Calnex Solutions plc (CLX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Calnex Solutions Plc Investor Presentation. [Operator Instructions]. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Tommy Cook. Good afternoon to you.

Thank you -- Thank you, Alex and good afternoon, everyone. Thanks very much for taking the time to join us. We would like to go through the FY '24 results. But before we do it, we've got quite a lot of things to cover today. I'd just like to -- for the people that are new to Calnex, just give you a quick reminder who we are. Calnex delivers solutions that allows our customers to improve performance of critical infrastructure like, could be network operators, telecom's network operators or anybody operating a large network. It could be the people, the vendors that build equipment to meet these networks or it can be the component people that make components to go into the equipment that then builds networks. And increasingly, we're also focused on people in the data center, or cloud computing world, those people who are building the infrastructure for cloud computing as well as the applications that are running on top of it. In all cases, our equipment used to improve performance of the application or the equipment underneath and make sure that it's going to work under all real-world conditions. To date, we have sold into 68 countries in all, so we're very much have a global footprint. And we run a lean business model and use global supply and distribution channels across the world to get our product to market. So where these tests fit in the world of telecoms. Well, it fits in just about everywhere. But the area that we primarily focus on is that areas marked it with the red circle there, which is design validation conformance test and the monitoring and maintaining aspects. So design validation conformance test. This is when, if you're a vendor making a new piece of equipment, you need to prove that the design is working to your specification and you need to prove it's going to work under all situations that it's used in real networks. So very much that's an area where getting the right tools is important because they use our equipment to prove that they've got best-in-class equipment and they use it both in the R&D and in the verification phases and each time they do software releases they need to reverify. And if a claimant conforms to standards, then they'll do conformance testing, which is really proving that they do actually meet these standards they claim to meet. The other area that we focus on is maintenance of networks where, not so much on building that, if there is a problem and it turns like to be a difficult problem, they need equipment that will give them some deep insights into the network to understand what is going on to allow them to fix it. And one of the areas that we're moving into and we'll talk later is monitoring. So if you have got a network, you basically want to monitor it at all times to ensure things are working well, to get early visibility of failures and obviously, allow you to fix these failures. So let's just jump straight into the review of FY '24. So in '24, we closed -- we finished with revenue of GBP 16.3 million. We made a loss of GBP 0.4 million and we ended the year with a closing balance of just under GBP 12 million. And we have -- we plan to propose that we issue a dividend of the same as we did last year of GBP 0.62p per share. As you know, if you've been to any our previous broadcasts, it is a difficult market in telecoms at the moment. It's definitely a flat market. We would say in the last 3-, 6-month periods, we've seen a kind of consistent or stable level of business coming into it. There is a little seasonality but in general, the market is flat. It's not going down but on the other side, it is not starting to recover any more at this time. But we still receive good customer engagement. We actually had orders from 274 customers last year, which was from a proportion -- didn't drop the same proportion as the amount of sales. So we actually got a lot of small orders and a lot of maintenance, as you'll see when Ashleigh presents these results that people are still committed to our products and want to maintain it and get software updates but having the money at this time to invest in new equipment. And of course, we have had hotspots as well. We've seen strong performance in our new NE-ONE product, in particular for the defense sector, which we'll talk about later as well. So in this sort of climate and we've seen it many times. Unfortunately for me, this is my 43rd year in this industry. And it seems that every 8 to 10 years, you get a flat period, it's created by different global effects each time. But the behavior and this -- clearly this is same. And basically, [indiscernible] in terms of key customers, it's important to stay connected with them. But we can't just sit here and wait for the world to give us a break. We need to go and look for growth. And so we've refocused our engineering programs into where we believe we can generate growth even in a flat market. And it's not just the engineering programs. It's -- the marketing programs are equally important. The way we go to customers, the way we try and open up new markets. And again, we'll talk about these later as well. Through this period, we've put in some fairly strict cost control measures, making sure -- we have reduced spending where we can while managing spending very carefully but we've maintained the head count because we believe the way into this is that our engineering teams, our marketing teams, our sales teams, getting to new customers and developing that new business. So we've continued with our product innovation. We've got some innovative products coming out into the telecom sector and the Paragon-neo, which I'll talk about later as well. And we've also got products that will take us into new spaces like in the SNE-X and the SNE-Ignite. And more for the longer term in that monitoring space, our SyncSense products in an early stage and we talked to -- hope to potentially see the first order in this financial year but more into '26 is where we would hope to see growth coming from that product range. So a lot happening in the company. But if you look at our key markets, there are 2 