Q1 2022 KORE Group Holdings Inc Earnings Call
Greetings and welcome to the core wireless group first quarter 2022 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Vic.
We gave her gaea Investor Relations. Please go ahead.
Thank you operator on today's call, we will be referring to the first quarter 2022 earnings presentation that will be helpful to follow along with as well as the press release filed this afternoon that details the company's first quarter 2022 results both of which can be found on the investor Relations page at IR Dot core wireless dot com.
Finally, a recording of the call will be available on the investors section of the company's website. Later today. Please note that this webcast includes forward looking statements statements about the company's beliefs and expectations containing words, such as May will could believe expect anticipate and similar expressions.
Our forward looking statements and are based on assumptions and beliefs as of today.
The company encourages you to review the Safe Harbor statements risk factors and other disclaimers contained on this slide and today's press release as well as in the company's filings with the Securities and Exchange Commission, which identify specific risk factors that may cause actual results or events to differ materially from those described in our forward.
Looking statements.
The company does not undertake to publicly update or revise any forward looking statements. After this webcast.
The company also notes that it will be discussing non-GAAP financial information on this call. The company is providing that information as a supplement to information prepared in accordance with the accounting principles generally accepted in the United States are G. AAP.
You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation.
I'll now turn the call over to Rommel Val <unk>, the company's President and Chief Executive Officer.
Thank you Vic and good afternoon, everyone and thank you for joining us today for our first quarter 2022 earnings call with me is Paul Holt scores Chief Financial Officer.
The first and the key objective of today's call is to provide an overview of our financial results for the first quarter of 2022, I will start with a summary of our results and then Paul will take you through our performance in more detail.
Second we want to help the market understand the massive opportunity ahead of core as the first publicly traded Iot pure play company.
Last quarter's deep dive focused on our world class IP.
And this quarter, we will discuss core's connected health segment, and the market trends driving our largest industry practice we.
We will then hold a Q&A session to round out the call.
Let's move on to slide four to look at our Q1 results.
First quarter revenue was $68 $9 million up 25% year over year.
Iot solutions revenue was $24 $8 million up 70% year over year.
D be any or for the first quarter was 122% up from the first quarter of 2021, but please keep in mind that this metric continues to benefit from the LTE transition project at our largest customer which was nearly complete at the end of this.
First quarter.
Additionally, we are reiterating our guidance, which will result in core beating our combined two year revenue forecast from our go public model by at least $50 million.
Before discussing core's connected health business I want to take a step back and note that we delivered these strong quarterly results. Despite ongoing supply chain disruptions that <unk> and <unk> sunsets and geopolitical uncertainties.
As Iot adoption accelerates it will unlock massive value for core and customers across our five focus verticals.
With that I will present, a couple of slides to provide some business context, and then we will move on to the deep dive topic of this earnings call, which is our exciting connected health segment.
Many of you have seen core seven by seven chart on slide five before for.
For those of you new to our story I will say that this is one of my favorite charts, because it represents the customer's Iot journey.
No matter the use case, how simple or sophisticated.
Every one of these seven major steps has to be taken to deploy an end to end solution.
This side clearly showcases why Iot deployments are so complicated and how core is making Iot easier to adopt with our one stop shop approach to enabling and use cases and Iot applications.
It should then come as no surprise that we build our capabilities along these steps and we continuously think about how to embed more intelligence into our software platforms. So we can drive more efficiencies for our customers who need to adopt Iot to stay competitive and what data.
Slide six takes those same steps from the seven by seven chart and aligns them down the side of this page.
And then we have prioritized how we are building out the horizontal or cross industry capabilities that we take to market.
These capabilities include Iot strategy and technology selection.
Connectivity, which is really a combination of connectivity management device management and data management.
The series of managed services around device logistics and configuration represented by steps four five and six and finally analytics.
For 20 years now we have been building the world's leading Iot connectivity capability.
More recently, we have introduced a comprehensive set of Iot managed services.
Our analytics capabilities are in the early stages, but represent a significant opportunity for the future.
We would classify our capabilities across steps 345, and six as advanced and while the others are advancing we are excited to further our capabilities in step seven our analytics because of the SaaS nature of these services.
As should be clear most of course global team members or Io tiers as we call them are organized and teams that build and deliver these capabilities.
Now we take these capabilities to market in two ways.
The first is our regional go to market approach. Historically this was the only way core went to market and we have organized our sales teams in this area by the Americas, and Europe and Asia Pacific how.
However, with the expansion of our offering portfolio. It is critical to understand our customer use cases and become more of a trusted advisor.
So we are increasingly going to market by industry.
We started this just last year by launching two of our five target industries, where we expect Iot to have a meaningful impact in fact over 80% of the Iot spend today is across these five sectors.
We are already seeing a lot of traction with these initial industry practices and this has strengthened our resolve to increase our go to market industries over time.
Which leads us to connected health.
Core connected health includes both key industry sectors healthcare and life Sciences.
Use cases in healthcare include cardiac rhythm monitoring chronic disease management and medical equipment diagnostics.
