KORE Group Holdings Inc. Q1 2023 Earnings Call
Greetings and welcome to the core group Holdings first quarter of 2000 and twenty-three earnings call at.
At this time all participants are in a listen only mode of question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star is zero on your telephone keypad.
Please note that this conference is being recorded.
Now turn the conference over to our host Charlie Brady Vice President Investor Relations. Thank you you may begin.
Thank you operator.
Today's call will be referring to the first quarter twenties twenty-three earnings presentation that will be helpful to follow along with as well as the press release file this afternoon.
Details the company's first quarter 2023 results.
Both of which can be found on the best Investor Relations page.
I R Dot core wireless dot com.
Finally 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 well could believe expects anticipate and similar expressions are forward looking statements and are based on assumptions and beliefs as of today.
The company encourage you to review the Safe Harbor statements risk factors and other disclaimers contained on this slide.
In today's press release as well as in the company's filings with the Securities and Exchange Commission.
Which identifies 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 probably update or revise any forward looking statements. After this webcast. The company also notes that it will be discussing non-GAAP financial information on this call. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the <unk>.
States or gap.
You can find a reconciliation of these metrics to the companies reported GAAP results in the reconciliation tables provided in today's earnings release and presentation.
I'll turn the call over to roam about the company's president and Chief Executive Officer.
Thank you Charlie good afternoon, everyone and thank you for joining us today for our first quarter of 2023 earnings call.
With me is Paul <unk>, Chief Financial Officer.
Always I'll start with a brief overview of the key events and announcements from the first quarter.
Followed by Paul who will discuss our financial results and.
And we will finish with a Q and a session.
Slide for presents some key announcements from the first quarter, which I will briefly highlight first we are pleased to announce that core omni. Some safe has been selected as a winner of the M. Two M product of the year by I O T breakthrough.
This recognition underscores our commitment to developing products that effectively address the unique challenges faced by our customers.
Core omni some parents global zero touch provisioning capabilities with our industry, leading neeson secured by the G. S M a safe standards.
This allows core customers to meet the challenges of global productivity in a carrier and device agnostic secure manner for massive I O T use cases.
Consistently being recognized as a leader in customer satisfaction and innovation is a testament to our commitment to meet and exceed customer expectations.
This year marks the fourth year in a row that core has been named a leader my gardener and it's magic quadrant for I O T. Connectivity. This recognition highlights our unwavering dedication to understanding our customers needs and creating cutting edge solutions that simplify the complexities of I O T.
And empower customers to achieve their goals.
To further support our customers. We are excited to launch Margo Ah fast solution that provides comprehensive visibility and support for I O T device deployment and logistics management.
Margo makes it easy to manage order and deploy I O T on the go provide.
Providing organizations with a single solution for managing their entire Iot ecosystem.
<unk> our customers can focus on their core business objectives, while we take care of the complexities of Iot behind the scenes.
Now, let's turn to our first quarter financial results in 2023 guidance on slide five.
We had a solid start to 2023 with first quarter revenue coming in above our forecast and is expected increasing sequentially from the fourth quarter by approximately 6%.
On a year over year basis revenue declined approximately 4% primarily due to a difficult comparison to the first quarter of 2022, which was the highest quarter of non-core customer and two G. Three G revenue in 2022 and had significant revenue from the L. T E transition project at our largest.
Customer.
<unk> just the L. T E transition project revenue in 2022 first quarter of 2023 revenue increased approximately 9% year over year, which is at the upper end of our pre truly a revenue growth guidance of mid to high single digits.
Our 2023 second quarter will be the last quarterly year over year comparison impacted by the L. T transition project revenue and the impact will be substantially smaller.
We expect sequential quarterly revenue growth for the remainder of 2023 and year over year growth beginning in the third quarter.
Gross margin increased 518 basis points year over year to 54% as we continue to benefit from optimization of our carrier costs and the absence of lower margin L. T E transition project volumes with our largest customer.
First quarter of 2023, adjusted EBITDA of $13.3 million declined 13% from the first quarter of 2022, and adjusted EBITDA margin was 20.2% compared to 22.2% in the year ago quarter.