major global trends that actually drive our business and that's the build-out of the mobile network and move to cloud computing. And there's quite a different complexion at this point in time. We still firmly believe this for many years to come, these 2 sectors will grow. But at this point in time, if you look in the cloud computing, it's still growing fast. People are pushing things into the cloud. And also the appearance in the last year -- 18 months and into the public's awareness is the AI technologies and that's really putting pressure on the infrastructure and data centers. The growth, the modeling that's required to make AI algorithms work and to run is huge. And already, we are seeing quotes [indiscernible] up to 40%, 50% of infrastructure has already been used just to run the AI modeling that's happening. So there's real pressure on the operators in these data centers to grow them and create more bandwidth but also not just grow from an overall size but actually look at the efficiency and effectiveness and that creates opportunity. And if you look at the telecom world, of course, that we -- you can see that we still need mobile networks. We are going to need more and more connectivity in the future. And these 2 things overlap with 1 another. Because in some ways, the more that things are running on the [indiscernible], to applications running on edge or equipment running on edge, then that's coming through the AI, the telecom's infrastructure. And actually, a lot of the technology blocks in terms of that's being used both within the infrastructure, within data center is the same technology used in the telecoms. So for us, the engineering program has a huge commonality between addressing these 2 segments. But really, the go-to-market is very different. So at this time, it's not the best of times in the telecom world but we firmly believe that the fundamental drivers are still there. Nothing has changed and it will come back again. And of course, the data center world and the cloud computing world is continuing to move at pace and that's why we've moved a lot of our focus in the near term on to that. So at this point, I'll hand over to Ashleigh and she'll give you more details on the financial review.

Thanks, Tommy. Just before I take you through the next few slides, I just thought it would be useful to remind those of you that have -- that already know Calnex or for those of you that don't know Calnex to just take you through our revenue model very briefly. So we have 2 revenue schemes. One we call bundled hardware and software and the other one is software support program revenues or the maintenance revenues that Tommy was referring to earlier. So from a bundled hardware/software revenue perspective, which is our new revenue stream, a typical customer will purchase 1 of our hardware products with a number of software options included at that time and that's invoiced as a bundled sale at that point in time. And then they can come back for upgrades or additional options that are added to the existing hardware through the provision of a license key. And then we sell those as stand-alone software sales or upgrades. And that bundled hardware and software sales pricing can differ for each order because it really just depends on the hardware product being purchased and the combination of software options that a customer may choose and that will depend -- that will differ customer to customer and order to order. So you can imagine, there is a variability in the average revenue earned per bundle from order to order. That revenue is recognized on dispatch and received by the customer and on delivery of the software license keys as a stand-alone software option. And as I said before, that makes up the majority of our revenues. And then 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 our second revenue stream. This revenue is recognized over the life of the product. So if a customer purchases our support package or a maintenance package that stands over more than 1 year, the revenue that's associated with those future years is deferred on the balance sheet and released over the relevant number of years that the package covers. So you can see from the graph on the top left of this slide, the trend in previous years of our split of those 2 revenue streams has been approximately 90% hardware and software bundles and 10% in support revenues. And this year, we saw growth in the percentage of support revenues coming through. So the proportion of those revenues to the total, as you can see here, was 23% in FY '24. And that increase in support programs, Tommy was talking about and both in proportion to the total and in absolute terms, reflects the fact that OpEx budgets are still available at our end customers and those customers plays a lot of value on ensuring that they can continue to receive support on their existing Calnex products that they already own if you don't have the budget to buy --the CapEx budget to buy new product -- products at this time. So just moving across the top of the slide, the middle chart. So as you'll know, our revenues are generated across our global customer base and distributor network. And in the past few years, we've had an almost even split of orders across our 3 geographic regions and that's Americas, North Asia and the rest of world, which spreads the rest globally. And in the last couple of years, we 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 you can see from the chart here, this region still contributed to 25% of total orders on average over the last few years. Rest of world, as you can see here, has the biggest proportion of orders over the last 3-year average period and that's as a result of the more diverse range of end customers in that region. I've got more information on the regional and product line revenue trends in the year on the next slide. So I'll pause on that just now. I'll come back to it. So just moving over to the top right chart here. As you maybe remember, if you've been on our previous presentations, our sales are predominantly derived from telecoms customers but the end application is within the telecoms network. And cloud computing market customers include hyperscale data centers, enterprise, defense customers to name a few. On the top right here, we show that in