Can you use cases in life Sciences include clinical trials with electronic data capture and digital biomarker telemetry.
I'll go into more detail about both our segments and use cases in just a moment, but first I want to set the stage by talking about the broad trends, we see in connected health overall.
As you can see on slide seven.
<unk> devices in both healthcare and life Sciences are growing rapidly.
Industry analysts estimate that the connected health market will exceed $500 billion in 2025.
Further organizations that successfully deployed Iot devices delivered better outcomes improve their patient experience and realize significant cost savings.
Given the Iot success in improving both patient outcomes and cost efficiency outcomes. It is not a surprise that Iot adoption and spending are expected to grow for the next several years.
So what is the challenge what is hindering Iot adoption.
As you have heard us say before launching an Iot solution that can scale effectively and securely is incredibly difficult.
And it is no different in health care, where the connectivity needs to work, while meeting stringent data privacy and security regulations like hip hop.
Slide nine shows the complexity that health care organizations must manage and overcome if they want to launch a device that leverages the full capabilities of Iot.
This complexity requires considerable time and resources that even large blue chip organizations do not have certainly not with Iot experience and real expertise.
What core fundamentally does for our connected health customers is bridge that gap.
We have done this with scores of customers, helping with different parts of our seven by seven services.
And now consistent with what you have heard US say before we are focusing on pre configured enablement solutions, which focus on key problems that almost all companies deal with in these use cases.
Cross connected health, we have launched just such a pre configured solution that with relatively minor tweaks can address several use cases across health care and life Sciences.
Our connected health telemetry solution or <unk>.
<unk> simplifies the complexities of Iot.
Overcoming significant barriers to entry and shortening adoption times.
Of course capabilities enables superior coverage reliability and regulatory experience to provide real time data insights to unlock significant value for customers and their patients.
As Iot adoption accelerates, so too will demand for our connected health solutions, especially with Iot is rapid growth. We are confident that Iot adoption will continue to accelerate in both health care and life Sciences, and we will show you why we think that in the next several slides.
Slide 11 covers trends for chronic disease treatments chronic diseases include diabetes hypertension, chronic kidney disease and the other conditions listed on the left side of the page.
The CDC estimates that 60% of Americans have at least one chronic condition.
And 40% of all Americans have at least two chronic conditions.
The cost of treating these conditions is broken out on the left.
As you can see treatment costs are already well into the billions of dollars with diabetes costs alone, reaching a whopping $327 billion.
These costs are a burden to patients and providers alike.
Iot has emerged as a critical tool to help contain these costs, while improving patient outcomes.
However, enabling Iot for medical devices can be difficult due to medical device regulations current regulations consider anything integrated into the wireless module firmware, including cellular modules to be a fundamental aspect of the medical device because of that any change or update to the firmware requires regulatory.
Tori submission and approval, even if it does not impact the core function of that device.
This is a significant challenge and launching an Iot device, many medical device Oems and integrated therapy providers are looking for ways to enable Iot solutions using existing technology to overcome this regulatory challenge and improve their time to market.
Core addresses this opportunity by adapting existing wireless technologies that are not integrated with the medical device and therefore do not require regulatory approval for every update. Additionally, core leverages common gateway architectures that Iot enabled within a variety of devices, including Diane.
Out of this cycle or as oxygen concentrators and infusion pumps.
For example, core sensor technology and scalable gateway architecture help enable an innovative congestive heart failure treatment that incorporate Iot solutions congestive heart failure has to traditional crisis indicators weight gain and blood pressure.
Unfortunately.
<unk> heart failure crisis may have already begun by the time, the two crisis indicators manifest.
Core's healthcare solutions help address this issue core enables our customers to launch a pulmonary artery pressure sensor, which is a remote patient monitoring device.
The pulmonary artery pressure sensor incorporates Bluetooth sensor, which is inserted into the pulmonary artery. Once the device is running and connected it provides real time analytics to health care organizations without the need for a patient to show up at a health care facility.
This device provides lifesaving medical alerts 10 to 14 days ahead of traditional crisis indicators.
This Iot enabled medical device is an incredibly powerful tool that can prevent a potentially fatal health crisis and the associated treatment costs.
In parallel to these trends in chronic disease treatments, there have been three trends driving Iot adoption and life Sciences.
The first is the movement towards electronic data capture from patients who are otherwise manually inputting data in the past clinical trial data was captured by having patients physically fill out a form.
After that data was painstakingly collected it has to be sent to the clinics for analysis. This whole process could take between 12 weeks to more than a year.
With electronic data capture this process can be done in real time with the data ready for analytics as soon as the data collection stage of the trial is complete.
The second trend is incorporating digital biomarker data into clinical trials.
This is a growth area that is just getting started historically the lack of an off the shelf plug and play solution was a roadblock to Iot deployment in clinical trials.
Core's recently launched the HTS solution, which allows devices to easily and reliably connect and transmit biometric data bridges that gap.
These two trends are resulting in <unk>, three which is an explosion in DCT or decentralized clinical trials.
While the industry was cautiously evaluating DCT technology before the pandemic.
