Calnex Solutions plc (CLX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Calnex Solutions plc Final Results 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, Hannah, and good afternoon, everyone. Thanks very much for coming along today to listen to an update on our results for FY '25. So I guess before we go into the results, let me just take a couple of minutes to just remind people or introduce Calnex to people are not so familiar with us. Calnex is established at the forefront of the global test and measurement industry. Our portfolio enables our customers to validate the performance of critical infrastructure associated with telecoms and computing networks. And you can see on the right-hand side some of our key customers that we sell to. We sell to the telecoms equipment vendors. You see people like Cisco, Ciena, Ericsson. We sell to the telecoms operators, the AT&Ts, BTs [indiscernible]. And the component manufacturers Broadcom, Qualcomm. We also sell to the data cloud computing sector in the world, Google, Apple, Microsoft, NVIDIA. So we have quite a diverse set. In all cases, they're using our equipment to prove performance of their networks or prove performance of their equipment to ensure that it's standards compliant or that it's going to work in all real-world operating conditions. We have a global footprint. We sell in 60 countries around the world, and we use a lean business model where we outsource our manufacturing and we use a global distribution channel to access our customers around the world. In terms of when you look at test and measurement and where it fits in the life cycle, it fits in everywhere. But where we really focus is that stage called design validation conformance test. This is where our R&D teams are developing new product and they're going through prototype test, early beta testing and then full conformance testing before release. Now the important area, the reason we focus in there because this is very much an area where customer spend because if you have the right tools at the right time, you can get that new revenue stream from your new products started as quick as possible. And it's not just about doing the test quickly. It's about doing it robustly to ensure that once it's in manufacturing, you don't have a yield problem. And once it's deployed in real-world networks and all the various topologies around the world, you're not going to have customer satisfaction problems because the equipment doesn't work correctly. So very much it's an area where you can command a high price if you have the right product at the right time, and that's very much the area we focus on. The one other area we focus on is more that maintenance, monitoring on the far right of the slide. This is where after a network is up and running, either you have to continually monitor to check for situations arising or the maintenance is more kind of high-level maintenance, not the initial maintenance but the simple repair exercise of swapping units aren't fixed. That means there's something more complex wrong in the network and you need to use some of your more highly trained engineers to go out and understand exactly what's going on. So that high value is very much what we focus on. So how have we done in FY '25? Well, it's very satisfying to be back in a growth position after the previous year. We did a revenue of GBP 18.4 million for the whole year compared to GBP 16.3 million the year before. We had a profit of GBP 0.7 million compared to a loss of GBP 0.4 million the year before. And the cash position there looks slightly down, but Ashleigh will talk about later. Pretty much year-on-year, we were pretty much flat, which again is an important situation that we're retaining cash and managing our cash situation. And we plan to propose our dividend this year of 0.62p, which is the same as what we had as a final dividend last year. In the last year, some of the -- there's been a number of key things that's led to that success. We had a couple of really important releases from our R&D team. In difficult markets, it's not that our customers don't have money, they just have limited money. So it's important to get new capability because it's much more easy to unlock that access to that limited capital spend when you have new products. We released a new 800 gigs, which is leading -- industry-leading in the Lab Sync Paragon-neo product and that had really good success through the -- we also launched a 400-gig capability in our NAA platform, which was successful. And we've also seen some of the areas because we've really focused on our marketing activities in the last year as well, especially in the NAA in terms of creating marketing collateral and positioning of the products that really puts it in the terminology that the customer understands. So rather than present a general toolbox, you kind of present it very clearly what the value is and how they can get value from the product. And again, into the enterprise, defense sector, satellite sector, that extra focus we've put on in the marketing is starting to pay dividend, and we're starting to see success from that improved approach in our go-to-market. We also had quite a change in our channel partner network in the last year. This time last year, I think the last time I reported that we've had a long-term relationship with Spirent where we used them as a reseller for us. And when it was announced that they were getting acquired, we decided to terminate that contract and go to use our whole network of partners across the world. We've had a fairly successful transition across to that. And we're still actually working with Spirent at this stage, which has allowed us to have a very smooth transition to the new network of partners and ensure it didn't impact the business. Overall, in the industry, we see the telecom sector still remains subdued. I guess from experience, when we go -- the telecom sector has gone into this sort of period in the past, it doesn't come out quickly. It comes out slowly. There's definitely improved engagement from the telecom customers, which is good to see. But during this time, we haven't sat back and just waited. We've been really focused on these other sectors and other verticals where we believe there is a chance to gain market share through what we're doing. So as I said, into the data centers, et cetera, that's where we're looking, but we believe going forward, while the macroeconomic uncertainties remain out there that what we have in terms of our new product programs and improved or -- and increased