FY '24, these cloud computing market customers represented 39% in FY '24, 39% of orders, sorry, in '24 compared to 34% in FY '23. And this increase in the proportion of orders going to the cloud computing customers is not just a company -- sorry, not just because of lower order volumes coming from telco customers, it's also because of the strong NE-ONE performance in the year and strong hyperscale order volumes in the year as well. We are then moving to the bottom of this slide, starting from the left. As you maybe know from other -- from previous presentations and from other information that we've given, our customers are some of the largest in the industry. And over the last 3-year rolling period to March '24, our top 10 customers contributed 52% of total orders and that's in line with previous year's averages as well. And in addition, the average length of relationship we have with these top 10 customers is 11 years, which then demonstrates the repeat nature of business that we do with them. So that repeat nature of business is driven from various things. For example, it could be -- customers will come back to order from us frequently for -- maybe because they want to buy multiple kits for multiple businesses -- same kit for them -- for multiple sites. They may want to add new kit and new equipment as they grow their labs and their testing requirements. They may want to add new software options or upgrades that I was referring to earlier to existing hardware that they already have or they may want to move on to our newer products and functionality as we release them to the market. So that repeat revenue demand is something that we measure across our whole customer base as well as the top 10. So the middle chart here shows that, that metric for the whole business. So over the 3-year rolling profile and repeat orders from end customers generated across the whole group, were on average, 76% of total revenues and that's slightly above last year's average of 74%. And in FY '24, we received orders from 274 customers and that's a decrease of 31% on last year's 305 customers but it's still a really strong number given the challenging year that we've experienced. And then the last chart here on the bottom right, is really here to -- and you may have seen this chart before, it's really just to show you an example of 1 of our top 10 customers but it's really very much a similar trend that we see across a lot of our customers. And what we're showing here is -- the blue area -- chart at the -- area part of the chart at the back is the amount of orders that this customer has ordered from us over the years. And it's to show the fact that the growth in orders from 1 -- example of a customer is not just driven by them coming and buying hardware products but it's also driven by them coming back and asking for upgrades, so you can hopefully then see the repeat nature of the business that we do with them and that bundled effect of the hardware and the software as well. So just on to the next slide, just cover a little bit on the geographic and product performance revenue-wise in the period. So you can see from the disclosure notes, in the RNS and from what Tommy was talking about earlier, that the subdued market had an impact on revenue levels across all geographies. So our 3 regions. I just mentioned before, our Americas, North Asia and what we call Rest of World, which is Europe, Middle East, India, Southeast Asia and Australasia. The Rest of World region, as I mentioned before, was the largest revenue generator in the year and although still affected by the slowdown with effective 1% decline in revenues year-on-year, it was the least affected of the 3 regions, the Europe subregion performing the strongest. And that's where business, as I said before, has come from a wide range of sectors, including automotive, power and rail to name a few. The North Asia region saw a 48% decline in revenues in the year. And that, as I was saying earlier, has been operating against the backdrop of the U.S.-China tensions in the region, which remain and as a result, China remains challenging for us as a country within the region. However, we've seen strong performance in both Taiwan and Japan in the year and also see continued ongoing potential in both countries going forward as well. The Americas revenues also saw a decline in revenues, also saw a decline, sorry, of 48% in the year. And that was because that region is most impacted by the telecoms slowdown. So we're continuing to see very close to our end customers in that region and the other 2, while increasing our focus on opportunities within the hyperscalers and government end markets where we see the best chance to close business, while the telecoms markets are a bit slower. From a product line perspective, Lab Sync, that's our Paragon-neo and Paragon-X products experienced a decline in revenues this year and that's driven by the fact that they are very dominant in the telco market. This is a similar case with Sentinel and that's our telecoms focused Network Sync product, our plans for growing Sentry sales, which is our Network Sync product in data centers are continuing. And then within our network and applications assurance product grouping, which is what we used to refer to as Cloud and IT, we've got 2 separate types of products there and the drivers are just slightly different. So our emulation product for infrastructure testing, which is the SNE, had a challenging year as it's got quite a large exposure to the U.S. market. But order performance did pick up in H2 and that was as a result of our growing demand for the newly launched SNE-X and SNE-Ignite products. And then in applications, NE-ONE, which is the product that we acquired through our iTrinegy acquisition back in 2022 had experienced good growth in orders and revenue in the year and that's as a result of channel expansion since acquisition and a strong performance in defense and satellite communication sectors. So just on to the income statement itself. As Tommy just said, the revenue for the year was GBP 16.3 million, which is a 41% decline on last year, driven by the dynamics in the telco market and it's in a coverage from a regional perspective, just there. As you may know, our indirect cost base is largely fixed. There are some variable