COVID-19 forced rapid industry adoption as you can see on the chart on the right approximately 28% of Crows ran dct's before the pandemic.
That figure increased substantially during COVID-19 and is expected to continue growing with 95% of CRM is planning to increase the use of <unk> within the next 12 months.
However, the exponential growth in sensors used in clinical trials is not limited to DCT.
Industry analysts estimate that up to 70% of all clinical trials will require sensors by 2025, which means that 70% of all clinical trials, we will utilize Iot by 2025.
This is a massive opportunity for core and we have positioned ourselves accordingly.
In summary, these three powerful industry trends are driving Iot adoption in both our connected health sectors and we are confident that these trends will drive growth in that business for the next several years.
Based on these trends and market insights slide 14 summarizes cores go to market strategy for the two key industry sectors that comprise connected health and healthcare, we have remote patient monitoring medical equipment diagnostics and medical alert monitoring and within life Sciences as clinical trials.
I will not spend time detailing each use case, but as you look across those 12 boxes you should recognize some use cases, we just talked about including chronic disease management in DCT.
And I want to highlight a critical point, while there are 12 different use cases on this page quarters not building 12 different solutions, rather we can build once and deploy many times because of the commonality across these use cases in the areas we serve.
On slide 15 is another view with some of our top priority use cases.
As you can see we can serve customers deploying and solutions in these areas with a variety of our seven by seven services as showcased by the Green check marks we are actively recruiting and developing our sales team to have the ability to sell multiple services to each customer.
And then we overlay our innovative pre configured solutions as discussed and as we have solved the problem for one use case, we can integrate that solution architecture into a common base then with slight tweaks to that base. We can go to market in several ways targeting multiple use cases, so our investment.
And our technology are extendable and scalable across different use cases for example, the only thing we must alter between our chronic disease management, our cardiac rhythm monitoring and medical equipment diagnostic solutions is the sensor interface on our gateway.
So now let's look at our CHP solution, which is outlined at a very high level on slide 16 on.
On the far left you can see core cellular gateway, which can interact and receive data from various medical sensors and devices that data is transmitted of course connected health data telemetry platform.
<unk> role in the process includes medical device and sensor integration Gateway device management global connectivity management and data telemetry to the customer and point to ensure that data is delivered quickly and securely.
However, it is important to note that kors role and with data telemetry to the customer as represented by the vertical dotted line on the slide.
Once our customers acknowledge and accept the data we purge it from our platform core is an Iot enabler. It is our customers who use and apply that data we help collect Moreover, as you can see on the right side of the slide data telemetry is helpful across a wide array of use cases.
A simple way to think about our <unk> solution is that essentially everything in orange on the left side of the dotted line enables all five use cases, underwrite, including chronic disease management medical equipment diagnostics and clinical trials.
<unk> core has created a product where 80% of the solution is standard across use cases, and only 20% must be tweaked. So in summary, the beauty of <unk> is that it is simple to install cost effective and allows us to target a variety of use cases.
Slide 17 provides an overview of our connected health practice as it stands today and what we think the business can do longer term.
Health care costs are rising and Iot is one of the best equipped technologies to reduce health care costs, while improving outcomes and patient experiences.
Those trends drive massive adoption and spending in Iot and create a massive opportunity for core we are allocating our time and capital in proportion to that opportunity. These.
These investments are already paying off we have a large and growing customer count and a large customer pipeline with numerous cross selling opportunities.
We are confident in our connected health business and expect it to grow more rapidly than what we included in our go public forecast through 2025 that forecast is represented on the left side of the page.
On the right side of the page is our stretch goal of growing at more than 30% CAGR and connected health.
In conclusion, I will say that we are very proud of our connected health team and further we believe that this innovative and strategic approach to helping our customers adopt Iot is extendable across industries.
As <unk> matures and Iot progresses, we expect additional use cases to open up and we will launch new industry practices to attack them and work to ensure that core is the best positioned service provider to unlock value for those use cases with that I will now hand the call.
Over to Paul to cover the financials in more detail Paul.
Thank you Ramon and good afternoon, everyone first slide 18, we had a solid start to 2022, and we are well on our way to meeting the upper half of our 2022 revenue guidance range total revenue for the first quarter of 2022 was $68 9 million, an increase of $13 6 million or 25%.
Compared to the same period last year.
Revenue for the quarter was comprised of the following Iot connectivity revenue of $44 1 million represented 64% of total revenue and increased by $3 4 million or 8% compared to the same period last year the.
The increase was driven by organic growth of our existing Iot connected connectivity customers net of LTE price adjustments as well as from newly acquired customers, including customers from the BMP and Simon acquisition.
These increases were offset by revenue loss from the devices retired due to the various network sunsets by U S carriers, which began in early 2022.
The remaining $24 8 million of total revenue came from Iot solutions, which represented 36% of total revenue and increased by $10 3 million or 70% compared to the same period last year.
Iot solutions revenue was mainly impacted by organic growth from our existing Iot solution customers and the additional revenue added from the BNP and Simon acquisition.
