Calnex Solutions plc (CLX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Calnex Solutions plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Tommy Cook, CEO. Good afternoon, sir.

Hi. Thank you, Lily, and good afternoon, everyone. Thanks very much for taking the time to hear the update from Calnex on the results of FY '23. Before we go into talking about '23, let me just take a couple of minutes for the people that may be less familiar with Calnex, to just go over who we are and what it is we do. So Calnex makes test instrumentation, primarily for the telecommunications industry, but more and more for anyone that's running a telecoms-type network, whether it's in a data center or in an enterprise as well. Fundamentally, all our customers use our equipment to improve performance and conformance of their equipment to the performance that they expect from the network or their equipment. We already have a global footprint. We have sold in 68 countries around the world, and we run our lean business model and use global distributor channels to create that footprint together in the world. If you look at our customer sets, it breaks into kind of 4 main buckets. Top left is the telecoms equipment vendors, so you get companies in there that you'll recognize like Nokia, Ericsson, Cisco. So we sell into their R&D teams where they are developing [ chipsets ] equipment, and they need to verify performance before they release it into production. That group represents roughly around 55% of the business that we generate. In bottom left, we have the network operators. Again, familiar names, AT&T, BT, China Mobile, that run the large networks. Again, our business is split in 2 parts there. One part we sell into their R&D teams that evaluate new equipment prior to deploying in the network; and we also have maintenance products that we'll talk about through the presentation as well. The thought group of the telecom space is bottom right, that's the component manufacturers. Your Intels, Broadcoms, Qualcomms as well that make very sophisticated chipsets, the sale of chipsets to the equipment vendors, they build them into equipment then sell products on to the network operators. And they represent around 6% or 7% of our business. I think I forgot to say the operators are around 15% of our business. Then the last part, that's a growing part and currently around low 20s, 23%, heading to 25% of our business, that's what we've termed hyperscale and enterprise. So these are large companies running their own networks but also have great interest, or the companies that are running the big data networks of the world or data centers, and these are a focus for us as we'll talk about later. If you look at the life cycle in terms of why do people need to test, well, at every stage of a life cycle, building new equipment through to the manufacturer, through to building networks, maintaining networks, there's a need to test. The areas that we focus on are highlighted with the red circles there, and it's primarily what we call design, validation and conformance test. So this is the R&D teams building a new switch or a router or a piece of mobile equipment. And as they get the first prototypes back, or the pre-production units, they need to fully verify that the equipment's working and it will work under all conditions once it's deployed in the real world. They've got good design margins so that they don't end up having manufacturing issues with a low yield. And also, for claiming conformance to international standards, again, they need to prove that they actually do meet these standards before they start shipping to their customers. The other part that we focus on is in the far right here, is what we've called monitoring and maintenance. To date, we have actually focused on the maintenance part. So this is after, for example, a mobile network out there if there's a problem at a base station and the base station won't work correctly, then they have to send their engineer out to understand what's going on so that they can verify our -- [ create ] the problem. The other part that we're looking at now is monitoring as well where you've got actually a deployed monitoring system that actually touches most of the nodes in the network and sends information back to the central system to see that there's a problem or there's an issue out at a particular node. Again, we'll talk about that a lot more later on. So Calnex is really -- since we floated in just over 2.5 years ago, since we floated in the end market, through that time, we've shown that we're a profitable cash-generative business, and we've got a robust balance sheet. We're considerably larger than we were 2.5 years ago. We've had 3 years where we've grown very healthily, both in revenue and profit and in terms of staff size as well. And key to us, and we'll talk a lot about this later, is the strong customer relationships that we have and also good relationships with our partners across all territories. We have a large, expanding addressable market and challenged, as all businesses are, to keep growing that as we move forward. And although at the moment, as we'll talk about, there are some challenges in our sector where the kind of macroeconomic effects are slowing down spend or making some of our customers be more cautious with the spend in the near term, underneath that, we believe we are in a good place because the drivers for the networks that we're involved in, or the parts of the market we are involved in, remain healthy: the [ validator ] of the mobile network, often referred to as 5G; the move to cloud computing; the need to build data centers to host the cloud computing and then quick test services running in cloud computing are all continuing to grow and show no sign of slowing down, and so our markets remain very healthy. So that's your Calnex, this whistle-stop tour. So let's just talk about last year, FY '23. Well, we're really pleased with what happened in '23. It was a great year. We grew our revenues 25% to GBP 27.4 million, and profit pretty much lined up, 21% in that period to GBP 7.2 million. And we generated cash with a healthy closing cash balance of over GBP 19 million. And we -- at the AGM in August, we will propose a final dividend of 0.62p per share. And it's not only -- I say it was a great year, and it's not just