First quarter of 2023, adjusted EBITDA was impacted by increased head count costs compared to the first quarter of 2022, and my temporarily hired a normal ordered an accounting costs that we do not expect to repeat.
We are reiterating the 2023 revenue and adjusted EBITDA guidance, we provided an hour 2022 fourth quarter earnings call just a few weeks ago.
We expect revenue to grow in the mid teams, resulting in our revenue guidance range of $300 million to $310 million.
Includes the partial your contribution from the acquisition of truly is I O T business, which remains on track for June 1st closing.
It also includes the 24 million dollar impact from the two G and three G sunsets in the U S and the L. T E transition project at our largest customer, which we are confident we can more than replace from growth in our base business and the addition of new customers.
Our adjusted EBITDA guidance of $60 million to $62 million and adjusted EBITDA margin of approximately 20% are also unchanged with that I will now hand, the call over to Paul to cover the financials in more detail.
Thank you roam all in good afternoon, everyone.
Before getting into our results I think it's worth mentioning too important milestones that were reached in Q1 2023.
First in February we celebrated the one year anniversary of our very successful B M P and Simon acquisition. These.
These customers are now part of our organic growth going forward and are included in our D. B in your calculation.
Secondly, we finally reached the other side of the two G. Three G network sunsets in the United States.
Happy to say the headwinds from a migrations associated with the sunset and the impact of our non-core customers are officially behind us.
Allows us to show the true organic growth of our business going for.
Now turning to our results.
Five six first quarter revenue declined 4% year over year to $66 million compared to $69 million in the first quarter of 2022.
I, 0.7% sequentially quarter over quarter.
Previously communicated the fourth quarter of 2022 represented in near term revenue trough.
Be expected to 120 23 to increase sequentially, which we delivered.
By segment I O T connectivity revenue up $43.5 million decreased one per cent your year and was flat quarter over quarter.
As mentioned above IOC connectivity revenue organic growth was mastering 2022 by the two D. Three G sunset and the churning.
Churning of our non core customer <unk>.
Removing the effects of the non core customers no longer existed as of the beginning of 2023 and the estimated negative impact of lower pricing to existing customers as they migrated to L. T E.
Oh T connectivity revenue grew approximately 9% year over year and five per cent quarter over quarter.
I O T solutions revenue declined 10% year over year to 22.4 million.
The decline was driven by the difficult year over year comparison as the first quarter of 2022 included significant revenue related to the L. T transition project at our largest customer.
To put this in perspective in the first quarter of 2022, the L. T transition project brand new accounted for over $8 million in Iot solutions revenue.
Excluding the <unk> LTE transition project revenue Ouchie solutions revenue would have increased approximately 38% year over year.
Total gross margin in Q1, 2023 was 54% an increase of 518 basis points you over here and remained flat with the prior quarter.
And the last two quarters gross margins were also the highest experienced into one public back in Q3 of 2021.
I O T connectivity gross margin increased approximately 347 basis points year over year to 65.2% and 40 basis points sequentially from the fourth quarter of 2022.
L T connectivity gross margins for the last four quarters have remained stable and the 65 per cent range driven by the continued awesome optimization of our carrier cost.
I O T solutions gross margin increased 640 basis points year over year, and 373 basis points sequentially to 32.4% and it was at the highest level since we went public.
Increases mainly driven by the absence of any lower margin L. T transition revenues from our largest customer in the current quarter versus over $8 million in Q1 of the prior year.
Total connections at the end of the first quarter, where $15 $1 million, an increase of approximately 100000 compared to the end of the fourth quarter of 2022.
Some existing customers continue to see delays and hardware deployments due to supply chain issues and the company also continues to focus more on higher bandwidth use cases, which bring higher revenue, but lower connection.
Dollar based on that expansion rate or D. B N E. R. For the 12 months ended March 31st 2023 was 107 per cent compared to 122% in the prior year.
As a reminder, D. B N E R measures the growth from existing customers and the trailing 12 months compared to the same customer cohort in the year ago period, which is like the same store sales growth rate.
I've mentioned earlier with the anniversary of the BNP and Simon acquisition happening. This quarter. These customers are now included in the calculation.