The overall gross margin percentage in the first quarter was 49, 3% compared to 55, 9% in the same period last year.
This decline in our overall gross margin percentage was primarily due to the growth in our Iot solutions revenue, which comes at a lower gross margin percentage compared to Iot connectivity revenue.
We also continue to see margin pressure within Iot solutions in the first quarter year over year due to the growth at our largest customer which has lower than average gross margin.
Increase in hardware costs from supply constraints and continue higher shipping and labor cost.
Coty connectivity margin remained flat year over year at 62%.
Total connections at the end of the first quarter were $15 3 million, an increase of $2 4 million or 19% compared to the first quarter of 2021.
Dollar based net expansion rate or <unk> ER for the 12 months ended March 31, 2022 was 122% compared to 108% in the prior year.
As mentioned last quarter, we expect <unk> to decline as the LTE transition project with our largest customer concludes however, we expect <unk> to remain above 100% and we expect to grow this metric over the long term.
Operating expenses in the first quarter were $48 million, increasing $10 2 million or 33% compared to the same period last year.
Increased salary and benefit costs higher stock based compensation costs associated with the BMP and Simon acquisition and go public company costs drove the increase in operating expenses.
Net loss in the first quarter was $10 9 million compared to $1 1 million in the prior year.
Adjusted EBIT in the first quarter was $15 6 million a decrease of <unk> 9 million or 5% compared to the same period last year. The decrease was primarily due to the increase in costs associated with going forward that didn't exist in the prior period.
Our adjusted EBITDA margin for the quarter was 23% compared to 30% in the previous quarter.
Now moving onto cash flow, who are used $4 million from operations in the three months ended March 31, 2022. This compares to the business using $12 3 million in cash for the same period in the prior year.
As a reminder, cash flow from operations will vary quarter to quarter based on the timing of payments accounts receivable receipts and prepayments of inventory.
Note. The first quarter of every year, we will typically have lower cash flow from operations as annual incentive plan payments are made during this quarter.
Cash and cash equivalents stood at $31 9 million compared to $86 million at the end of December 31, 2021. This change was primarily related to the financing of the BNP enzyme in acquisition with that I'll pass it back to enrollment.
Thanks, Paul again, we had a great start to the year and I am very proud of our global Io tiers.
Now wrap up with a couple of thoughts on where we're going and then we will open the call up for Q&A.
Core is growing our connection count and executing against our 2022 guidance.
The first two industry verticals, we have launched to initiate phase II of our overall transformation last year are gathering momentum and receiving market and customer recognition.
And we are just getting started we are excited about building out our other focus verticals as <unk> matures and Iot adoption accelerates.
When we went public the model, we were using had us generating $457 million in revenue for 2021 and 2022 combined.
At the time this was seen as an ambitious goal.
On the last earnings call I said that we expect it to outperform this go public revenue forecast by at least $50 million and I am pleased to say that after the strong quarter, we are reaffirming that message.
Despite volatile market conditions core has continued to execute and deliver on the promise of the decade of Iot.
With that let's start the Q&A.
Thank you will now be conducting a question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Information tone will indicate your line is in question here.
One moment, please while we poll for questions.
Our first question today is coming from Mike Latimore from Northland Capital markets. Your line is now live.
Alright, Thanks, Yeah, great start to the year, you guys and thanks.
Thanks for the health care, Okay Thats helpful.
So I.
Thank you.
Yes.
Romo so on the.
You reiterated your guidance.
You just had a very strong first quarter.
Some of the strength was this large customer so should we sort of assume revenues maybe decline a little sequentially in the second quarter before resuming growth thereafter, how should we think about that general pattern with that.
Yeah. Thanks, Mike in a really good question to kick us off with and I appreciate that.
Following the story closely and therefore, you know that we have been transparent now several quarters in a row about the fact that we have the.
Very large engagement.
On the LTE transition with our largest customer red Cola customer number one.
And Thats been one and is substantially complete as of the end.
As of the end of the first quarter or so.
So obviously.
The thought process will be significant.
Several millions of dollars that we need.
Yes.
Phil.
To ensure that we're not sequentially declining.
<unk> over quarter.
Now we've got both organic and inorganic help in doing that we've been obviously focused on organically growing our business.
The team has certainly been focused and we've been seeing.
Isn't that really good traction despite the supply chain and other constraints.
And then Inorganically, obviously, we pulled up the BMP southern tuck in sort of half way through the last quarter. So we will get a full quarter of that helping us as well so we're working real hard to.
Not have the sequential dip and yet obviously, the the year sort of sets up like that doesn't it because of the because a big one time engagement with customer number one.
Got it.
I think you've mentioned that maybe youre tracking towards the.
Upper end of your guidance that you said.
Yes, yes, I think I think that we sort of pointed to that and Paul script, yes.
Okay.
And then I guess just on EBIT or EBITDA was strong came in above our estimates and it was the margin was up nice sequentially I guess, maybe elaborate a little bit on what drove that.
Should we think of that kind of margin as being a new baseline off of which to build going forward.