because of the numbers, but also from an organization point of view, we've had a great year. We've been growing a lot lately, and as you continue to grow, things need to change to deal with the different challenges you get, and we have gone through a number of changes within the organization which have all been successful. And as an organization, we feel we've matured and grown over that period as well. One of the biggest issues we had to deal with last year, the same as everybody in the technology sectors, was the problem with the supply chain component shortages. And if we look back now, probably this time last year was probably the darkest hour. It was a really torrid time for our manufacturing teams working with a contract manufacturer and our R&D teams trying to manage, get components, if you couldn't get them, get replacement components. But I'm pleased to say it is much better now. I'm not saying the component industry is back to normal, but it's definitely in a much healthier place. And all of our products now are back down to normal lead times that we would expect and not extended ones that we were managing last year. And the team really did a great job of getting us through there, and it really was down to that relationship and strong relationship we have with our contract manufacturer, Kelvinside, that allowed us to work closely with our procurement team and interface with our operations and our R&D team to deal with the many, many challenges these guys had to deal with last year. But through that team, we've continued to innovate in our products, and you'll see later on that we've got a number of new releases and new things that we're coming out with. And of course, one of the key things that we're trying to do is strategically grow our relationships with the hyperscale customers. We've had some early success with these guys, and we believe there is a number of opportunities in there that we continually want to build relationships, develop good relationships with these customers, and then hopefully, convert that into healthy business as we move forward. And we've made good progress over the last year. We already have a strong relationship with one of the hyperscalers. We have seed units into 2 of the other ones. These are early units into their R&D team where they're evaluating the need, whether they want to put time in synchronization across the data centers or not. And we engage very closely with them and help them do that evaluation and make sure we are seen as the partner of choice if they choose to go ahead and do that. M&A has been part of our strategy. And for a number of years and all right, in April last year, we acquired iTrinegy in Stevenage. And year 1 was very much about the integration of that team, building out the team over the period so that they ready to create growth this year. And I would say that we're pretty much on track, with the road map really right. The team is almost twice the size it was when we acquired them. We've put people into sales, into business development and product marketing as well as engineering to really round out that team and make sure we have a strong team. And this year, it will be about trying to really push and make sure we can create good growth into that new set of customers for us. So at that point, I'm going to hand over to Ashleigh, and she is going to cover the financial review. Ashleigh?

Thanks, Tommy. So just before I take you through the financials, I thought it would be useful to briefly remind you of our revenue model as I've done in previous presentations, and it will also be good for those of you that are new to Calnex just to understand our revenue drivers. So Calnex generates revenues through the sale of bundled hardware and software as well as software support and extended warranty programs. So a typical customer will come to us to purchase one of our hardware products, and within that sale, there'll be a number of software options included at the time, and that is invoiced as one bundled sale to that customer. That same customer can then come back for upgrades or additional options that are then added to the existing hardware through the provision of a license key, and we sell these as stand-alone software sales or upgrades. And bundled hardware and software sales pricing can differ for each order as it really just depends on what hardware product is being purchased and the numerous software option choices that each hardware product can offer. It really just depends on what each customer wants to purchase combination-wise for what they need. And that revenue is recognized on dispatch or delivery of the software license key, if it's a stand-alone software upgrade, and makes up 90% of our total revenues. And you can see that from the graph in the top left of this page here. And that has effectively been the trend for the last few years, and you can also see that, and the trend is showing there for 2021 and 2022 as well. Each of our products comes with a standard warranty period, which can be extended for an extra fee, and we also sell software support programs, and that makes up the other 10% of our revenues, as you can see here. And that revenue is recognized over the life of the product. And moving across the top of the slide to the middle pie chart. As you will also know, our revenues are generated across a global customer base and distributor network. And in the past few years, we've had an almost even split of orders and revenue across our 3 geographic divisions, Americas, North Asia and Rest of the World, and that helps give us spread of risk. These last 2 years have seen a slight decline in the portion of total orders coming from North Asia as a result of the continued U.S.