T V and yard year over year continues to be impacted by the L. T transition project revenue from our largest customer.
Excluding total revenue from our largest customer <unk> at the end of the quarter would have been 126%.
To 114 per cent at the end of the first quarter of 2022.
Operating expenses, including depreciation and amortization in the first quarter, whereas $44.3 million, an increase of 3.4 million or 8% compared to the same period last year.
Excluding non-cash items like depreciation amortization stock based compensation.
<unk> operating expenses increased $1.9 million.
The increase was attributed to higher headcount and its associated costs.
These headcount cost increases were partially offset by half a million dollars in lower DNO insurance costs.
First quarter interest expense, including amortization of the deferred financing fees increased year over year to $10.2 million due to increased borrowing costs on our senior secure terminal.
We expect interest expense will be approximately 10 to 10, and a half million dollars per quarter and 2023.
Net loss in the first quarter was $18.5 million compared to $11.6 million in the same period in the prior year.
The year over year increase in net loss was mainly due to higher interest expense and lower income tax benefits.
Adjusted EBITDA in the first quarter was $13.3 million, a decline of $2 million or approximately 13% compared to the same period last year.
Alright, Jested EBITDA margin in the current quarter was 20.2% down approximately 200 basis points compared to the same period in the prior year.
This was due to higher headcount costs from hiring throughout 2022, but also due to approximately 1 million higher professional service fees related to the 2022 year, an audit and related reporting in the Form 10-K.
We do need additional professional services for the most part is non-recurring and we do not expect them to repeat from the teacher.
Moving to cash flow cash provided by operations in the three months ended March 31st 2023 was approximately two nine.
Compared to 4 million cash used in operations instead of the same period in the prior year.
It changes mainly due to the last annual bonus payments being made in Q1 20 twenty-three compared to the same quarter in the prior year.
At the end of the first quarter cash was $36 million compared to $34.7 million as of December 31st 2022 <unk>.
This change was primary related to the timing of interest payments related to the backstop, though.
Prior to passing it back to normal I wanted to quickly discuss our organic growth and both I I O T connectivity and I O T solutions over the past couple of years.
Going forward this picture should be much clear as headwinds like the U S. Two G. Three G sunsets churning non-core customers and the adjustments from our largest customers LTE transition project, well I'll finally be behind us.
We have added slide eight to show the organic grow separately Fry O T connectivity in I O T solutions.
For the last three years Iot connectivity has had a compound annual growth rate of 12.7%, while IOC solutions was 7.4 per cent.
Both are after adjusting for the various islands detailed on 515, an independent this presentation.
Well, we still have an estimated revenue hull of over 24 million to fail in 2023, we continue to expect both segments on an unadjusted basis to grow organically in the mid to high single digits and with that I'll pass it back to Rome.
Thanks, Paul as you can see none of the transitory effects, we have been discussing on our earnings calls since going public we are a double digit organic growth story.
To highlight that we remain on track to generate this level of growth. We recently began sharing our bookings in sales pipelines statistics.
On slide nine we present, a snapshot of our global sales pipeline as of March 31st 2023.
Our sales pipeline now exceeds 1400 opportunities with a potential estimated total contract value our T. C V of over $500 million in the first quarter, we generated $28 million of closed one T. C. V. So we are off to a solid start to the year and we are focused on.
On driving toward a urine 2023 closed one T. C V that exceeds 2020 twos level of $102 million.
If we accomplish this it will be the fifth consecutive year of growth in our key sales metric of T. C V.
Slide 10 showcases a few examples of our wins in the first quarter that can drip contributed to the closed one T C V of $28 million.
These recent contract wins highlight the success of our growth strategy and demonstrate the expansion of new use cases for our products.
<unk> continues to gain traction in the market and was a key driver in the decision of a leading advertising technology company to transfer all of their North American business decor, which added over $10 million to T. C V and there is potential for future growth at this customer.
How 'bout unique solution enables this customer to utilize multiple ebano profiles on a single S M and manage them from an edge device as well as the ability to use online a P. S.