Yes, I'll just kick off with a couple of high level comments, and then I'll, let Paul finish up on the question around the answer to that question.
As we sort of pointed to on the last earnings call Q4 was.
Was.
A real sort of low point on margin.
The.
Peak, if you will of that one time engagement at customer number one, which obviously is sort of some of our lowest margin work that we do given their volumes.
But also on the connectivity side, we had a series of one time kind of true ups and things like that that happen in the year.
That caused that margin to look even on the Iot connectivity line.
Look relatively low.
So as I said, we were going to improve it from there and we're starting to show what we can do here in Q1 and I suspect there is a.
But more improvement to come from there, but I'll, let Paul address some small detail, yes, yes exactly.
Are there that we had indicated that Q4 was kind of a low point in on both connectivity and the Iot solutions side of things that we see improvement.
Now as the number one customer gets back to kind of normal baseline volumes, you'll see we get higher.
Margins from that business versus the onetime LTE project and then on the connectivity side, we just keep getting better and better at optimization.
Pricing better better pricing from the carriers and so forth. So we hope to continue to see additional margin improvements as we go along.
Great. Thanks, a lot good luck this year.
Thank you thanks, Mike.
Thank you. Your next question today is coming from Lance Vitanza from Cowen. Your line is now live.
Hey, Thanks, guys and first off congrats on the strong quarter, you beat our revenue and EBITDA, which I believe were street hi.
You remind me that I know you said you had about half a quarter of BNP Simon could you could you remind me the date that that closed and then exactly how much revenue did that add in the quarter and I guess more broadly what I'm trying to get at as I know you had some positive items right with the large customer one.
Still impacting the quarter that was a positive you had the M&A that was a positive.
I imagine you also still had some negative headwinds from the <unk> subset maybe from the planned attrition as well and so I'm. Just wondering if you can kind of talk about the puts and takes there. So that we can try to get a sense for it.
Really what the true underlying growth was that we saw sort of in the core business in the first quarter. You reported 21% is the right number 20% is the right number 15% or is the right number 30% I don't know.
Thanks.
Yes.
The nature of your question is year over year, there is it lance on the quarter.
Yes. Thank you.
Yes.
So let me go back to the first part of the question, which is more about.
BNP Simon.
I got to tell you.
<unk> started out relatively.
Between five five and $6 million for the quarter and revenue and Thats only in about half the quarter because I think the close date was February 16th 2000.
<unk>, so right about right at about half the quarter.
A little bit.
Yes.
Early sort of low hanging fruit to be had as we bring the companies together bring some capabilities together, but take nothing away they'll credit away.
From from how well they performed in March and Thats been helpful. As you said.
To meeting some of the other holes.
In general, though once you got it right I mean, obviously vis vis the first quarter last year, our number one customer revenue is.
Is all upside in this quarter that we had none of it in Q1 last year because the project started sort of in the June time frame early late June <unk> It was really.
Q3 last year that we first telco revenue right. So that the app, so that and then sort of that half a quarter of BMP. The downs are what we expected.
Sunset, so, causing Bob kind of forced churn if you will.
And reduced our goal levels, which again we've said.
We would rather well and we are I mean.
The fact that were up even sequentially quarter over quarter, almost 700000 connections.
Yes, there were some that type of scale with falling as up to 'twenty to 'twenty, two and At&t's sunset.
Sunset started but both because the sunset has been time sales and managed and B because we're ready to really handle this and I think we've done even better on productivity than we thought the business would do so.
Or are you pretty well in Q1, but I'll, let Paul get into any more specifics, yes, yes. The only thing I would add on the connectivity side of things that we did see a cut.
Customers hold are pretty much on the AT&T side right to the very end.
Sunset so in any of our modeling for both the AT&T <unk> T Mo.
In Verizon's EMEA <unk> sunsets, we have it.
Our modeling that they would dropped or during this year not waiting right till the end so by a lot of the customers on the AT&T side waiting right till the end of February here.
Give us a little extra revenue in.
Customers on T mobile and Verizon.
And do the same thing then there could be some upside to our model also for the rest of the year.
Okay. Thanks, that's helpful. And then just one more for me if I could and that's on the cash right at $32 billion at quarter end.
I know you have the revolving credit facility as well is that enough liquidity for you is there but was there anything drawn on the revolver at quarter end and I know.
Paul you mentioned that there is some seasonal items that depressed cash flow in the first quarter could you talk a little bit about the outlook for free cash flow and your cash position sort of over the balance of the year.
Yes, yes.
As we did not draw on.
Line at all during the quarter and don't plan on doing so right now.
But going forward as I mentioned during Q1.
We do see a lot of our annual incentive payout.
At the end of March so that does always bring down our cash for this particular quarter going forward, we see free cash flow increasing.
Around adding about $10 million a quarter 10 to 12 million all depends on how much we got prepay from an inventory perspective is that we're seeing a lot more of that as the supply chain really that's really how the supply chain is affecting us. Most is vendors are asking us to do we want the product we've got to pay for.
For it right away so depending on how much that continues BNP on their side of things are also seeing that they had a lot of prepaid there so depending on how much we have to do for inventory.