-China geopolitical tensions, although, as you can see from the chart, this region still contributed to 27% of total orders on average over the last 3 years. I'll come back to the geographic split in just a minute on the following slides. Now as you remember from previous presentations or statement from what Tommy just said on Slide 3, our sales are predominantly derived from telecoms customers where the end application is a telecoms network. However, non-telecoms customers, as Tommy was saying, include those hyperscale data center and enterprise customers. At the top left here, we show that on a 3-year average rolling basis, and at this moment -- and this graph here excludes our recent acquisition just for a second, because just to get a like-for-like comparison. These non-telecom customers represented 25% in FY '23 compared to 23% in FY '22. If you add back in our -- the sales of any one, our products, in FY '23, the 3-year average percentage of non-telecoms rises to 26% in FY '23. So just moving on to the bottom of this slide to the left hand, starting from the left again. As you'll have seen from previous presentations and from what Tommy just covered on Slide 3, our customers are some of the largest in the industry. And over the last 3-year rolling period to March '23, our top 10 customers contributed 47% of total orders. And in addition, the average length of relationship we have with our top 10 customers is 10 years, although there are customers within that top 10 that have been with us much longer, and that just demonstrates the repeat nature of the business that we do with them. We'll see customers come back to order from us frequently. They may want to order different bits of kit for -- bits of the same kit for multiple sites. They might want to add new kit as they grow their labs and testing requirements. They might want to add new software options or upgrades, as I just talked about, or they might want to move on to our newer products and functionalities that are released to the market. And repeat revenue demand is a metric that we measure across the whole customer base of Calnex, not just the top 10, and that's what we're showing here in the middle chart here. At the bottom, you'll see here the 3-year rolling profile for repeat orders generated across the whole group for an average 74% of total revenues. In FY '23, we received orders from 305 customers, an increase on 233 customers in FY '22. Both metrics here have the effect of any 1 customer being introduced into the next, in FY '23 as well. And there's just a key study here that I won't cover in detail that we've shown before, which just shows the nature of a typical customer and their life cycle with us and/or their history of trading with us, and the makeup of them buying hardware and software upgrades and how that contributes to the revenue and orders that we get from our typical customer. So just moving on to the detail on the geographic and product performance in the period, this is this year specifically as opposed to averages. So you'll see from the disclosures and notes in the RNS that we released yesterday, the Rest of the World region for us was our biggest performing region in the year. And in particular, within that region, Europe contributed to the majority of the growth in that region. In the North Asia region, just mentioned, has been operating against the backdrop of the U.S.-China tensions which remain in the region. And as a result, China specifically is a challenging country for us within the North Asia region as a whole. However, we've seen a strong performance in Taiwan, and there is continued ongoing potential in both Taiwan and Japan. The Americas revenues saw growth in the year which you'll have seen from the numbers as well, and there was a strong start to the year. However, orders were impacted in the latter period due to the challenging macroeconomic environment we're dealing with. Just onto the product line revenue drivers. We experienced revenue growth across all of our major product lines. Lab Sync growth has been driven by PAM4 release as well as underlying growth in existing platforms. Network Sync, which includes our Sentinel and Sentry products, performed very well as a result of the diversification of our customer base within this product line, which now includes data center customers whom we talked about earlier. And cloud and IT saw good organic growth from S&E sales as well as incremental growth from our newly-acquired product, the NE-ONE. So just on the income statement itself, just to bring that together. You'll see the revenue growth was 25% in the year, growing from GBP 22 million to GBP 27.4 million. We did see an incremental beneficial foreign exchange effect to total group revenues, which I mentioned at the half year, and that was obviously as a result of the strengthening of the U.S. dollar over sterling in the period. So 80% of our revenues are U.S. dollar generated, and as a result, just over 1/3 of our revenue growth on the previous year came from positive currency movements. At the same time, we saw the supply chain delays easing, as Tommy was mentioning earlier as well, in H2. And as a result, our order backlog, which was higher than normal at the half year, unwind over H2, allowing us to meet our revenue targets for the year. Gross margin was 76% in the year, and that's in line with the prior year margin. And as a reminder, that is gross margin -- that is net of commissions payable to our channel partners. We saw a rise in costs as a result of increases in component prices and general inflation over the period. However, we were able to increase our pricing through discussion with our distributors earlier on in the year, which helped maintain our gross margins. Just moving down to underlying EBITDA for a second, and then I'll step back to talk about the costs that sit within that. This is EBITDA stated after charging R&D amortization. Because our R&D amortization is such a large component of our P&L, we like to put this second EBITDA KPI within our P&L just to aid the reader in understanding our P&L drivers. So as you can see, underlying EBITDA grew by GBP 1.6 million in the year, and that's driven by the trading performance, the revenue performance on the top line. Margins were 29%, which is in line with last year as well, and that is also against the inflationary increases and external cost pressures within the non-direct cost base as well. Hence, we were also able to maintain those profit margins at that level as well, which was great. Large cost component, as you can see, of underlying EBITDA is administration costs. So administration costs, and this table excludes depreciation and any amortization because they're shown on separate lines, that was GBP 9.9 million in the year. That, as you can see, was an increase in GBP 2 million on the prior year. This increase includes the planned investment, including run rate from the previous year as well, and