Furthermore, core was successful in winning a contract with a T. C V of approximately $2 million to provide hardware connectivity in forward and reverse logistics for a new connected health customer launching a remote patient monitoring or RPM service in the second quarter of 2023.
Cause the ability to provide a complete solution was a key driver and winning the contract.
This customer has multiple additional projects of a similar size.
Are expected to begin in 2023, and it's also evaluating the use of our connected helps telemetry solution or C. H T S.
This win and the potential adoption of C. H T. S demonstrate how core is differentiating itself from the competition with Preconfigured solutions that reduce the complexities of I O T deployment.
We are also excited to announce the core has been selected to provide fixed wireless access services to a major restaurant chain with over 700 locations. This.
This contract involves upgrading these locations to five G technology and has a T C V over $1 million with the potential to double.
This opportunity highlights the scalability of our products and services as well as our ability to penetrate diverse markets and adapt to the unique demands of various industries.
Lastly, our core customer headquartered in Australia is expanding their mobile personally personal emergency response system or emperors business to the U S. After signing a multiyear contract with the U S Department of Veterans Affairs.
Their device will be available free of charge to any member of the V. A and the U S and course proud to play a role in helping to support our veterans.
To support the customers Emperor solution core will be providing managed connectivity.
This is an example of course commitment to expanding our global footprint and underscores our ability to support customers as they grow and enter new markets.
In conclusion. These recent contract wins illustrate chords robust growth strategy in our ongoing success and expanding into new use cases for our products.
We look forward to building on these achievements as we continue to innovate grow and create value for our survey.
Slide 11 is our evolution roadmap of which I am sure. Many of you are familiar.
It outlines our transformation from solely providing I O T connectivity to embracing a holistic approach delivering comprehensive I O T solutions for our customers.
As we are witnessing the evolution and growth of the I O T landscape driven by advancements such as massive I O T accelerating five G adoption and edge computing, we have expanded our capabilities and product offerings to meet the diverse needs of our customers who are seeking to harness the power of I O T S.
We reduced the complexities of I O T deployment, we are increasingly helping our customers makes sense of the tremendous volume of new data. They are generating from there I O T solutions.
The amount of information flowing through our global I O T network.
Core data cloud represents a significant monetization opportunity that is the main reason we are building out broader analytics capabilities.
Although analytics is a small part of our business today, it is growing and becoming a key component of our product offerings.
Platform empowers customers to derive valuable insights from the vast amounts of data generated by connected devices, enabling them to make informed decisions and optimize operations.
With the acceleration of five G adoption, we anticipate a surge in massive I O T deployments further enhancing this capability and efficiency of our solutions.
Additionally, edge computing and edge analytics have become integral components for reducing latency and improving processing capabilities ultimately leading to improve user experiences.
Over the next several years, a I paired with I O T will become a powerful too.
We have already begun leading into this as we believe the synergy of a I N I O T. R. E. I O T will allow us to tap new markets and expand our reach into new segments.
Finishing on slide 12, we are off to a good start to the year with solid first quarter results, which included sequential quarterly revenue growth and year over year expansion of gross margin by over 500 basis points.
Our teams dedication and hard work generated $28 million in T. C V and increased our global sales pipeline to over 1400 opportunities with a T. C V of over a half billion dollars.
As a recession resistant company with more than 80 per cent recurring revenue, we are well prepared to navigate economic uncertainties. We.
We maintain focus on high growth and markets such as connected health.
An expansion to new markets and use cases, some of which I mentioned earlier.
Based on our current performance and pipeline, we remain optimistic about our revenue and EBITDA guidance for the remainder of the year.
Commitment to delivering value to our shareholders continues to be a top priority as we look ahead to the coming quarters.
In closing I want to convey my appreciation to all our employees around the world.
Sure I owe tears for their continued hard work loyalty and dedication to core and our customers.
With that let's start the Q&A.
Thank you.
And ladies and gentlemen at this time it will be conducting our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tonal indicate that your line is in the questions Q U.
You May press Star too if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing this darkies.
One moment, please while we prefer questions.
Our first question comes from <unk> with T D Cowan police to your question.
Hi, Thanks, guys for taking the question of next how about a quarter well no I'd like to start with sort of the the underlying growth environment and I I hear you that chorus performance has been quite good and if you would just the groceries and really quite miserable, but that being said.