It will vary between 10 $10 million to $12 million a quarter in free cash flow.
Thanks for your help I appreciate it congrats.
Bob.
Take the next question is coming from Scott Searle from Roth Capital. Your line is now live.
Hey, good afternoon, thanks for taking the questions Robert I appreciate all the color that you provided on the healthcare front, maybe just to dive in on some of the financials I just wanted to clarify a couple of things Paul I'm not sure. If I heard a number in terms of legacy connections or still to be sunset rajeev connections, but I think the expected number was somewhere in the ballpark around a half million dollars.
Is that kind of where we were on the supply constraint front I'm not sure. If you quantified the number I know it's difficult out there in terms of getting modules I'm wondering.
If you could quantify the impact in terms of what was left on the table and then two other elements on the <unk> you know we've been talking about that stabilizing.
Do you continue to see that stabilizing and perhaps improving now to mix going forward and also embedded in guidance. This year services revenue should we be expecting a sequential increase over the course of this year, then I had a couple of follow ups.
Okay, well, let's get this straight.
There are a couple that I think we're more aimed at me and Scott keep us honest alright.
I do so.
So that's the first.
The first one that I think you aim to my interaction with our booth.
Secondly, we're seeing that stabilization I'm, not again, not nowhere near ready to say.
There's upward momentum here or anything like that but you know vis vis the levels that we were at Q4 are we relatively in the same zone from an IPO perspective in Q1, we are and we're not seeing any alarming trends that would suggest that's not happening is is one answer to one of your.
Questions.
The <unk> is that good enough there start before.
Perfect Yep.
Okay.
On the <unk> total connections, let me try to walk a bit of a waterfall here right.
Because.
I think you've been tagged.
By the way so we disclosed that at the end of the year last year, we had about 1 million <unk>.
That were facing sunset at some point this year between AT&T sprint.
Sprint <unk> network CDMA networks, obviously, T Mo <unk> and Verizon's CTO.
So cost about $1 million of that in about a half of that was on AT&T.
Again, AT&T has run a very sort of time managed process, where we still actually have a series of actions up winning a couple of months later, so I'm not ready to call that 500 day down to zero, just yet, but we're getting real close it's not going to go on forever. This extra little gravy train that we got here, but do you have.
If the reason you were asking what the half million. What you were thinking okay that AT&T bumps all done now not quite is the answer to that Scott is that helpful. That's perfect.
Alright.
That's what I forget yes, Sir.
Services increased like from a revenue standpoint should we expect.
Services revenues increasing sequentially throughout the year.
Yes, yes.
Scott we've talked about this before too.
Do expect.
Services to ramp up as the year come on now how much that will be will be.
Determined by each quarter, but we had talked about on the hardware side of things too depending on.
When orders come in a particular quarter may have a ton of hardware revenue versus services in it. So it will vary but to answer your question overall of this services in dollar terms I'll put it not as a percentage are increasing as the year goes on great anymore, and then the supply chain impact.
We have been difficult to getting modules in certain business segments and have been constraining I think some of the new connections coming in line I'm wondering if there was some thoughts around quantifying that.
Yeah. So the best we can do for you.
Scott is kind of what we.
What we've said is last few years.
Regularly grown volume at about 20%.
This year, we're pointing to something closer to 10.
And maybe the EBITDA biased, Michigan, our sales teams are out there.
Fighting hard et cetera, so but.
If indeed that comes through that we're closer to 10%.
That's obviously a different so what's causing that about half of that is what we just talked about right.
And as the forced churn if you will or 750 K of that anyway that will lose this year.
Presumably and so the other and I am just doing the math on 20% of $14 $615 million is about $3 million.
Half of that 10% is what an app lets say half of that is the is the false churn from the sunset.
Three quarters of a million.
The only thing we can really point to is the supply chain issues the sector customers.
Customers are unable to get their devices deploy those devices and so we're not getting into revenue right now.
If we can get more precise overtime with that we'll certainly share it but again, it's a largely indirect type of impact now the only direct impact I can tell you we're seeing.
It's disappointing, but this too shall pass is the.
As esim adoption of any new technology has so.
What has been put a little bit to the side, where our customers are just focused on bidding into their supply chain and their vendors are getting.
Supplementary complementary type products.
To meet their needs. So the overall ECM adoption curve that we were hoping would really start to take off this year is slower than we'd like to see.
Perhaps pushed back into 2023 to 24 on the supply chain opens up and the new devices come back in focus.
Okay very helpful. And then if I could given given all the color on health care. So now we could flush out a couple of things a little bit more in terms of <unk>.
Your expected growth rate if you look at your customer set today, you've been doing very good in cardiac telemetry and now with the acquisition you've added <unk>. What do you think that gives you with the existing customer base today versus needing to add new logos right I think the range. If you do the math of connected devices and the growth in the marketplace looks like it's 20% to 30%.
30% being the aspirational number for you I think by 'twenty five 'twenty six.