management, sales and support teams across the business, which was all in line with our growth strategy at the start of the year. We also saw an expected increase, which again is budgeted for, in travel costs as COVID-19 restrictions had been lifted across the majority of our regions. And we also saw a small incremental increase in overhead as expected as well to the Stevenage site -- as a result of the Stevenage site, sorry, after the acquisition of iTrinegy, so we have an additional site now from April. The majority of our overhead costs are sterling based and with the exception of our overseas sales teams. So as a result, the group's overhead cost base in general has not been materially affected by FX movements. But there has been some FX movement, as you might expect, within our overseas sales teams, especially the ones based in the States. As you'll know, we capitalize 100% of our R&D costs currently and amortize these to P&L over 5 years. Amortization of R&D costs, as you can see here, was GBP 3.3 million in the year, and that's versus a cash cost of GBP 4.5 million, which I'll cover in a second in the cash flow. An increase on the prior year is similar to previous years, it's all due to the fund ramp-up in R&D head count in the year but also previous years just due to that 5-year amortization profile, and that's all to support our growth strategy and project plans. Profit before tax, as you can see here, was GBP 7.2 million in the year, and the margin was 26% compared to 27% last year. The small difference there was due to an increase in intangibles amortization, which will be the same number for the next 5 years due to the -- us bringing on a GBP 1.3 million of intellectual property and tangible assets as part of the iTrinegy acquisition, and that asset is amortized to the P&L over a 5-year profile. That adds GBP 0.3 million to that number. The effective tax rate for the period was 18%, so the increase in corporation tax rates and underlying corporation tax from 19% to 25% is built into that. However, we were able to benefit quite well from the R&D tax credit schemes that are available to us, so that got us back down to the 18%. And earnings per share, as you can see here, saw good growth. The majority of that is driven by the revenue -- the profit performance. We also saw an incremental increase in benefit to that because of that change or because of the decrease in the effective tax rate. And just on to the cash flow, I'll just pull out some key items here. You can see from the cash flow summary, GBP 3.7 million of a cash inflow in the year. And that total cash figure includes the net GBP 2.3 million effect of the acquisition of iTrinegy which we funded from our cash balance, and that just demonstrates the strong underlying cash generation in the period. So pre-acquisition, our cash generation was GBP 6 million in the year. Net cash from operating activities was GBP 11.1 million in the period. Working capital movements can differ year-on-year just depending on the timing of when we get payments in from our distributors, which are on set days, so often happens just a couple of days after the event or a couple of days before. An outflow of GBP 0.5 million was expected, and that's just predominantly as a result of the timing and volume of shipping and invoicing to customers. So no surprises there. Key cash flow items moving down the cash flow. As I mentioned before, cash spent on R&D activities was GBP 4.5 million, and that's all capitalized and amortized over the 5 years, as I mentioned previously. The dividend was -- so the dividend here is the combination of our final dividend paid or final dividend for FY '22 paid in August, and then the interim dividend for FY '23 paid in December. And as Tommy mentioned earlier, we're proposing a final dividend, and if approved at the AGM, that will be paid at the end of August. So just moving down, the other things just to mention here. The GBP 2.3 million net cash impact of iTrinegy, which I've covered. That was the acquisition that completed on 12th April 2022. That was 2 entities that we acquired as part of the acquisition, iTrinegy Limited and iTrinegy Inc., and both will be hived up into the Calnex U.K. entity quite shortly. And then we put surplus cash balances -- as we've said before as well, we've done this for a couple of years now, we put surplus cash balances into high interest deposit accounts. And under accounting rules, you have to show some of them as a fixed-term investment, and so you'll see that there's 2 cash balances effectively on the balance sheet, and we pool them all together on this cash flow here. So to us, closing cash, including fixed-term deposits, was GBP 19.1 million, which just gives us a really healthy cash balance to take into this current year now. And still no debt on the balance sheet, and we still have our GBP 3 million RCF sitting there, still not utilized since we opened it up in -- as part of the [ IQ ]. And just the last slide here, I'll just touch on really briefly. Just gives you a bit of a flavor of the kind of things that we're doing around ESG and our -- and the progression that we've made in the year around ESG in general, particularly the environmental and social aspects of it. We follow the QCA guide to ESG for small to medium-sized entities from our framework perspective and from the perspective of embedding in the ESG methodology within business. But we also work very closely with our investors to understand what's important to them with regards to ESG. We've recently been scored by one of our investors using the [ integral ] framework for ESG scoring and came out with a rating of very good, which is the second rating down, which, for a company of our size and for our first go at being scored, we were very pleased with. Just a couple of things here. We've created a Corporate Giving Scheme, which we created at the start of this year -- of the FY '23 year, sorry, and that's that 1% of our budgeted profits are allocated to this fund. It's employee-led where employees are encouraged to propose charities or organizations for us to donate some of the fund's money to. And as you can see here, our fund of GBP 70,000 this year was donated to -- was used to donate to 84 different charities and organizations across not just our local head office area, but any area that's