Plover Bay Technologies Limited (1523) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the Plover Bay's 2022 Interim Results Conference Call. The conference call today is hosted by Alex Chan, the Chairman and the Founder of Plover Bay, Christopher Tse, the CFO of the company; and myself Vicki, I look after the Investor Relations and Corporate Development for the company. Today, we just announced our interim results, which are available on the Hong Kong Exchanges and Clearing website at hkexnews.hk. Our presentation is also available -- also already available on our company's website at ploverbay.com. Today, we will be going through our financial highlights, business review and outlook. Then we will have a Q&A session at the end. Please note that all currency figures mentioned in this call are in U.S. dollars unless otherwise stated. Now I will pass it over to Chris, our CFO.

Thanks, Vicki. Now let me start with the highlights of our financial results. During the period ended 30 June 2022. We recorded revenue of USD 40.1 million, which grew 22.5% year-over-year. Our gross profit was $22.3 million, and gross profit increased 14% year-over-year. During the year, our gross profit margin was 55.7%, which was a slight decline from previous years. Our operating expenses remained at around 25% of our revenue during the period. And our profit before tax was $12.3 million, which increased 11% year-over-year. And our net profit was $10.3 million, which increased also 11% year-over-year. We reported a diluted EPS of USD 0.94 and the Board has declared an interim dividend of HKD 0.059 at around 80% payout ratio. Next slide. Now a more in-depth breakdown of revenue. In the first half, our business continued to grow despite the many challenges during the first 6 months of 2022 such as the COVID-related shutdown in Taiwan and Hong Kong, which delayed the launch of our key new products to mid- to late June. And the U.S. dollars also had a strong run, which negatively affected our sales made in other currencies upon translation back to the U.S. dollars. Despite all these challenges, we are still able to grow at a decent pace of 22.5%. And at a constant currency basis, that's actually 24.9% year-on-year, which again proves that the need for reliable connectivity is now a necessity for businesses and individuals and our approach to grow our business has been working well so far. Now drilling down to product segments, wireless (sic) [ wired ] SD-WAN revenue was $6.6 million, growing 10% year-over-year, while wireless SD-WAN segment grew 20% year-over-year. During the first half, our product mix of volume-driven products further increased relative to high-end products. We have been adopting this strategy in order to grow our products installed base, which will translate to recurring revenues in the future. Next slide. Speaking of which, recurring revenue increased 43% year-on-year to USD 10.9 million. While half of this is reflecting the accounting booking of deferred revenues from devices sold in the past 12 months. We also noted that the number of actual subscriptions has increased 34.5% year-on-year compared to June last year and the number of registered devices on our InControl2 management ecosystem increased about 30% year-on-year to 396,000 users of registered devices compared to a year ago. Moving down to geographic breakdown. North America continues to be our key market, growing 31% year-on-year to $23.6 million revenue. We continue to see broad-based growth across channel partners and vertical markets, especially the home office and mobile office vertical as our brand begins to gain traction on social media among customers from this particular vertical. In Europe, Middle East and Africa, our revenue was USD 10.6 million, growing 14% year-over-year. On a constant currency basis, this market would have grown 21% year-on-year. We continue to see decent growth from this market, but we think we are still relatively unknown in this market. And contrary to what most people will do in the current economic outlook. A few of our partners in this region actually have expressed their optimism and are proactively expanding into more countries, such as U.K. and France in this region. So in Asia, our revenue was $4.7 million, just a modest growth of 4% year-on-year. For this region, our sales is typically driven by government led projects, and therefore, the growth rate can be bumpy at times. For the first half, we are seeing very strong revenue growth from Japan, Hong Kong and Vietnam, but the growth was offset by declines in Singapore and Malaysia. In others, our partner in Australia continues to ramp up since beginning to sell pipeline products last year, and their pipeline continues to look promising. Our gross margin, as mentioned, was USD 22.3 million. The gross margin dropped down to 55.7% in the first half. For wired SD-WAN, our gross margin drifted down to 44%, while wireless SD-WAN gross margin dropped to 39%. Meanwhile, warranty and software margins remained well over 95%. The main reason for the lower gross margin