focus on particular segments in terms of go-to-market that we can continue to generate growth moving forward. Our fundamental drivers have not changed. We basically look at that build-out of the mobile network for the telecom space and also the impact of the data centers, both the infrastructure and applications that are running on them. And they're all interlinked to one another because in some ways a data center very simplistically is just a big network in a building. So a lot of the technology that's used in the telecom space is actually being used in data centers as well. So what it means is the developments we are doing by presenting them slightly different to different sets of customers, we can generate market share in different verticals. And we see in both these spaces, obviously, the data center world through the impact of AI has just increased its acceleration in terms of growing and looking at new ways to be more efficient and increase the bandwidth. And we still firmly believe the mobile network needs to continue to get investment and to build out to support the smart cities of the future and all these new services that are coming along. So underneath what we are doing, we still see the fundamental market drivers there, and that will remain our focus moving forward. As I said, we changed our partner network quite considerably over the last year. This time last year, while about 64% of our sales went through Spirent, we did have a partner network of another 40 partners, fairly small niche partners. We've now moved to 64 partners, and we still work with Spirent to a degree, albeit it has reduced significantly over the year. And obviously, we have to wait and see what happens with Spirent once -- the part of Spirent that we work with is a bit that will eventually be bought by VIAVI. Once that goes through, we will speak to Spirent because we would like to keep working with them. They've got some great relationships with customers, and it would be beneficial to us to keep working with them. But we can't have these discussions until -- from a compliance point of view until VIAVI has actually completed that acquisition. So that's something that will evolve and be able to give you an update in the next time. But we made sure we're prepared to, if it doesn't work out, that we can go to market without Spirent or continue to use them whenever is required in the future. We've also taken the opportunity to look at the way we manage partners in terms of our internal processes, and there's been a lot of focus on our go-to-market, our partner management strategy, our onboarding to make sure we're far more efficient and effective at bringing on board new partners because it's not a matter of setting up a network and then it's finished. A network this big will continue to have churn in it, where some partners are not doing so well and we replace them or also as we go into these other verticals, we need to bring on other new partners that have better connections into these other verticals. So we very much see this as a living organism that continually needs to get managed. And we've invested in terms of our headcount very much focused where we're managing expenses very closely. We have put an extra channel manager in recognizing that there is more work to be done there and brought other salespeople and very much focused on some of these verticals where we believe we can get a return. So at this point, I'll hand over to Ashleigh, who will go through the financial review.

Thanks, Tommy. So just on -- before I take you through the detail of the P&L and the cash flow, I thought it would be useful to briefly remind you of our revenue model as I've done in previous presentations. So as you know, we've got 2 revenue streams, one revenue stream, which we call bundled hardware and software and the other one which is software support program revenues. So a typical customer will purchase one of our hardware products with a number of software options included at the time, and that invoice is one bundled sale to that customer. That same customer can then come back for upgrades or additional options that are then added to that existing hardware that they bought previously through the provision of a license key. And we can also -- we sell these upgrades as stand-alone software sales from an invoice perspective as well. So bundled hardware and software sales pricing can obviously differ from order to order because it depends on what they bought from a hardware perspective and what they've chosen as their software options at that point in time. And each customer obviously purchases a different combination of software options each time they buy a hardware product, just dependent on their need. So as a result of that variability, the average revenue earned per bundle can vary from order to order. That revenue -- for that revenue stream, which is our main revenue stream, that revenue is recognized on delivery to the customer. So whether we're delivering a hardware product or delivery of the software license keys as a stand-alone software option. And that makes up the majority of our revenues, which you can see in the top left hand side of this slide here, that's the dark blue element of that chart there. And then each of our products comes with a standard warranty period, which can be extended for an extra fee. We also sell software support programs, and that makes up our second revenue stream. And that revenue is recognized over the life of the product that the customer purchases. And so if a customer purchases a support package that spans over 2 years, then that revenue associated with that package that they bought will be recognized over those 2 years with in the first year, some of it deferred on the balance sheet. So the graph on the top left here shows you how those 2 interlink with each other. And up until FY '23, the trend in previous years was approximately 90% bundled hardware and software and 10% support revenues, and that tracks fairly consistently year-on-year. And last year, we saw growth in the percentage of support revenues coming through. So the proportion of those revenues to the total was 23% in FY '24, and that trend has continued into -- largely continued into FY '25 with 21% of revenues coming from support and 79% coming from bundled hardware and software. And that increase in support programs, both in the proportion to the total and absolute terms, this reflects the fact that while CapEx budgets may still be constrained slightly at the customer end, OpEx budgets are still available at our end customers. And that also just demonstrates the value our customers place on ensuring they can continue to receive the support on their existing Calnex products that they already own. So just moving to the -- across the top of the slide to the middle chart here. So as you'll know from previous presentations and from the RNS, our revenues are generated across our global customer base and partner network. And we have 3 geographic divisions that Americas, North Asia and rest of the world. And this last 2 years have seen a slight decline in the portion -- sorry, of total orders coming from North Asia as a result of the continued U.S.