elements, which I'll cover in just a second but it's largely fixed. So the performance of revenues created a negative operational gearing effect, as you can see on profits by dropping through to the bottom line. But that operational gearing can work the other way around and as revenues start to grow again. Gross margin was 73% in the year, broadly in line with margins in the prior year. So just as a reminder, that gross margin is net of commissions payable to our channel partners. So it's the gross margin that belongs to us. And that margin, as I said in previous presentations, it can fluctuate 1% to 2% through the year depending on the mix of products and the mix of hardware and software bundle shift. It can also be affected just slightly by, if there is a dip in revenues, we do have some direct cost base in-house, so a small order fulfillment team in-house. And so some of that direct cost, the absorption of some of that direct cost can be less in times when the revenues are slightly lower. However, product margins have held very much in line with previous years, which is good. We kept a very tight hold on cost, as Tommy was talking about earlier, while we go through this period of reduced order volumes. So as a result, we -- our head count only increased by graduate hires. So we took on 5 graduate hires in the year and that's maintaining a hiring program for graduates is really key for us for future succession planning, innovation and investment into our future roadmap opportunities. Aside from that, any people cost increases across any of the people cost buckets within the P&L have come from -- just from inflationary rises in the year or full year effects of hires made in FY '23. There were no other additional head count increases across the company in the year. And as you can see, admin costs, so that's a bit in this table here that excludes depreciation and amortization because that's shown separately further down the income statement. Those costs came in GBP 1 million lower than last year. And so that partially offset the impact of the lower revenue volume. So that's the -- so that's due to the fact that there's a slight portion of variable costs in there. And those lower admin costs were as a consequence of lower commissions costs on lower orders, lower recruitment costs and the other kind of hiring costs that go with that as well, plus reduced profit share and bonus accruals compared to last -- compared to FY '23. So there were no bonus or profit share payments accrued within the FY '24 income statement. And that's just partially -- all that was partially offset by increases to share-based payment accruals as a result of share option awards. We had a small amount of acquisition costs included in the FY '23 year in relation to iTrinegy, which were non-recurring. So that's also not recurred again in FY '24. As you all know, we capitalize 100% of our R&D costs and amortize these to the P&L over 5 years. Our R&D amortization came in at GBP 3.8 million for the period, as you can see here and that was all as planned, all in line with our plan, and that was versus GBP 3.3 million in the prior year. So in a period when there's little or no head count increase, you can still have an increase in amortization of R&D because of that 5-year amortization profile -- if we had head count increases in the prior years are included within that 5-year look back. And that's what's driving that increase there. So loss before tax came in at GBP 0.4 million, a small loss of GBP 0.4 million and that's driven by the revenue performance and the drop-through of that -- those lower volumes. And -- as I said, we are maintaining -- we're still maintaining a tight control on cost into FY '25 as well. There are no head count increases planned for FY '25 except another round of graduate hires. So just very quickly on the effective tax rate. The effective tax rate for the period was 111% -- a credit of 111%. And that is quite an unusual rate but it's really very much driven by the very small loss-making position and the effect of our R&D tax credits being added to that tax charge. So we benefit from R&D tax credits, both in the SNE and [ Attero-X ] scheme, the SNE scheme -- parts gets added back into the tax charge. That's calculated on the amount of R&D spend you spend in the year. So on a very low loss making position, that credit has the effect of giving you a very large credit back into your -- or large percentage credit back into your tax. That was offset partially by timing differences relating to deferred tax movements as well. And then just last thing on the slide, basic EPS, as you can see here, is GBP 0.05p, a very small profit given the breakeven profit after tax result and then diluted EPS was GBP 0.04p. And just moving on to the cash flow. Total cash outflow for the period and that's including of fixed-term deposits we had in the previous year, was GBP 7.2 million and that reflects both the lower trading volumes in the year and increases in working capital, namely inventory. So as you can see here, the working capital movements were GBP 3.7 million of an outflow and GBP 2.8 million of that was inventory. And the drivers behind that movement were pretty much the same as the half year, if you're at our half year presentation. And it's divided into kind of 3 different drivers. So first one is that we had a planned buildup of some of our on-the-shelf inventory to use as buffer stock to mitigate against any future supply chain delays that may happen, which we experienced a few years -- a couple of years ago. And demand plans -- our demand plans with our outsourced manufacturer, if they are in line with our previous order expectations, so prior to the telco slowdown, they can take some time to dial down through the supply chain, as you might expect, if it's a long supply chain. So that can take time to dial down. So in the interim, you have to take some inventory onto your balance sheet. And then inventory purchases, we also had to make inventory purchases as a result of the tail end of the supply chain issues coming through as well. That increase in inventory in this year in FY '24 was very much one-off in nature. We don't expect it to repeat in FY '25. The current inventory on the shelf will serve our -- the demand of our current products through