local to our employees, wherever our employees are located, which is core to our goal to making a meaningful impact to our local communities, either from a social or environmental perspective. We also continue to, and we always have, we've continued to invest in training to enhance skills, leadership development, mental well-being awareness across the organization. We're also working with external bodies to support the future of talent and engineering. Our products are innovative, leading-edge solutions, as you might already know, minimizing the impact on the environment for our customers. And we are continuously looking for ways to reduce the impact on the environment from our own product manufacturer process. And there are various projects happening within the business to understand what kinds of things that we can do that are within our control and within the business model that we have to try and reduce -- not only reduce our environmental impact, but also help us understand and gather data and report on our environmental impact as well. So that's everything from me. I'll pass you back to Tommy to talk through the strategy.

Thanks, Ashleigh. So let's have a quick look at the strategy and I guess, in particular, what's happening in the market and what we're doing to try and increase our addressable market. As we all know, back in March, we had to downgrade our forecast for FY '24 because across the board, as we've been seeing the exact same as the other big players in the test equipment market space, that customers are becoming more careful in terms of their spend on capital equipment, and most of our equipment is bought out of capital equipment. And very much, this is the way that our customer base I've seen over the many decades of being involved, and that's the way they behave when they get concerns in this sort of capital equipment spend because it is the easiest lever to pull. And it really seems to be driven by the macroeconomic situation, not by, say, to specific problems. In fact, when you look at some of the reports coming out, it still shows that there's a growth. The growth remains healthy in the build-out of the mobile network, that there is a need for that. And also then, from a data center point of view, again, there's a real need to expand these data centers and increase the numbers out there because of the amount of utilization that people want to use in cloud computing. So from a market point of view, we continue to see that our fundamental drivers across our markets, our core markets, are still there. They haven't really changed. We are in a tighter situation where customers are delaying spend. But again, from a funnel point of view, we are starting to see a funnel -- a longer-term funnel building. The big question is when is it going to convert? So deals are being delayed. We're not seeing any deals canceled. Things are in a funnel. Certainly, with the engineering teams that we're working with, are being told they're not allowed to buy anything at the moment. And we work closely with them, and it's an opportunity to strengthen relationships because they're having a torrid time as well. They want the equipment, but they have been restricted from getting it. So we sometimes lend them equipment, but we continue to build that relationship so that when they do get the chance to start to spend, RPO's quite close to the top of the pile and one of the first ones to cut. So the market remains strong, definitely the global macroeconomic effects is affecting us in the nearer term, but we still believe we've got a strong market. But in doing that, we -- so from a strategy point of view, this strategy slide is the same as it's been for a number of years. We continue to see that the 2 key markets that we're going to track is looking to innovate products that capitalize on the growth of 5G or the mobile network build-out; and also from the cloud computing, both from focusing on the building of the infrastructure to create data centers, but also focusing on testing services and applications that are run on top of the cloud service -- cloud network as opposed to in office. So these markets remain strong and remain our key drivers. We continue to look for M&A. As you know, we acquired a company last April, as Ashleigh was saying, and we have continued to look for other targets. And we've had some interesting discussions through the year. As I said before, it's a cycle. There isn't thousands of companies making test measurement, there's a few. But we are being quite -- a lot more systematically going round. And when we see a company that's the right for us, that creates new business, and my definition of new business is it takes us to new customers or allows us to sell something in addition to what we're already selling to our current customer base, and that's what will be the fundamental driver to take forward on acquisition and bring them into the company. So if you look at our product portfolio, for people that have seen this before, it will look quite different. I'm going to, in the next slides, talk about the changes in a bit more detail. Lab Sync, which remains a key product for us, there's been a number of enhancements over the year. Our platforms stay the same. But in the networks, like, there's 2 new platforms we've got. We've got the Sentry product, which is more focused on testing networks within data centers. Remember, a data center is almost just a big network in a building, and so it's the same product -- a similar product to Sentinel, but more focused on what the data center guys need. And we've got a new product that we've literally just launched called SyncSense, and I'll come back and explain a bit more what that is. And then when you look at our cloud and IT, there's quite a change here because now we've got 3 versions of SNE. We used to just have one. And again, I'll tell you why we've got 3 in a minute. And of course, we got the NE-ONE which came from the acquisition last year. So what I wanted to do is just take a couple of minutes to try and express how we find new opportunities, either selling more of the products we have, but also trying to expand the addressable market into -- for the current products we have, but also looking for new products and how that comes about, because there are a few interesting dimensions to the world