-China geopolitical tension with 18% of revenues coming from that region in FY '25. Americas was most impacted by the telecom slowdown in prior years, if you remember, previous presentation. And the focus that we had in FY '25 was to explore other markets, and that has proved successful with the growth in revenues in the year. And in FY '25, you can see from the chart here, Americas accounted for 40% of our total group revenues compared to 31% in the previous year. I've got more information on the regional and the product line revenue trends in a couple of slides. Now just moving across the slide to the right-hand side. As you'll remember from previous presentations as well, our sales are predominantly derived -- have been predominantly derived from the telecoms customers where the end application is within the telecoms network. Cloud computing market customers within this analysis here include hyperscale -- hyperscalers, data centers, enterprise and defense customers to name a few. So within this chart here, you saw that in -- you can see in FY '25, these cloud computing market customers represented 43% of our total orders compared to 39% in FY '24. More recently, we've seen an increase in customers from the cloud computing market, which includes the areas I've mentioned before, so hyperscalers, data centers, defense, enterprise, et cetera. Equipment vendors who initially developed products for use in telecoms applications are now selling the same products into our data -- into other data network applications where the same technology is implemented. And these new applications are becoming the primary market opportunity for our customers' products, which is contributing to the increase in the proportion of business coming from the cloud computing market within that chart. Moving on to the bottom of this slide. These 2 pie charts are quite interlinked in terms of the drivers. So I'll talk about them as a collective. So over the last 3-year rolling period to the end of March '25, our top 10 customers contributed 45% of total orders. In addition, the average length of relationship that we have with those top 10 customers is 10 years, which demonstrates the repeat nature of business that we have with those customers and the strong relationships that we also have with them as well. That's slightly down from last year's 11-year average. However, that demonstrates how we are broadening our customer base and a small number of these new customers are entering into our top 10 list. So we'll see customers come back to order from us frequently because they might want to buy multiple bits of hardware for multiple sites. They might want to add new software options or upgrades, as I was mentioning before, when they've already got the hardware. They might want -- their requirements might be growing, so they might just want to add new kit for that or they might want to move on to our newer products and functionality as we release them to the market. So that repeat revenue demand, as I've mentioned in previous presentation, is a mix that we measure across our whole customer base as well as the top 10. And the other pie chart here is showing on a 3-year rolling profile, repeat orders generated across the whole group were on average 77% of total revenue, which is in line with last year's 3-year rolling average. And in FY '25, we received orders from 274 customers, and that's relatively flat compared to last year's number, but the revenue per customer increased in the year. Switch on to the next slide here. Just in terms of summary, just to add to Tommy's exact summary from a few slides ago, Tommy presented just a minute ago. We saw a return to profit this year as a result of the 13% growth in revenues and margin improvement in the year. Much of that was driven by the trading performance in H2 with GBP 11 million of revenues coming in to add to the more challenging H1 revenues of GBP 7.4 million. And that, together with slight positive operational gearing effect of our largely fixed cost base saw us return to improved profit -- positive profit margin. So underlying EBITDA is up from 0% in FY '24 to 6% in FY '25 and PBT margin also saw a 6 percentage point swing from a loss of 2% to a profit margin of 4% in the year. So H2 stronger trading performance also resulted in strong cash generation in that half compared to H1. So GBP 2.3 million of cash was generated in H2 alone. So the year-end cash balance, Tommy was mentioning, was GBP 10.9 million. That was up from GBP 8.6 million at the end of the half year, slightly down on the start of the year. However, the cash balance increased further in April to GBP 12.7 million as trade receivables were collected from strong Q4 shipment volumes, and I'll cover that in more detail when we get to the cash flow slide. And as Tommy mentioned, we'll be proposing a final dividend at the August AGM of 0.62p per share, and that's in line with last year. So just moving on to more detail on the geographic and product performance in the period. As I mentioned before, the Americas region was most impacted by the telco slowdown. We focused -- while the telco market was subdued, our plan was always to focus on selling into the cloud-based infrastructure applications and government opportunities. And that has proved successful. So the revenues in the Americas region increased 44% on last year. We're working with our partners really closely to understand how best to navigate the U.S. tariffs, and we're working with them hand in hand to understand the effects and the process of passing through those tariff costs to the end customer. In the Rest of World region, demand levels were least affected by the slowdown in prior years, if you remember from last year's presentation. Although the revenues when you look at the disclosure notes were slightly down on the prior year, this was due to timing of orders -- order to shipment in Q4 orders that grow year-on-year in the