FY '25. And we only expect to change the inventory profiles from new products. So for instance, for the Paragon 800 gig, we will have to take on new stock on to the balance sheet but that will be very much linked to live orders that we have at the time. We paid GBP 850,000 in tax to HMRC in FY '24 for FY '23's profits. But given the trading and the loss-making position for FY '24 this cash should be refundable in FY '25 after submission of the FY '24 year-end tax return. Cash spent on R&D activities, which, as I said before, is capitalized and amortized for 5 years, was GBP 5.6 million, as you can see here. That's against GBP 4.5 million in the previous year. Very much that increase, as I said before, just reflects inflationary salary increases, full year effects of FY '23 hires and graduate head count increases as well. So there were no other head count increases in that number. We still manage surplus cash balances through notice accounts to benefit from higher rates of interest. And we don't hold any on long-term deposits, on quite short-term deposit. And we have -- we still have no debt on our balance sheet at this time. So just to summarize, while the results for the period were disappointing, we are seeing encouraging performance from our new products with the NE-ONE and the SNE products gaining traction in the cloud computing market. Our gross margins have remained healthy and we're keeping tight control of our existing cost base to minimize any additional impact to profit. Our ever productive R&D and sales teams are focusing on areas that will generate future growth for the business, whether that be in the telecoms market or the cloud computing end markets. And our investment in inventory means we can be ready to reduce order fulfillment lead times once demand picks up and made a healthy cash balance, which we expect to maintain through FY '25, providing us with a really good foundation on which to return to stronger financial performance in future periods. And I'll pass it back to Tommy.

Okay. Thank you, Ashleigh. So in this last part of the presentation, I just wanted to give you a review on the strategy and talk about some things that are happening in our market and give you a bit more color on some of these product releases that I talked about. The strategy is still the same as we presented before. As I presented at the beginning, the 2 big growth engines we see in the industry that are actually driving our opportunity is the continuous build-out of the mobile infrastructure and also the expansion of the cloud computing sector, both in terms of the infrastructure and applications that are running on top of that. So that still remains key to us and will do for the foreseeable. We continue to look for targeted selected acquisitions and strategic partnerships. And again, as we've talked to it, there isn't huge numbers of companies out there that we can potentially acquire but there are a number and we continue to look for them and also look to partner with companies. And fundamentally, what that's always trying to do, is create new business and I define new business as getting to customers, we do not sell to today or it gives us something in addition to sell to the people that we do sell to. If you look at our product programs, starting on the left, you've got our products -- the large segment products. These are the testing time in that design validation conformance test situation. And we've got a major release coming up in that -- in the second half of the year, as we're going to add 800 gigabit capability to that product. The 800 gigabit in my lifetime in this industry is probably the 16th wave of technology that I've seen come along. And in terms of finding customers, it's obvious to us here that all the ones that have bought the 400 gigabit and bought the 100 gigabit before that and bought the [indiscernible] before that. So really getting to these customers is straightforward. The challenge is that working in 800 gigabits is really at the scaling edge of technology. It's extremely complex product to work on. And at the moment, the engineering team are on track to bring it early in the second half. But that is really the challenge. It's difficult technology. That's why you can charge a high premium for it because it's not easy to do. And that will come out. And when it does come out, we know where to go and to sell that product and that should deliver some of the growth that we're looking for in FY '25. In the second area, in the network side, this is more in that maintenance and monitoring area, where we've got the telecom and the data center and maintenance products. At the moment, there's, we've switched the focus more onto this new product in terms of monitoring networks, SyncSense. We would, with a better luck be able to get the first orders for that this financial year but it's probably more like into next year. We're getting really good customer engagement. There's some interesting activities happening in the standards organizations to define when you're monitoring a network, what are the right parameters to look at. And standards are really important in our industry because it really informs our customers that this is the right thing to do. It's one thing going and telling a customer, we think you should monitor A,B,C and the customer is, well, how do you know? But when the standard say it is, then it's the experts from across the industry who have said that. So it really -- it reinforces the message that, that's the right thing to monitor. And really our value add, it's collecting that data and presenting in a consumable format and finding it from and determining where the real problems are in the network from our understanding of synchronization. So an interesting opportunity that we're continuing to press. The other area of growth that we really hope to get this year is in our network emulation products, this is in the network and application sector. You can see we have a high -- a large range of network emulators. And then the SNE-Ignite and SNE-X has taken us to new opportunities, especially in that cloud computing, the applications running in the network and I'll come back to talk about that later on as well. And we have considerable enhancements coming through the year to very much focus on particular