that we live in, in terms of how we continue to move forward. First of all, if you look at one of our main products, Paragon-neo, our Lab Sync product, we are dominant in that market. We're the market leader. We're regarded as the de facto standard for high accuracy time transfer testing. And today, we cover every interface we can test, every interface from 100 megabits up to 400 gigabits. And in the terms, as you can see in the top left there, the standards, the ITU-T have standards that cover this technology and so does O-RAN, and they're continually moving these standards. So we have a continuous program of enhancing our product because our customers need to -- when new things come into the standards, then they need to prove that they conform to the standards. So we have an engineering team that continues to release things once or twice a year, enhancements to the product. But every so often, we need to make bigger steps forward, and we've just started our work today. The high-speed interface that's just arrived in the network is 800 gigabits. And now, we can get access to the technology that will allow us to deliver 800 gigabits support in the Paragon-neo. So we just started a project now, and that will deliver mid-FY '25. So I wouldn't expect it'll have any -- any impact on the revenue this year. We may get their order early -- order, but it's really about FY '25 where that'll make a difference. But the whole movement in terms though to higher and higher rates in telecoms just continues incessantly. And later this year, we will put a small team on starting to investigate the technology to add 1.6 terabit interface support to Paragon. Now that's not going to get launched to FY '26 or '27; it's way down the road. And in fact, in a couple of years, we'll start working on 3.2. And you may say, how do you know you're going to do that? And that's because really in my time in telecoms, there's been 14, 15 generations of the next higher rate. So really for telecoms to not go to the next higher rate, there's a discontinuity. Going to the next higher rate is not the discontinuity; it's the natural thing to do because the demand is there and technology pushes forward that allows them to move higher and higher bandwidths of data at more cost-effective prices. So you can see here there's a long-term plan. There is a road map for this product. There's an element that changes every year as change -- things change at the standard, but there's also a long-term plan for the product to actually follow the wave and continue to ensure that we stay the market leaders. If you look at our network emulation products, in the past, we had the SNE, and we had the Attero Wifirst entry just yesterday, Attero, over 10 years ago. And then we acquired JAR in Belfast, and that's where the SNE came from. That was back at the end of 2017. But we've now moved the whole portfolio across onto that platform, and we've generated 3 versions of the same platform, the SNE, the SNE-X and the SNE-Ignite. So why have we done that? And it's really because there's a huge range of potential applications that we can target with this product. There's many people for many different reasons who need to emulate networks to allow the improved performance, and they all have slightly different requirements. So the SNE-Ignite is a hardware-based implementation, so it's used for applications that really need high accuracy performance, and people would buy that product. And then we have the SNE, the lower one of the 3 there, which is more about low-speed applications but need high complexity in terms of the networks they emulate, and we have that product. And then in the middle, we have created the SNE-X, which really sits in the middle and addresses the high-port density applications. And the reason we do that is it allows us to create collateral that presents these products to customers very much the way that they need to understand it, so they can see the value in what they do. And it also allows us to price products in the market to make sure we maximize the potential for the company. So now, we've got a full range of products there that we feel -- and SNE-Ignite really replaces the Attero in the market space moving forward. And it's a common software platform and a very high degree of commonality in the hardware platform, so it allows us to move the product portfolio wherever we can find best applications that we can be successful. And then, of course, last year, we acquired iTrinegy and we got the NE-ONE product at the bottom, and it's far more focused. Whereas the SNE is focused on testing equipment and networks, the NE-ONE is focused on testing applications that run on top of these networks. And that might seem a subtle change, but there is quite a significant change in the way the product needs to present and the subtleties and the capability that needs to present to the users, but actually needs different products. So really, we're really trying to push this to say that we have this broad portfolio of network emulators that can test whether you're testing applications, testing equipment, low-speed equipment, high-speed equipment, broadcast equipment, any type of equipment, we can actually deliver a solution there. So the NE-ONE this year very much is pushing to see how we can expand that market. We're going to focus on things like federal and defense where we know there's a higher degree spending going on at the moment, as well as things like gaming and enterprise migration that we've been focused on the last few years, again, to expand into new customers with the current portfolio. The third example is to look at the data center world. As you know, we actually were successful in a major win inside one of the big hyperscale guys with the Sentinel product. The Sentinel was designed to maintain telecoms networks. But because the same technology was taken from the telecoms world into the data center world, we were able to take the product across. But of course, it's more. In terms of its form fit and function, it wasn't quite right for our applications, so we've created Sentry. It's a new product that's far better aligned to what the data center guys are looking for. It's got a high degree of commonality from a technology point of view with Sentinel, but it allows us to configure it differently, again, aligned