region. And in North Asia, as I mentioned before, the revenues were flat compared to FY '24, and that was driven by China still being quite a challenging country for us due to the impact of the U.S. restrictions. So we are continuing to focus on growing the business in the other countries within that region. From a product line perspective, Lab Sync, that's the Paragon product, the Paragon product line was the most impacted by the telecom slowdown in prior years, but we did see strong demand and revenue generation, particularly in H2 for the new 800-gig neo in FY '25, and that demand is expected to continue into FY '26. Network Sync, that's our Sentinel and Sentry products. Revenues for those grew in the year, driven predominantly by a repeat order from a major hyperscaler investing in data center operations. And NAA, which is our SNE and NE-ONE products. SNE saw revenue growth this year after quite a difficult FY '24 when we saw growing demand for our newly launched products, which are the SNE-X and the SNE-Ignite products. NE-ONE saw a slight reduction in traction in revenue that was impacted more by the shift of marketing focus to the SNE and the Paragon products in the year. So focus for FY '26 is on returning that product to growth. And just on to the income statement itself, covered a few items here already. But just to work down the P&L. So 13% growth on revenues on FY '24, and that is despite continuing challenges in our end markets. In the prior year, if you remember, previous presentations are largely fixed indirect cost base in conjunction with the lower revenue levels created a negative operational gearing effect on profits, which is creating that loss effect last year. So that in FY '25, that operational gearing effect did slip slightly. We would like to get more for it in future years, but the effect was slightly positive, and that was one of the drivers behind the improved profitability in the year. So gross margin was 75% in the year. That's up 2 percentage points from last year. And just as a reminder, that gross margin is net of any commissions payable to our channel partners, that's our gross margin. And because we are a low volume, high-value business, the gross margins can fluctuate 1% to 2% through the year just depending on the mix of the products and the mix of hardware and software bundles shipped as well. We continue to keep a very tight hold on costs in FY '25 and in FY '26. Our headcount remained in line with the prior year. We retained our small graduate hiring program to aid future succession planning and investment into our future road map opportunities, but that was all within that flat headcount figure. As you can see from this analysis here, admin costs, which excludes depreciation and amortization, which is shown separately here, that came in at GBP 0.4 million higher than last year. However, if you exclude non-capitalized R&D costs, which are allocated to this line, admin costs were in line with prior year despite year-on-year inflationary cost increases and salary increases as well. As you know, we capitalized the majority of our R&D costs and amortized these to the P&L over 5 years. Our R&D amortization came in at GBP 4.3 million in the year. And that was known at the start of the year -- that was versus GBP 3.8 million in the prior year. So in a period where there's little or no headcount increase within the development spend capitalized, the amortization will increase if you've had previous years of cash spend or increasing cash spend over the past 5-year period. So that's the reason for that amortization increase there. Profit before tax came in at GBP 0.7 million, and that effectively is driven by everything I've just talked about, improved revenue volumes and margin improvements as well while we're keeping a tight hold on costs, the tax charge was GBP 0.4 million in the year. That brings on an effective tax rate of 53%. However, if you take into account a couple of one-off prior year adjustments within that tax figure this year, if you strip them out, the underlying effective tax rate is actually nearer to 25%, pretty much in line with the tax rate. And so that should be assumed as the run rate forecast ETR going forward into future years. Just on to the cash flow. The total cash outflow was GBP 1 million in the year. So that -- the improved trading that we had in the year was offset slightly just by timing of shipments versus trade receivable receipts at the end of the year. So the main driver in that working capital in the year increased by GBP 1.8 million. That is a lower increase than what you would have seen in last year's cash flow versus the GBP 3.7 million increase last year. And that was driven predominantly by very strong trading in Q4 and just the timing of the shipments going out and the collection of those trade receivables crossing over into April. So debtor days remaining the same, but just happening over the cutoff of the year-end. So we actually received a large majority of that cash back on time within the April month and our cash increased as a result to GBP 12.7 million at the end of April. Cash spent on R&D activities, which you can see here was GBP 4.9 million versus GBP 5.6 million in the prior year. That reduction in spend was mainly as a result of lower equipment purchases in the year as the majority of the equipment spend for the prep for the Paragon-neo 800-gig project was made in FY '24, plus there were some non-capitalized R&D costs that went straight to the P&L [indiscernible]. And we still manage surplus cash balances through notice accounts just benefit from higher rates of interest. We don't hold any on a very long-term deposit, and we also still have no debt on the balance sheet. So just on to the summary slide. We -- just in terms of -- just to summarize all that up, gross margin improvement in the year created and helped with positive operational gearing, tight cost control within all cost buckets just to -- helped to drive profitability with that revenue -- 13% growth in revenues as well. We continue to invest in our R&D programs where we see revenue growth potential and ROI growth while also keeping a tight cost on all other overhead. The diversification of our customer base and our end markets plus the diversification of our channel, which Tommy was talking about earlier, just provides that increased resilience and increased spread of risk across our global customer base as well. And we're confident that we'll continue to see improvement in revenue and profitability into FY '26. And I'll hand you back to Tommy.

