to stay ahead of their requirements. and their planning and the labor they have to build out these networks. And we've done that. So, you know, I wouldn't say that, you know, we've been influenced too much on the top line at our second quarter with the supply chain limitations. You know, we got very well ahead of it and on track and feel comfortable with that. And I also would say there weren't any if we get down into, you know, customer by customer, product by product.
spk02: Got it. And then your products, the lead times, are they still, you know, remain stretched or are they starting to compress? Because if they're still stretched, then I assume that your backlog may not decline as some other companies are reporting.
spk06: Yeah, it's a little bit of a mix of both. You know, certainly customers have a sense of things and the optimism that things will improve. They're also in the process of working calendar year budgets and whatnot. They're in process on providing more long-term visibility to us. That's a factor. As we said today, while some components have pulled back, I would still say that we see an extended state on on the majority of them. As it relates specifically to some of the core silicon we use that forms quite a high proportion of our bonds, we are seeing still, as we sit here today, quite extended lead times. We need to work in that context. Our customers need to work in that context until things, in a material way, improve and particularly improve for that core silicon.
spk02: Got it. And my last question is, I keep hearing about this virtual CMTS that some of your are, how will that impact your DAA business?
spk06: You know, we've always maintained this view that we're going to build any architecture that supports our customers' requirements. As you see that we have remote PHY, we have remote MAC PHY. Our remote MAC PHY, of course, contains a software-based MAC that we, of course, invented, the virtualized MAC, Gainspeed did, of course, back in the day. That capability and flexibility has always been built into our products ecosystem. What's important is that customers have consensus around driving up their DA deployments in the first place. And we have this agnostic nature in our portfolio where whether it's remote MACFI, which some customers continue to prefer, or it's remote PHY with a vCore, we can fulfill any of those needs. And as it relates to our capability in vCore, I'm not going to say where we're at today in terms of specificity on product offering, but that's very, very well within our capability.
spk02: Got it. Thank you very much.
spk06: Thanks, Dave. Thanks, Dave.
spk00: As there appear 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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