target applications. So when you look at our product program, there is a huge amount happening at the moment. All of these are important to continue to innovate, add capability to our product, to build the -- to get these new orders. And as you can see, I'm not going to go through every line by line on this but if you look on the right-hand side of this chart, you can see that a lot of -- some of it is aimed at telecoms but a lot of it is aimed at non-telecom. That's into the cloud computing or the defense sector, where we've switched across a lot of our engineering to focus on this area, whether we feel there is opportunity that we can realize in the nearer term where we wait for the telecom sector to grow. We still invest in telecoms. We still are getting business from telecoms. It hasn't gone away. It's just flat and we do need to keep up with our customers and ensure that when revenues for them start to flow and they can ease up the spending, then we are top of the list to get there. One of the areas that we find really interesting and we're really focused -- not just on the engineering but on the marketing side, is really creating marketing collateral, ensuring how customers know they can use our product. You can go to our customers and say, here is a general purpose toolkit that can do lots of things. You figure out what to do with it. That's not usually the best approach to encourage them to spend money. What you want to do is really position it in language and an environment they understand, here's what you're trying to do, Mr. Customer, and here's what our product can do to help you meet -- get your product to market quicker or get it to market much more robustly. And remember, when we sell to our customers, quite often the people we sell technically too are not the budget holders, it's their managers of the budget holders. So first, you need to persuade them this is the right product and then to them up with the right information to pursue their manager that they should invest in this product. And some of the areas that we see really quite interesting and we're focusing on is this applications and equipment that are sitting at the AHR on using customer premises, we're actually processing everything in the cloud. That means that what happens in the network impacts the behavior of the application or the user experience at the end. So there are a number of cases where we're really focused on there of trying to show how you can use or you should use network emulators to really fully to stress test your equipment or your application to make sure that it is going to be robust, whether that's used at different locations across the world, in different network connection topologies with different bandwidths, with different delays and actually prove that the equipment is robust, and the device is robust that your customer have a good user experience. So from a marketing point of view, there's a big focus this year internally and trying to create this collateral, very targeted at different applications where we believe we can generate revenue in the near and medium term. One other thing I need to talk about that remains today is that we're going to evolve our sales channel. As we've talked about for many years -- as I've talked about for many years, we have worked with Spirent, one of the big test vendors in the sector. From 2012, we started working with them. And they are basically a channel partner for us in that they provide -- they resell to our customers. And we have announced and we have informed Spirent we plan to terminate that contract. So that contract will normally terminate from the 31st of July. I also note about 60%, 65% of our sales have gone through Spirent. So you may be saying, you're just moving 65% of your sales, that sounds a bit problematic. Well, it's not really as bad as it sound like and it's quite straightforward. It's not without challenge, I mean it's not without effort required. But it is something we definitely feel we can manage. When you breakdown what we've been selling through Spirent, it really comes to sales into 3 broad regions: North America, which is U.S., Canada, India and China. And when you look at each of these and you look at each problem, if you look in the U.S., we basically already got other partners. We sell the NE-ONE through a company called CPU. We've spoken to them. They can actually pick up our other products in terms of being able to take orders on the 1st of August, that won't be a problem. But actually, we've changed a lot since we started working with Spirent 10 years ago, and they were thinking we should be going direct in areas where we've got the bulk -- we've got a significant bulk of business that justifies putting the infrastructure in place to actually sell direct in terms of reporting, in terms of compliance. And when you look into the U.S., there's a couple of states like Texas, California, where we sell a lot of our business and we're in the longer term, looking to go direct and -- so we go direct because that means we won't have to pay margin to any partner and we'll get more margin into the company. But even if that's not ready to go in the 1st of August, we already have a backup plan to make sure we got a smooth transition and then we can move across them. Same in India. We've already been speaking to partners and we've got a fairly small set of customers there. So it's not too hard to move them across. We've already been speaking to partners that will provide that smooth transition. And of course, we're looking at other opportunities whether we could -- 1 or 2 of the big customers we could start selling direct or through these enterprise zones, which again would reduce the channel cost and increase the margin that we get. Same story goes for China. We basically are selling through partners and potentially going direct where it makes sense. So we've -- it's been a great relationship with Spirent, and I'll always speak warmly because it has been a very positive relationship. And even in the call I had with them on Monday, we were all -- the senior sales leadership team were on, they always act -- they've always acted professionally, and they still act professionally. And they recognize and respect our decision that it's time for us to move on, they are moving to