Thanks very much, Ashleigh. So just this last stage, let's have a quick look at the strategy and some of the market opportunities that we've been focused on the last year and also looking forward to the year ahead. Regarding the strategy, it's pretty much the same as we've presented before. As I said at the beginning, there are two big fundamental drivers that we see that we focus on and that is the continuous innovation required for the build-out of the mobile network, whether it's 5G, 6G or whatever. And we do believe that, well, it's subdued at this point. The innovation in that sector has not slowed down at all even though the build-out has slowed down, and we do believe it has to come back again in the future because it's so essential for this, I guess, the future cities and the future applications that we talked about. And the other area we're focused on is expansion of the cloud computing and the defense sectors. I guess, basically whatever, there's other key areas where networking is happening. And obviously, with AI happening in the cloud computing or the data center space, this has been quite disruptive in terms of bringing in the need to really increase the build-out of mobile -- sorry, build-out of data centers and look at the efficiency and the effectiveness of these. So again, we see a lot of drivers in this group where it's creating growth and should create opportunity for us in the future. And lastly, we -- as we have done in the past, we have done acquisitions and we look to partner with companies. In the recent period, the partnering has been something that we've had more focus on. Acquisitions is still something we plan to do, but it's always been opportunistic in our sector. There isn't a huge number of companies. So we are prepared if something comes faster though, we would definitely look at it and consider it if it was going to increase our product portfolio and build it bring new business to us. But given the kind of scaling back of then to working with Spirent, it's actually allowed us to speak to other test vendors in the sector and look for situations where we can work together to the mutual benefit of the two parties into particular sets of customers where the portfolio of our products and other people's products gives us a stronger position in there. So looking at our product family, there's been lots happening in all of these sectors in the last year and also going forward. The Lab Sync is already mentioned, the big release last year was that 800-gig capability, which was leading in the industry. Now the interesting thing that we've seen happen through that period or the previous sales so far is while it's very much telecoms developed technology and standardization happens in telecoms, we're seeing other sectors picking it up. So when we come out with 400 gigs a few years ago, there were some new entries that started to buy products that were really service in the data center, people that made servers to go into data centers or chipsets to go into servers into data centers for it, mainly because at that time, there was talk of O-RAN and actually the data centers hosting mobile networks. That is subdued at the moment. But actually, it's interesting these new names that have come back and bought 800 gigs. And what you've seen is that the technologies that are perhaps developed in the telecom space because telecom is such a mature industry, the standards are well structured, other industries pick them up. And so we are starting to see different names, companies that you associate with data centers like Arista, Dell who make servers and then Intel and NVIDIA are buying our products to test their devices to these standards. So we see that continues to be important going forward, and we hope that trend continues that we see more people picking up these standards, which will expand our market. The Network Sync, the Sentinel program is really focused on the telecoms. And given the subdued spending, there isn't a lot of R&D going into that at this stage. Then R&D in this sector has really been going into the slight trade, which is really aimed more at the data center market. As you may know, we have one particular hyperscaler we have a great relationship with and have good sales with and very much the development that we've been doing in there is aligned to their needs and their developing needs to make sure the product stays aligned to the future needs for the data center market. And then the last group is the Network and Application Assurance. We have a whole array of network emulators. We had some big R&D releases last year in the SNE-X in particular, that come out with 400-gig capability, which is important to start speaking to the data center guys who are all working in these very high interface rates. But what the main focus has been in there as well or one of the other big focus has been in our go-to-market and the way that we present these products to the customers because these are general purpose testers that can be used in many different applications. And really what we find that gets more traction is to focus on key applications, create collateral and then present the product very much in a way that the customer can understand how they can get value in their sector. So that's very much the trend in what we're doing there, but we'll continue to enhance our products moving forward and make sure that they're well positioned to be successful in a whole array of applications. So over the years, you'll see that we actually have a pretty high investment in R&D. And that's because it's fundamental in our model that we continue to innovate because we work in an area that doesn't stand still with continuous new standards, interfaces, approaches coming. So we continually have to invest to keep our products relevant and not just relevant, but capitalize on these new opportunities. And you can see in the top row here over the last 4, 5 years, the number of major releases we've had of new platforms or enhanced platforms, the most recent being the 800-gig version of the Lab Sync product. But it's not about just doing big