How would you describe the overall pace of corporate I O T deployment is that meeting your expectations or is that still a bit sluggish and are you sensing that the murky macro environment is perhaps causing corporate.
Customers corporate users to perhaps differ or delay or perhaps even cancel some potential in appointments.
Yeah. That's a great question last thank you you know the.
It's sort of hard to tell.
Where supply chain and the issues you've been seeing and we still hear from from some customers. Although again in certain segments. There's there's sort of light at the end of that tunnel.
But where the supply chain insurance.
For our customers to get their devices and deploy them grow is ending where the macro.
Caution on conservatism, maybe kicking M et cetera.
That said I'm delighted to say that we haven't.
Seen enough.
No real proof or or even anecdotal conversation out there.
To it I'll worry about reiterating which is what we're doing our guidance today right. So we sort of came out of the year and said, we won't see the $24 million Oh <unk> alright.
Twice that on the top line and so to overcome and get to meet the single I, the first quarter actually did better than that.
As you can just take out the one time Lte's Rogers customer you're already at nine per cent and if you then add in the other stuff you're kind of in the low double digits I'm not I'm not ready to go there yet either and say organically will go low double.
It's and it's a good solid start to the year good activity on the phone or a good wins certainly some conversations about slowing down the aggressive top line growth oriented solutions out there, but those are being replaced by efficiency oriented.
Automation oriented kinds of use cases, so we're not really.
Feeling like we need to be more cautious than we already were coming into the year given that we knew that it was gonna be some potential macros exosphere.
S. S. You you're actually starting to go to my next question, which is on page two of the press release I thought he did a really nice job of laying out Canada, three factors and sort of quantifying them in terms of the you know what the growth rates would've been I'm wondering if you could actually.
Just confirm the dollar amount like you did for the L. T. E. You said B L. T E dot only would've normalized revenue would have increased 9% by you called out that it was it was an 8.6 million dollar impact and I'm. Just wondering if you could do that for the non core customers and then for the eye.
Oh T solutions revenue, because I I attempted to do that myself, but I was getting much larger numbers than even low to mid single digits in terms of the growth rate. So I must be a low to mid teens excuse me I'm getting a much larger number so could you send me through those numbers.
Yeah, So and put will keep me honest just shy of four so about 3.8 million is alright, yeah, and and we've added in the slide in the <unk> you actually can see the numbers on the appendix on page 15, but yeah. The non-core customers is 3.4, and then the L. T pricing year over year was about 350000, you mentioned something on the.
I O T solution side of things that there's other than the D. L. T transition project, there's nothing to adjust there there's no non-core customers in Ohio.
So, but if you add the 3.8 <unk> 70, 578.6, right I think you'll go from 9% of US are the 13% range labs is kind of the mouth I was doing.
Great. That's super helpful. Thank you and then maybe just on the Twilio acquisition or invest in in the court.
Get that any update there I might have missed this I apologize, but could you just update me on the timing and the status and and with respect to the ninth increase in the T. C. V. Do you think that that that is has there been any sort of favorable impact perhaps just on the anticipation.
Of that transaction or no is that still sort of to come.
Yeah, No I think any benefits.
Of.
The combination in the synergies that we've talked about before certainly to come.
But you know the.
I'd say the.
Direction to close.
Close.
<unk> that it's the right thing for US all remain in place we had targeted June one is a close date and you know.
As a company and as a leadership team were running I think two or three cadence cause a week and and I was on the one this morning and it seems like all signals are bleeding to close <unk>. We're looking forward to getting this thing done to welcoming that to you and and their customers.
Great. Thanks, guys I'll get back in queue.
Sure.
Our next question comes from Mike Lattimore with North on Capitol Police to your question.
Hi, this is that you're on behalf of Michael <unk>.
Could you give me some color on how the R who has been training, especially the organic who has it been stable for this year.
Yeah, I think largely speaking.
We continue to see the stability and <unk>.
I I personally wouldn't necessarily have a vet or said strongly on earnings call a year ago 15 months ago 18 months ago with that I didn't say that that we would expect to be flat over 2022, because I expected us to have the pressures of that.