to what these target customers need. And through these discussions with our customers that we're engaging with, we're seeing an emerging opportunity for monitoring systems, systems that monitor all their nodes. So very much Sentinel and Sentry are there to solve problems. Once there is a problem, you send your engineer across, along with one of these boxes. It gives you a deep insight and allows you to figure out what's gone wrong to fix it. Our monitoring system is more like a fire alarm system, it basically tells you there's a problem. So there could be thousands of nodes out there. And basically, all that data is sent back to a central point and allows you to then figure out where the problems are. And where we feel that we can get the edge here is when you come to a world of timing, which is very different [ unfortunately ], if there are other aspect of telecoms. When you're monitoring other aspects of like links being up or down, the equipment tends to give you a simple yes, it's working, no, it's not working, and then you can dispatch engineers. In the world of timing, it doesn't -- life's not that simple. What you get is a lot of parameters that you have to be able to interpret and compare to what's happening in other nodes to interpret that data and then drive the engineers. And that's because we are regarded as the experts in understanding this. We believe that's where we can get an edge. So this is a brand-new product. We've only started to engage with customers in the last month, and we're speaking to the data centers as well as a few pilot customers in the telecoms sector to see whether this is a new arm to the business that we can expand into and create additional revenue for our company. And lastly, these are quite big changes that we've talked about and will hopefully end up being big changes for the company. But on a lower level, we continue to expand our addressable market. A couple of examples of how we do that. We were successful with one of the Tier 1 chip manufacturers that was creating a chipset to test time delivered or operated and provided, supported all the timing protocols. They bought a Paragon-neo from us because they needed to prove they've conformed to the standards. We worked with them to make sure they maximized the value of their purchase, which just encourages them to buy more. Went through that, we actually showed them how they could use our product to demonstrate the performance of their chips to their customers, so they went out on the road and demonstrated it. Of course, that helped as a self-promotional product, and so we get additional benefit from their customers coming to us and say, we have seen your product, we need one of them. Because once they take that chipset and build it into their whole system, then the whole system needs to get checked again to make sure it still conforms to the standards. You can't just rely on the fact that the chipset you bought was conforming, then the whole system would. So you can see how we can expand the reach and getting new customers. The second example we have here is a Tier 1 equipment manufacturer, a company we've worked with for many, many years. We've sold internet -- many of the labs around the world, and they buy the Lab Sync products, the new Paragon products. But actually, through that strong customer relationship, they actually introduced us to some of their colleagues in the building that actually needed network emulators. And through that, we were able to actually build that relationship, show them what our products did through that introduction, and then ultimately, sell them their network emulation products as well. And when the Lab Sync guys go and sell to their customers, in terms of selling their product to the operators, the operators will often ask well, how are we supposed to maintain this equipment once it's deployed? And they, at times, would say, well, you may want to look at Calnex. They've got some equipment. And so you can see how customer relationships is not an optional extra for us or a nicety, it's absolutely central to our strategy of building a market. We build relationship with customers not only as Ashleigh showed you in the graph, to get recurring income from this -- sorry, repeat income from the same customer in different sites, but also to find new opportunities for new products, be there with them, identify that opportunity and also get into other customers. So to summarize all that, looking back, I guess, FY '23 really was a great year for us. You've seen the results. We're very proud of the performance we achieved. There was a lot of things happen under the covers as well. In terms of inside the organization, we're very proud of what happened. But unfortunately, at the turn of the year, as we had to downgrade in March, we did see customer spending pulling back. It's stabilized, I would say, but it hasn't perhaps got much better. We basically need to just wait until that confidence comes back into the market. We're continuing to engage with our customers. We don't give up on our customers just because they won't spend. It's the complete opposite. We work closely because they would like to spend and they're frustrated that they can't do it, the engineers and the engineering teams that we speak to. So we try and help them through that time to make sure we build the relationship, and we can get business then when it comes back again. We have started to see the long term -- or medium- to long-term funnel building, which shows that demand remains there. And when you look below the hood in terms of our core drivers in the industry, nothing's changed. The driver there, the need and the desire to build out the mobile network, has not changed. The need and the desire to expand the number of data centers out there, the bandwidth that they can offer to the customer has not changed. So we believe we continue to be in a strong place. As you see, we have been working hard to come out with new products. We've got a number of other initiatives to continue to push to ensure that we maximize in a more difficult market than we had last year. You just need to go out there and shake more trees and make sure you get business what's there, but also be well positioned when the business comes back, we can return to growth. So that's the end of the formal presentation.