platforms, we very much try and create a platform that we can actively enhance for at least 4, 5 years and hopefully potentially sell for up to 10 years. So you can see lower down that we do lots of minor releases. This is basically software enhancements to these platforms where we're adding additional features. These features may come from customers asking us for additional capability or it may be because we've seen changes in the standards or identified new opportunities. So there's basically lots of small enhancements continually happening as well as the larger enhancements. And this is core to the business model that we have that our customers expect our products to continue to move forward that when they invest in a platform that it will be enhanced, which they understand that that's a cost enhancement, but they need to enhance to make sure it stays relevant to them and they can threat that asset for many years, and we can continue to capitalize on that. So if you look forward into the year ahead, on the 2 major programs, the Lab Sync. Obviously, last year, we came out with the 800 gigs platform. There's no major releases planned for FY '26, but there's a lot of minor releases in terms of building out the capability in that platform and adding capability both to the 800 platform and the 400-gig platform to meet these customer demands and the changes in the environment that we need to do. One of the other things we're starting, which is really very much a future is the 1.6 terabyte platform. Now we've seen so many waves. As I probably mentioned before, I think -- well, I know I've been in this technology -- or in this industry for 40 years and getting to 1.6 is almost like the 14th or 15th wave of technology. And in fact, they're already talking about 3.2 terabyte. It just keeps moving. And although there are products out there today 1.6, we usually have to wait until technology allows us to deliver a solution because the initial parts don't have the control that we need through delay of every component to be able to build a neo. But we have now identified parts for 1.6. We hope to get started soon on that later in the next month. But that will be an 18-, 20-month project, so it will come out more towards the end of FY '27. But really, it's important to continue to follow these trends and follow the waves and stay relevant and capitalize because it's not only important, as I mentioned, for the telecoms area, but for the data centers as well, they are the ones that are now really pushing hard to get to the higher rates to get to the 1.6 to 3.2 terabyte because of the sheer volume of data that they are pushing around. So lots happening this year as well as major releases getting kicked off within the R&D. In our NAA market, again, we have come out last year with a SNE-X with 400 gigs capability. We're looking to expand that this year, add more capability and potentially starting the next platform as well more 800 gigs and beyond because, again, in that data center world, the customers want to speak about these higher rates. So it's important for us to do that there. But it's also we're spending a lot of time looking at these other segments, we've spoken about the satellite and the defense applications and building out what's in our platforms in terms of capability, but also presenting it to these customers and developing our go-to-market to enhance our market capability and be prepared to change the product to meet the needs for these new markets. When I look forward into the future, what we call our discovery activity, this is a product management activity that's very much looking in the future, the area that we are spending time looking at is around AI. It's not so much AI applications in themselves. It's the way that AI is being disruptive into the data centers, the fact they've had to build out faster, get to higher rates quicker. The modeling algorithms that are running seem to have sensitivities to impairments in the networks, inference testing, this is when once you've got a model it's working with the real world, that's what they refer to, influence. And basically, is there an opportunity for us to offer test solutions to prove the robustness of these algorithms at that time. Still too early to say, but there's so much disruption going on in there. And in my experience, it's disruption that creates new opportunities. So it's definitely an area for the future that we are investing in our discovery activity looking to the future to see what's happening and see whether we can expand, but we do expand the current products, potentially find variance of the products they need to create to get to these new markets. So in summary, we are confident we can continue the growth through '26. A lot of the growth really came through a number of things. It came through our new product releases. It came through our improved go-to-market. It came as well through our new channel partners that we have. And all of these things are at an early stage, and we continue to develop them through the year, and that's why we have confidence that it will continue. We go into the year with a healthy backlog and a strong cash position and -- Ashleigh presented, and we are seeing increased customer engagement. We still see an area where there's a future in terms of the innovation that's happening in the industries. It's accelerating. It's not slowing down even in telecoms where the build-out may have slowed down, the innovation is not slowing down. And the test world is driven by innovation. It's driven by disruption. So we still see this opportunity for the year and for the years ahead in this area. But we're also not resting on our laurels and looking to go into new verticals where we can use the same products, but actually find new customers, whether it's in defense or into the cloud applications. So we believe the drivers are there. We believe that we have a good team in place. We have a structure in place and our product program and discovery activity that we can deliver sustainable growth moving forward. And that's the end of the formal presentation part of this webinar.