Kind of kind of help us understand some of the give and takes in there and also diabetes keeps showing up in your presentation as part of a chronic condition. Historically, that's not been part of your product portfolio and offering our customer set.
I'm wondering is is there an opportunity for you there or given where things like constant glucose monitoring have evolved from Bluetooth to smartphones that that's not a market that you necessarily playing but it seems like cardiac telemetry is still very strong zero. It seems like it's just very early days in getting started so a lot in there, but I was wondering if you could kind of flush out how are you.
You see the evolution, there and has diabetes is part of it.
Yes.
So the first thing I'll say is absolutely diabetes as a part of it.
In fact several of our customers.
In the remote patient monitoring space.
Are either focused in diabetes continuous glucose monitoring.
Or started there and then have started to expand right and so it's definitely an area of focus in fact, one of the one of my most favorite kind of Iot for good type projects that we've.
Gosh that first summer and fall of 2020, let the relatively early months since the pandemic was when we implemented on behalf of just one of these glucose continuous glucose monitoring type customers.
A sort of remote monitoring solution in hospitals.
It was sort of these crazy days were.
The medical staff didn't want to necessarily go and visit these these patients just to get their blood sugar levels right.
Because they were at risk, but also because these days, sometimes aging patients were being put at risk just to get to get their blood sugar.
So we actually rapidly installed.
<unk> continuous glucose monitoring solutions in hospitals for this customer.
And also to save on all the PPE and stuff that was in short supply in those days, but anyway I digress. The point is we are in continuous glucose monitoring absolutely.
In terms of.
How do we think about that 20% CAGR versus studies presented there do we only double our connected health practice or do we triple right.
Look I think yes.
One way to think about this perhaps overly simplistically.
Probably don't need a whole lot of new customers to do what we said we would do in our forecast when we were going public right, especially.
Especially with the fact that we won a very large CRM.
Which took almost a year to win and it feels like it's taken almost a year to get the contract done but it is done.
We may even see revenue of the second half of the year, but also with as you say with the <unk> acquisition.
As the CFO engagement between.
Between us and them now we're able to cross sell into a number of the very large players here and of course, you saw the data on the exploding number of trials using technology. So we feel very good about that space.
In general.
Even if we were to suddenly stop winning new customers, which won't happen. We're not worried about the forecast now to me, it's how much of that upside can we go good.
Very helpful. Thanks, so much guys.
Yes, Scott Thanks.
Thank you next question is coming from Matt <unk> from Deutsche Bank. Your line is now live.
Hey, guys. Thank you for taking the questions just two if I could first maybe higher level question, maybe Rommel. If you can talk about the state of customer demand.
Start the year, whether you've seen any sort of belt tightening a pullback from customers just given some of the rising concerns around the macro backdrop and then just secondly, more of a follow up for Paul I, just wanted to clarify that.
<unk> been around 10% to $12 million in.
In cash flow is that an improvement relative to <unk> or is that more of an absolute number we should be modeling.
And as that cash flow from ops or is that free cash flow. Thanks.
Alright, I'll go first so sorry that was an absolute number from.
Cash from operations, so going to a positive 10 to 12, which is.
Obviously an improvement.
From negative three in this quarter too.
A positive 10 to 12.
Okay.
And then on the on the macro question around sales and demand.
If there is.
Incremental to the supply chain type issues any belt tightening that we're seeing.
Or that's happening, we're not really seeing it Matt.
I can tell you that our inbound demand.
It's actually up it's up almost a third.
The fourth quarter of this year versus first quarter of last year.
So.
Pipelines are relatively full salespeople relatively busy.
It's not happening and perhaps that's because.
Iot can drive and does drive cost efficiencies as much as it drives.
Insights and everything else right.
Back to the connected home for a second.
The fact that you can save lots of dollars, while getting data quicker, while serving customers in their homes.
They're comfortable being.
I think that's an important aspect of what we do and that's what's kept us resilient through this entire pandemic.
Go back two years and time and everybody was panicked and we were pulling cash out of our revolvers and all this stuff.
Yes, sure travel tourism, some used cases tighten up.
Explosions in connected health and remote education, and other use cases, and so that's likely the case here.
It ties back Matt I think to our strategy of being this broad enabler right. We're not in any one business im not dependent on the dynamics of any one use case some of our customers across the 3600 of them are going to do really really well almost no matter of the state of the economy and.
I think the strength of the business just keeps showing through.
That's great and congrats on the quarter. Thank you both.
Thank you Matt.
Thank you. Your next question today is coming from meta Marshall from Morgan Stanley . Your line is now live.
Perfect. Thanks, and congrats on the quarter, Paul maybe a couple of quick questions for you and then a question for Raimo.
Paul.
You noted that the Simon and business mobility partners came in at five $5 million to $6 million this quarter or maybe some of that was frontloaded I just wanted to get a sense of you had been expecting 15 to 20 million is the contribution for the year from those two acquisitions is that something that can be greater than that at.
At this point or just trying to think about that.
And then the second question was really.
Looking at the connections.
Or the average connections for the period and the period total and connections.
It's up 6% quarter over quarter, and 5% quarter over quarter, just trying to get a sense of how we should think of that correlate to.