Tommy, Ashleigh, thank you very much for your presentation this afternoon. [Operator Instructions] Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor dashboard. As you can see, we have received a number of questions throughout today's presentation, and thank you to all investors for submitting their questions. Could I please ask you to read out the questions and give responses where it's appropriate to do so, and I'll pick up from you at the end?

Okay. Thank you. I'll take the first question. So there's one here from [ Steven ]. [ Steven ] has asked, do you have a target for return on capital? For example, ROE, ROA, especially given your capital allocation approach of retaining most of your earnings and continuously deploying incremental capital? So we do have targets, absolutely. We don't publish them. But we are continuously looking and refreshing the way that we target particularly our return on investment on R&D spend. So from a capital -- from a deploying incremental capital into the R&D side of the business, which is where a lot of -- as you can see from the cash flow, a lot of our cash ends up, that is intrinsically linked to where we believe the value is on the revenue side and the order side in future periods. So we do look at that. From a new product perspective, because we're bringing on the new products that Tommy has talked about, a lot of them will have different types of ROI metrics. And we are -- because we are growing our different product ranges, we have to come back and look at those ROIs or the total ROI for the business on a continuous basis. So when it comes to investing cash into R&D, absolutely, hugely important that we have these targets. We just don't -- we don't publish them.

Okay. Thanks, [ Steven ]. Nice to get these questions in early, so I guess we should respect and answer them early. So your other question, [ Steven ] had listed, how often do repeat customers place their orders with you? At least once every year or every 2 or 3 years? If there's no single typical figure, can you please provide a rough range of our lost frequency from your repeat customers? Yes. Really, a lot of the -- They tend to spend aligned to projects. So if you look at most of the projects at the customers that we work with are working on, they'll run for anything from a year to perhaps 18 months, even 2 years if it's a really big project. And so individual teams tend to buy associated with projects early on as they start to know that they're going to have equipment to test, then they'll buy and until the start of the next project. So what you see is really within a team that sort of cycle. Now somebody like a big customer, one of the big Tier 1 equipment manufacturers, they have 10, 15 teams around the world, and sometimes each of them are running multiple projects. So that's why you see like that picture as a kind of spikey spend pattern because it just -- there is a bit of when do these happen, sometimes they line up, sometimes they don't. And if it's a smaller company, then again, sometimes it is more the 2- or 3-year time that they'll buy something. They may come back and get minor enhancements. It's also dependent on what's happening in the standard. So we may buy a product and it may be 2 to 3 years before they buy another platform product, but they may buy enhancements during that time because if the standards have changed, then when we put enhancements on from the standards, then that's a charged upgrade and they'll do -- they'll upgrade at that time as well. So that's sort of kind of if you kind of relate it to our customers, what they're up to. That kind of 1- to 2-year period is a good indicator because really, as I said, it's about buying aligned to their fundamental needs as they start and progress through projects. You've got another question, Ashleigh?

Yes. So William has just asked what our market expectations for FY '24 with regards to revenue and EBITDA are. So we have -- the guidance that's in the market at the moment has the revenue. Just given what's happening in the wider macroeconomic situation, we have just over a 10% decline in revenues compared to this year. The market guidance was set to GBP 24 million, the revenue and the guidance at the moment. That comes down to -- so I'll give you a couple of EBITDA figures because of the fact that we show underlying EBITDA as well. And so that comes out to about GBP 8.5 million on EBITDA, pure EBITDA level, and just under GBP 5 million at the underlying EBITDA level. So profit before tax, which is one that we also track quite closely, the margins on profit before tax will be sitting closer to the 17% level compared to where we've been recently at the 26% level. So that gives you a bit of detail there.