Tommy, Ashleigh, thank you very much indeed for your presentation. [Operator Instructions] Tommy, Ashleigh, we have received a number of questions throughout today's presentation. And Ashleigh, if I may now hand back to you and kindly ask you to read out the questions where appropriate to do so, and I will pick up from you at the end.

Thank you very much. I've got a couple of questions here I can answer. So [ Fuyi ] has asked the question, the receivables that are past due of GBP 1.3 million, which is in the disclosure notes in the [ RNA ], majority being between 0 to 30 days. Is this mainly due to the orders received end of Q4 or something else? It's actually the quirk of the disclosure, that GBP 1.3 million was 2 to 3 days late past our credit terms with them -- with customers. So we've -- because of our change in channel, we've ended up with a longer list of customers on our ledger that we have to chase for debt compared to when we had Spirent. So debtor space has changed just slightly, but not by any material amount. And you do get some that are a couple of days late. So that was just kind of a quirk of that disclosure. Those -- that GBP 1.3 million alongside the receivables I was talking about earlier have all been collected since the year-end. So the receivables balance at the end of the year was one of the highest receivables balances that we've had in a while. But the majority of that -- the driver behind that was mainly to do with the pattern of when the orders and shipments went out the door compared to any sort of timing on revenue -- on receivables collection, if you like. So those receivables have all been collected now and within that sort of April cash balance. So hopefully, that answers your question there, [ Fuyi ]. And there was another question from [ Sean ] here. Under what circumstance would you consider a share buyback? So the Board constantly reviews its options around this area. At this point in time, the primary priority for the business is to continue that return to growth and profitability and sustain that into FY '26. And as such available funds are being used at this moment to support that objective. It's also a priority for the business. It has been and it continues to be to maintain and protect our current liquidity levels just given the challenging end markets we're working in right now and also the challenging geopolitical climate where we're in right now, but we do review that on a very regular basis.

Okay. I'll take -- there's a pre-submitted question, so let me take that one first. Although starting to see the light now, the recent downturn in telecoms industry has created problems for Calnex. How can Calnex prevent this happening in the future if a downturn happens again? Well, there probably will be a downturn again in the future because it does seem to happen every once a decade and a lot more. And really the approach has been to spread into other verticals. Ultimately, these things are driven by macroeconomic effects. And so really, what we're focused on over the recent time, we will continue to focus on telecoms. It will remain so for the foreseeable future focus. But we're really focused and even in terms of our hiring and our partner network, it's all about expanding into other sectors so that we're less vulnerable to fluctuations in the telecom market, and that's the way we see that is the best way to manage that. There's another question here from [ Melville ]. In retrospect, would you say that the big hit to your telecoms customer has turned into a medium-term benefit, resulting in expansion of your market areas, product line, et cetera, growing Calnex overall? Good question. It maybe didn't feel like a benefit at the beginning, [ Melville ], but I actually think you've got a lot of point in there. Looking back, there's one thing when you look at -- you think about yourselves in the boom, the danger is you start to think they're wonderful and everything is perfect and everything you do is great. It's only when it gets tight you realize there's still room for improvement. And I guess when you're right, when you get difficult times, it really makes you focus on how you do things and how -- there is ways to do them better. There's always opportunity for improvement and actually look internally. And I think I agree with you, it has forced us to be more aggressive at getting into other market areas and hopefully be more robust. So I think I agree with your point. I think it has been -- it's been difficult medicine, but I think it probably has grown the company and made us stronger in the future. Every opportunity -- every challenge is an opportunity as I said.

I've got one here from [ Ross ]. Could you please comment on the specific cost control measures that have been implemented? Are they structural or more short term in nature? They're essentially -- so I wouldn't say they're structural, but they're probably more aligned to bringing in process evolution and process improvement as well. So in terms of the cost control or tight cost control measures that we put in place last year, very much around a pause on headcount unless it was targeted hires or graduate recruitment, rethink -- getting the teams to effectively rethink whether they needed to spend on travel or whether they could do calls over Zoom, et cetera, and trying to get them to sort of balance up the benefit and the cost and the benefit for these types of things. So very much just a tightening of the belt rather than any structural cost control or any sort of more serious cost control measures. However, I think it's also helped -- kind of following on from what Tommy just said, it's helped us in these times where things are a little bit leaner, it just helped us identify areas where we might not necessarily want to add any more cost, but you might actually end up with a benefit if you look at a process improvement or a process evolution as well. So it's more of just a recycle of cost budgets and just a careful incremental increase to these costs where required. So our headcount has -- for example, our headcounts remained the same this year, but into FY '26 in order for us to get the best out of our markets, we may want to make -- we will want to make some targeted hires. But the process around understanding what the ROI is on those targeted hires has been sort of evolved over the last couple of years as well. So hopefully, that answers your question. I wouldn't say they're structural, but I also wouldn't say they're short term in nature as well. But they definitely weren't cost control measures just to sort of manage the profit figure in that particular year. It's all just about building more efficiencies into the business from a process perspective as well while doing all the things that we need to do to grow that top line.