1.2 million two G. Three G <unk> that were going away that will typically at much higher.
<unk>, right and and and we did feel that impact, but we made up for it with higher bandwidth use cases, starting to creep in and we're actually if anything seem more momentum with that this year.
M. R. I'll, let you make any color commentary you want but generally speaking very encouraged by the stability in our poo and continue to believe that unlimited longterm, yeah that could be upside if if our focus on connectivity and I'll focus on high bandwidth continues to pay off.
Yeah, nothing really really that there are other than yeah. I agree that we are seeing the potential for our poo increases on you from an organic perspective because of the the higher bandwidth use cases, obviously during this year. The two G. Three G. Sunset, we're at a higher <unk> typically.
That we've seen but again, it's ah by customer by customer basis, a lot of the newer connections that we are seeing are higher bandwidth and even some existing customers with different use cases are using more data bleeding to hierarchy. So it's very encouraging that we're seeing going forward.
Alright, and could you also give some color on how the pipeline has been for the <unk>.
The pipeline on you send me a look.
<unk> I'll tell Ya.
There isn't a customer facing conversation [laughter], alright that I can think of that doesn't so to begin with with you Sir.
We are we are presenting we are campaigning what kind of a <unk> as as the leading propositions and and really seeing tremendous market reaction customer reaction Monday understand the flexibility it provides us back.
We obviously I haven't been able to do.
A lot with truly is Iot customers, yet because you know because obviously we are closed yet.
Competitors until we close et cetera.
Even some of their customers you know an early introduction cause with us several that I've been on have been very encouraged by what they've heard and are looking forward to sort of a cross sell opportunity of core omnis him into them now that said.
<unk>, obviously still small.
You know of or 15 odd million connections out there only about 10% of your symptoms today.
I expect in three to five years, it'll be more than 50 per cent that'll be out there or whatever or total connections will be.
But you know the the the the the marketplace conversations are very encouraging.
Alright, thank you.
Thank you.
Our next question comes from meta Marshall with Morgan Stanley . Please have your question.
Hi, This is Mary on for me to Marshall I have a question on that B M P and Simon I O T acquisitions, how are these acquisition performing comparator expectations.
So we we typically now that we're in the one year anniversary not gonna be breaking out those numbers separately, but they Damon <unk> our expectations as we talked about throughout last year, they were above our expectations and they continue to to perform very well.
Here in the current card.
Awesome. Thank you.
Mmm.
Thank you and or Might've task of question Press Star one.
Our next question comes from Walter Paycheck with like shed. Please state your question.
Thanks, I think you had mentioned.
And your comments about the elevation of SG&A being.
Hire somebody accounts to clean up some stuff in it that would come down.
But if I think if I'm doing the math right and I might be doing this wrong, but.
Your revenue in N and then looked at the EBITDA guidance.
And assuming you're SG&A is like I guess coming down in order to get <unk> EBITDA guidance that I think applies you're expecting.
Gross margin contraction.
So I suspect the answer might be just your sandbagging the numbers on it but the hours or other is or it might just doing the math wrong or like what are the moving parts within.
S G and a and gross margin that we should think about as to why EBITDA guidance would not be higher.
Yeah [laughter]. Thanks, a lot. So let me I guess I'll try to add a bit of color.
First just on steady state organic core.
Uhm revenue gross margin EBIT Edaphon alright, so we.
I have been building towards and fully anticipated gross margin improvements me.
I've been investing in a bit of head count both on the sales side and on the finance and accounting site redfin to get public ready and sucks complaint and all those things.
So largely you know that gross margin improvement that we just put on the table to to in the head count cost and all that would would largely kept us relatively sort of in the same place or smart with where we were last year.
The surprise of the difference that happened you want anywhere.
As a large losing one time million dollar odd extra accounting professional services fees from from our filing process that as you saw was slightly tomatoes that try we don't think that Ah repeat so we do think EBITDA will improve because if you're just a <unk> multiply before we actually don't get there right <unk>, we don't get.
The guidance.
To your point about why isn't it higher number ones yeah totally it comes and that's that's that's an EBITDA diluted unit this year.