the next phase of their company's evolution, and we need to move to ours. And we're going to work together through this phase and make sure we maximize the business for them, and we maximize it for us, and that's what we're going to need to do. And it will be that after the 1st of August, we will still close some business through Spirent into the coming months because if deals are well progressed, as you know, deals for us can take 4, 5 months typically and sometimes longer. And if a deal is near that end phase where the customer about to place the PO, it really does not make any sense to try and move it to another partner, A, because meaning some customers, they'll say, we need to go back through the procurement process, and B, Spirent has done the work for that deal and they deserve to get a margin for it. So we will work with them through this transition to make a more -- it's not a sharp edge transition, it's more a scaled down and move it across and that's why I feel completely comfortable that this is going to work for us. And more than that, if you could ask me if Keysight hadn't decided to acquire Spirent, would you be talking about changing channel today. If I'm honest, probably not, we probably would have done it and we're more like we would have done it next year because the contract was due to come to renew next year. But actually, in hindsight, we've crossed a rubicon, I actually think this is a good time for us to do it. And we have taken a positive setting up our new channel that's more aligned to where we want to be, more aligned to who we are now and who we were in the past and where we want to be in the future. So I actually see this as a huge opportunity for us. And it's been a real motivator for the sales channel team that we've had, obviously in difficult situations to go out there and create this channel that will actually take us forward to the future. And talking about route to market, I just thought I would spotlight defense here really to focus on how it's not -- you might have a great product that people want, but that's not the end of it. That's just the start of it. How do you get it to the customer? How do you get it in front to the customer? How do you manage that whole selling process? And we found in the last couple of years as we've sold more into defense that we better use these what's called system integrators. So these are companies that take on large government-based projects and bring together lots of suppliers, bring together whoever can do the installation, do the commissioning. And that's what we're finding is the best way to get to these customers. And we'll give 3 examples where we've done that in the last couple of years. The first 1 is in the U.S. where it was installing a new cyber range. So a cyber range, you may have heard the term digital twin. Think of it as a real live emulation of a real-world situation that allows you to experiment things. If things go wrong, you can try the next simulation to understand what's going on or if you put new equipment in to try it. And a cyber range is just a form of digital twin, but it's really set up to create that environment to see how robust the system is from cyber attack. So the company were commissioned to put this whole IT infrastructure and to create this cyber range, this digital twin type cyber range. And by working with them and showing them the value add, we can get -- we've included that into the project and installed it. And of course, when you're working with governments, they've got tight restrictions on who to work with, in terms of checking them. And basically, they rely on the system integrator that have done all that evaluation of the companies, which we've done with a system integrator and allows us to get to these customers. Similar one in the middle where it's both in the U.S. and the U.K., where, again, you've got a situation where you're running lots of PCG equipment that are on the ground in offices, they may be in the air, they may be on the sea, they may be on the ground. They're moving the different, very different environments in terms of connectivity that they've got, and they need to prove that everything works, train their operators to make sure they know how to work it. And basically, they are helping them do that, putting these systems in place and introduce new equipment and how they can use that, and they've got simulations and training exercises to actually really to show and make sure the systems are and the people are robust to all situations. And the last one is another 1 where is our taste lab in the U.K. where when the government agencies are buying new pieces of equipment, they ask the test lab to run evaluation. So again, we've sold to the test lab, persuading them the value of the equipment and also they are exposing our equipment into other people as well. So as you can see selling to customers is not just about things, it's not just about equipment, it's about relationships. It's about understanding the ecosystem and how to get to your customers. So in summary, as we go into next year, we really believe we can gain some traction with our new products, both in the telecoms and the non-telecom space. The market remains challenging in telecoms. It is what it is. You just need to get on with it and deal with it and it will come back, but we need to just manage the situation where as I actually talked about from an inventory point of view, from an organization point of view, from a change of a sales channel point of view, we are strengthening our position so when the channels do come back and the market comes back, we can grow and benefit from that. So that's why we remain confident that we can deliver our results in FY '25 against current expectations and deliver growth. So at that point, I'll hand back to Alex.

Perfect. Tommy, Ashleigh, thank you very indeed for your presentation. [Operator Instructions] While the company take a few moments to review those questions submitted today, I would 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 investor dashboard. Tommy, Ashleigh, as you can see, we have received lots of questions throughout today's presentation. And Tommy, if I may now hand back to you and kindly ask you to read out those questions, and I'll pick up from you at the end. Thank you.