Okay. David asked a question, who are your competitors? Let me just flip back to the slide with product lines because it's a bit easier to explain. You kind of have to talk each of the product lines separately, David, to answer that. In the Lab Sync, especially at that high end, the high interface rates, the high accuracy that we perform, we basically don't have any competitor. Keysight are probably the nearest and they kind of nip our heels at some of the lower rates and then some of the more kind of wider application or tests that need to be done. But in general, we have a very strong position. We're really known as the market leaders in there. And that's why, I guess, continue to invest and make sure we keep moving forward at pace and [indiscernible] anyone catches is really important to maintain that position. In the Network Sync, in Sentry product, again, we really don't have anybody that's directly doing what we are doing in that space. At the moment, it's probably somewhere we think we can expand. So -- and we basically hold the position with the customers -- are with by keeping very close contact with them, continually engaging, even letting them engage with the R&D teams so they feel well connected to us, and we can continue to keep that product aligned to their needs to ensure that they continue just to look to us. When you go to the Network and Application Assurance, there are a number of competitors in here. There are some of the big players that Keysight have network emulator and a number of small companies that have network emulators. And the way we've really created our competitive position is by the only company that's got a whole ranges. So rather than having one network emulator that you try and push into every application, we have three that are quite different in terms of what they can do and how they do it. So it allows us to tune it to the particular application and being very focused on the application, making sure we understand applications is how very much we seek to create a competitive and maintain a competitive edge. And the last question we got up here is from [ Jeffrey ]. Were profits in 2023 inflated by COVID recovery or can profits get back to there as revenues rise over the next couple of years? In '23, it was an interesting year. It was a great year, but it kind of was one of these years where everything seemed to work different. Life doesn't always work that way. All our product lines were booming, all the regions were booming. And of course, we had a great year. But actually, when we sit at the moment, obviously, we're back into profit this year, but we're far from comfortable as a management team that's enough profit. And we definitely want to get back up to the levels that we had in that year, and we firmly believe we can. We're going to continue to manage costs, but we're very focused and realize that to get back up to these levels, then we need to deliver product and solutions that people want to buy and buy at a high premium. So we're very focused on the segments that we believe that we can get a handsome return on to make sure we get that revenue line back up on the top line and that will start delivering the profit while we maintain close control of the expenses and all the lines between the revenue and the profit number. Another question, given your size, would it make sense for you to be consolidated into a larger company? Well, that's not my plan, [ Jeffrey ]. I guess if somebody comes knocking at the door, then as a responsible Board, you need to look at it. I very much see that Calnex as a stand-alone company and has a future as a stand-alone. We see lots of growth opportunities. We believe we can continue to expand. We find other companies like come and actually want to work with us. So as a stand-alone company, we don't feel we're restricted. I always think that any restriction is there, it's our lack of our own ambition that's restricting us. It's not the market. It is a big market, and there are a lot of places that we can go to. So we very much focus on the situation of trying to grow the company as it is and creating sustainable growth and create an environment and a company that employees see as a sustainable place that we can work and continue to [ hitting target ].

That's great. Tommy, Ashleigh, thank you for addressing all those questions from investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But before we direct investors to provide you with their feedback, which I know is particularly important to the company, Tommy, could I please ask you for a few closing comments?

Yes. Well, thanks very much, everyone, for joining today. As I said at the beginning, it's satisfying we're back into a profit situation. We need to keep driving that number up. It came from a number of things happen. It wasn't -- in some ways, it's like a Formula 1 car. You don't become #1 by one thing. You have to do a lot of small things. And in some ways, that kind of summed up the year in terms of key releases and key R&D enhancements to all our programs. The fact that our marketing approach was changed, the fact that we continue to manage expenses and only did targeted hires where we really needed to, we had a weakness in a skill set or needed to expand. And also in terms of our go-to-market, the way we go-to-market and our channel partner, all these things have contributed to the growth in the last year. And we're not at the end of the road of any of these, and that's why we believe as we continue with these activities, we can continue to grow our market. And we do see that the market is creating new areas where there may be opportunity, whether it's through AI, whether it's through the other expansions going into some of the other markets. So we believe that the -- we're in a good footing at the moment. We've got a great team. We've got a very clear focus on what we're trying to do. And we feel that we can hopefully repeat the results that we had last year and next year. So thanks very much for your attention.

Fantastic. Tommy, Ashleigh, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Calnex Solutions plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.