In fact, it was double digit EBITDA negative last year, where it was it'll be much better than that here cause. We're obviously you know.
Picking on less losses immediately go to work on improving their gross margins and so forth and they will be accretive next year.
That might be the other part of sort of what you're missing in terms of Verizon is better [noise].
<unk> I mean, that's precisely probably what I missed so.
Just refresh.
So can you just refresh my memory in terms of the components of the improvements and truly I think what you just said what is it that you have opportunities to improve their gross margin going forward that might be kind of the same but that was Mr. Or is it is it a combination of improving their gross margin.
As well as the Opex for that for that entity that you're bringing on yes, Sir Sir certainly from their performance as a part of truly you lost your right. So for the three of 2022, we will improve on the opex as well not least because.
We're not taking on any of their really their support function staff right to finance and all of that is you have a company we have a team ready to take that on also you know where where.
We're taking on kind of you know.
A smaller or a portion of their of their global team not not everybody that they had one until it wasn't suicide investing in that business heavily over the last few years et cetera.
So we've been outside.
I'll say prudent and yet you know, making sure that we're not taking on massive losses this year.
The improvements going forward will be largely driven off of the gross profit line. We like everybody. We're getting with that we're not looking to do any more cost synergies side with those people, but the gross margin improvement opportunities are obviously tremendous given our far greater reach our.
Our number of our <unk> relationships. The fact that we have better leverage in negotiating power and on and on so so <unk>. It will be a multiyear process to get there. We think we can you know we think we can we can get them to a closer to our margins in the <unk>.
The other way.
And then just separately you know, there's there's a lot of dialogue in the market and things seem to be moving very fast in space and fast fast in terms, you know for space terms, which obviously it might be slow relative to kind of what you're used to on the terrestrial side of things, but but the endgame.
It seems to be driving down the cost of componentry because of this directed device like if you're getting this.
<unk> into Android phones that iphones qualcomm's embracing it.
Other satellite constellation to think looking to take this on I'm just curious.
When you start to have those conversations with your customers in terms of integrating that in or is this really just gonna be.
Ah nice incremental market for phones and not you.
You know I mean, it seems like it has to kind of poor over into the I O T space, if there's if you're hitting skate.
Scale component gods, just curious if you've had any preliminary discussions on that or how did you see that market evolving.
Yeah, I know, it's a really good question actually.
We ask ourselves a lot correct stitches.
<unk>.
Begin to migrate our focus which admittedly over the last few years has been so <unk> <unk> <unk> <unk> get into leadership position and and that sort of stuff now by the way. It's it's it's not like we don't do anything Woodside Library, we have <unk>.
Several satellite partners in relationships with the likes of <unk> <unk>.
Others and show, it's been a where required we will we will bring those into bear so.
Tracking supply chain of them tracking containers and for a while you're going to be on the ocean I'm gonna need some satellite or from you know, enabling groans to deliver COVID-19 vaccinations remote parts of the world I'm Gonna need satellite. So we can <unk>, we have been solutioning those in delivering those solutions, but it's not certainly a significant portion of revenue and connect.
<unk>. So we're we're watching the space closely.
We've had encouraging dialogues with several players in space.
We think some really interesting things can can come from <unk> private five G type networks enabled by satellites and some of our board and other relationships provide us unique relationships into some of these players. So it's it's it's it's exactly like you say well if it's a matter of time before we go there and like.
<unk> right every six months certainly during the business planning charge a circle each year, we sent back.
Look at our opportunities.
We try to prioritize based on where there's R Y right and put resources there in like in every other market I O T. The road thrill, the consumer market the phone market by a few years so.
Will will hopefully be moving more resources towards that if not next year at my my guess is 2024 sorry.
Sorry, I was already 2020th.
Five yep got it thank you.
Thank you well.
Thank you and there are no further questions at this time I'll hand, it back to management for closing remarks.
Thank you Diego and thank you everyone for taking the time to listen to our earnings call. We look forward to updating you with our second quarter results in me.
August sorry August .
Thank you have a good day.
Just.
Thank you we conclude today's conference all part of my disconnect have a great evening.