Thank you. I'll -- I can answer 1 of these questions. I'll go first, if that's okay. So there's a question here that says our stock price has fallen a lot, what are your thoughts on share buybacks. So, share buybacks are something that we regularly review with the Board and discuss, but at this point in time, the management team and the Board's priorities are the return to growth in FY '25, and transition away from the Spirent arrangement. So because of that available funds -- our available funds, we have quite a good surplus cash balance. We believe the best use of those funds is to fund our return to growth. However, the share buyback is a thing that we will revisit on a regular basis.

Okay. Let me -- there's 3 pre-submitted questions, so let me make sure we cover them. Quickly, the first 2 are almost identical. I read the first one out because it's a kind of segue to the second one. If there are no green shoots for general market recovery already, when do you expect them? And what do you expect will start the market recovery? Will it be related to lower interest rates? I think there's a strong view that interest rates are part of the problem and have been part of the reason why the operators slowed down the spend. As I said, we've seen these slowdowns in the past. I've seen them in both in Calnex and in my past life as well. And this generally is driven by that more macroeconomic situation and the general increase in that and confidence in the general world will help. Obviously, within the telecom sector, quite often it's driven by the front switching which is the operators and the operators building out their networks, whether it's with 4G or 5G or whatever they are building out. And obviously, the higher interest rates because most of that is done on the debt has definitely had an impact on that. So hopefully, when the debt cost starts to come down or at least it's clear that it's not going to go up, that will start to bring confidence. And really, that's what we think will be the first signs of confidence coming back is when you start to see the operators recommitting to their build-out plans and starting to grow their investment in their infrastructure, which will then encourage the vendors who provide the equipment to accelerate their programs and release budget as well to buy test equipment. There's 1 other question that came in pre-submitted. Do you have at all open days for investors to visit the business? If not, this would help current potential investors going forward. Well, you're welcome to come and visit us any time you want. But we tend not to encourage it because you might be underwhelmed by the experience. Linlithgow is a nice place. So you'll enjoy visiting Linlithgow. Like most technology companies these days, you come in, you'll just see a sea of people working on PC. So you can see our equipment and anytime you want to come, you are welcome to Scotland. I think if you try to understand more of it, this is very much in our marketing, on our website. That's what I was talking about. We're really focus on trying to educate our customers about the application and the value of what we deliver, not so much on a feature, this feature does this, that feature does this. And so you may actually if you have a visit there, you may find some show-up videos and information there that will give you more color on what we do with our products and where we believe we can add value and effectively generate business. Ashleigh, have you got another question to pick up?

Yes. I've got a question here about the increase in receivables on the balance sheet in this year compared to last year. Effectively, so there was a slight increase and it does look strange given that our revenues were lower in the year, but very much to do with timing. So very much the timing of the orders that came in, in Q4 and the relationship of them to the payment terms that we have with Spirent or our other distributors. So actually, a lot of those receivables have already effectively been paid already. So nothing out of the ordinary with those receivables. Just a matter of timing and when the cutoff for the year end happened.

Okay. Let me pick up 1 from Patrick here and he said in last year's Annual Report, you reiterated your commitment to the long-term Spirent resell agreement you signed in July '22. What changed for you to dissolve the agreement? How do you see the sales channel structure in the future? Well, I think hopefully, I've answered a lot of that, Patrick. We have had a long-term relationship. The contract tended to be a 3-year contract. And each time we kind of asked internally the question, is it the right thing for us to do. And when we did that before we did that. The change was them being acquired by Keysight. We have some overlap what the products in Keysight, could we make a relationship work, potentially, but I think it would never be as effective as what it was with Spirent because of this confusion in terms of the product position and what the sales guys would take to market. And that really was the catalyst for us to say, look at it wider and decided actually maybe it's time to move on. And as I said, I do believe that we can restructure the channel. We've kind of changed the channel a few things. We started with regional partners and then we worked through JDS which had a similar relationship with Spirent, and we went back to regional partners, then we went to Spirent and now we're going back to regional partners and now we're going to some direct as well. So it's not unusual for us to change. And even in our other partner network, we continually look at partners and if they're not responding, we move to other partners and regions are a relatively low level to our overall business. So that sort of change of channel is something that's happening all the time, and that's why we feel quite confident we can manage this situation. We've done it before and that the new structure we have will actually open up opportunities for us moving forward.