Connectivity revenue or is that a.
Forward indicators, just how to think about what we see in the increase in connections versus kind of the increase in connectivity revenue.
And then I have a follow up.
So I'll start with the connection question, so yes, depending on when we actually see the connection so we have a customer who obviously linked up.
A bunch at the end of the quarter, that's going to obviously help future quarters here.
We have been seeing it probably pretty evenly throughout the quarter other than this one.
Because of the AT&T sunset during the quarter. So there was some drops in some increases but then March we saw it pick back up again.
Into the positive territory. So I think it's more of an indication of future connectivity growth.
Now in the quarters to come supply constrains and all that sort of several effect.
How how many we're going to continue to add we're also concentrating a lot more on the kind of the high bandwidth use cases, which sees a lot less connections, but higher revenue dollars, which will also help the top line.
Hopefully that answered that one on your on the first question for BNP, adding $5 8 million during the quarter. We that was more than what we were expecting we think it is a little bit front end loaded they had some of their larger customers throughout the year ordering a little bit more maybe worried about supply.
<unk> gene and stuff like that so.
You're correct. When you issue. The you said 15 to 20, new guards was more a little bit higher than 20, but we do expect now based on the strong Q1 that will be a little bit north of that of the $20 million in revenue.
Maybe mid Twenty's now so.
That answers that question.
Got it no that's super helpful.
And maybe Rob just for you you laid out a pretty.
Impressive opportunity on the healthcare side, Yeah Opex.
Opex growth is somewhere in the range of 5% for the year.
I just wanted to get a sense of.
Where you're finding that additional efficiency. They go after some of these customers.
Is it some of the hires you've made in the past that can go after that just how are you best allocating resources to go after that opportunity.
And that's all for me.
That's great and Thanks me and look I think first of all just to maybe add a little bit more on.
BMP Simon.
In general the Iot solutions business line, which is of course, the vast majority of the revenue BNP salmon.
Okay.
Very different in nature from the recurring Iot connectivity right up more SaaS.
Business, where there is this a run rate business right and so.
It's really really dangerous to take the first half of quarter in and start multiplying it by whatever southern and saying. This is my EBITDA right now that said, we're going to keep helping them with cross sell opportunities from other industries and I think they will do better in the core umbrella that was the whole case for why we acquired them and so we hope they do better.
I'm, just saying, it's it's really.
Dangerous to take the month of March and multiplied by 12 and that business. Okay.
On connected health.
So I guess, here's the macro couple of points that I may not be answering your questions. So please come back on and listen this is get to the bottom of it to me.
A couple of things first we decided to the business planning is October November December last year that we were going to put organic investments to work in the first two industries that we had launched it last year right. I mean, we said look there's enough return on this investment dollar to be had in connected health.
And in fleet.
And launching a new industry entirely.
Organically was perhaps.
Not the way to go at least the way we modeled our return on investment return on capital et cetera, We thought it was better to put more resource into what we have okay and by the way also wanted those horizontal capability as you saw in building those out and continuing to be the trying to be the industry leader in all things ECM omni same et cetera.
The Opex increase that you were talking about I mean, theres a lot of.
Just public company costs and finance cost regimen to.
To nudge Paul here.
As customary 2 million boxes.
A quarter right I mean, that's a big chunk of it right and so what we just have to find ways to do and we will is to is to absorb the extra costs of being public and make sure that the balance in the remainder of the investments are going to where do we think the highest return is and certainly connected.
Alex will be one of those in and look I mean, one last thing I'll say on this as a private company, we were running a lot closer to 30% adjusted EBITDA margins right.
As a SaaS company in the public markets, we've sort of openly said 2020 would be great right and kind of.
A little bit more than 20 years.
What have you 20% growth, 20% adjusted EBITDA. This year's margins was pointed to a 24, we may take that on notice that down another point or two in the future to make sure that the top line is growing above 20%, while EBITDA is still staying at above 20%, which I think is the gist of your question right, which is where are we going to put an incremental cost.
To make sure we can grow into this opportunity set but if I didn't answer it.
The pipeline Nida.
Yeah, No I mean, I think that that's helpful. It was more of the opposite question of.
Are you feeling like you're getting into them you are basically having to a lot of those increases in opex are to a company being a public company I guess I'm just trying to get at do you feel like you're able to make all of the hires that you need in order to go after.
Scope of the opportunity you've laid out.
Yes, yes, no I appreciate that.
We're pretty good on that I think I think.
Board leadership team is very aligned on the opportunities and I don't know that we would.
Artist socially with strict I mean, if we have to if we thought the best use of another couple of months of EBITDA. This year was to go do something different and come out and say.
We're going to just barely meet our guidance or something like that we would but that's not that's not the issue. We're facing we certainly feel like we can staff what we think is.
Responsible set of investments.
Okay, perfect Alright, congrats guys.
Move on.
Thank you.
We reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.
No. Thank you very much for joining our call and for those are excellent questions. We certainly appreciate the engagement will talk to you at the next quarter have a great summer.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.