during the first half is our product mix, which further shift towards high-volume products. And those products typically carry a lower gross margin. Thus, we are also accelerating the growth of our user base which we believe will lead to more high-margin subscription and services revenues in later years. Therefore, while most of our competitors responded to rising material costs by dramatically increasing their prices across the board, we limited our price increases only to specific products. The results that our products -- this results in our products being even more competitive. Having said that, we believe semiconductor shortages have begun to show improvements and production cost increases should stabilize. Down to operating expenses. Our operating expenses increased modestly by 17% year-over-year. Operating expenses as a percentage of revenue is 25%, which is the same as 2021 levels. If we exclude USD 1 million foreign exchange loss upon translation of non-U.S. currencies on hand, which we booked into general and admin expenses, operating costs would have been -- would have increased 5.3% year-over-year. This once again shows our strong cost discipline. Our net profit grew 11% year-on-year, and our net profit margin was 26%. Again, excluding the forex translation loss, our net profit would have grown 22% year-on-year and net profit margin would have been 28%, around the same levels as 2021. Next slide about balance sheet. I'd like to mention that our inventory balance increased to $27 million from $19 million at the end of 2021. The increase is mainly because of an accumulation of wireless modules to ensure we have sufficient materials to ramp up our highly competitive, high-volume products. And of course, to avoid semiconductor shortages. Another reason is an increase in finished goods. As previously mentioned, our key product launch was the late -- to mid- to late June. So even though there was many orders for this product, we could not ship them until the end of June. So this summarizes the financial part. Let me pass the floor to Alex to go through the business review and outlook.

Thank you, Chris. So we continue to see 3 major opportunities ahead. So first of all, we are seeing all these small-sized networks. For example, those are branch networks, including the retail stores, including the coffee shops or including the business branches. So this segment is growing very fast, because today, it's all the branch networks or every branches, they cannot afford to lose connectivity. So the connectivity could be used for their POS systems or this could be used for the staff WiFi or this could be used for surveillance cameras. So -- and also it's for the digital signages. So all these branch networks today, people are looking at homogeneous network. So in the past, they might be limited by the broadband availability in that particular building or in that particular shopping mall or with limited choices of operators, but now we're with the mobile network, with the 5G or 4G network, they're able to have a freedom of choice. So that is the branch networks. And then the other small-sized networks, we see there's a fast growth -- is the IoT networks. So these are basically the smart city applications. For example, different governments or different organizations, they are putting a lot of sensors into the lamp pole and including cameras, including sensors, for example, its pollution sensors, air sensors and various types of sensors. So all these IoT networks are actually contributing our fast-growing small networks. And at the same time, we're also seeing small autonomous systems. For example, those are delivery robots or the EV charging networks. So today is all these EV charging networks, they are connected. And at the same time, they need to -- since they are connected, so they need to have a way to connect to the Internet or to the cloud. And then most of these parking spaces using wireless connectivity is the best choice for them to get connected. And then with all those delivery robots. So actually, we are seeing this autonomous systems. This segment is actually growing very fast. Because all these delivery robots is different from the autonomous driving, but at the same time, they need to get connected reliably. And then there is also -- we are seeing is that the volume for these small delivery robots are actually growing pretty fast. And then the other -- the other fast-growing application for these small-sized network is the work from remote locations. So these days, as we have seen in the last 2 years, a lot of our recreation vehicles, people really live and stayed on all these ROEs. And then there's always when they left out and work on these ROEs, they need to stay connected. And at the same time, there are people moving away from the city, people are now able to work remotely from a remote location. So they could be using a lower office satellite services. So all these LEO broadband is actually very affordable these states. But at the same time, people are still needing a reliable connectivity. So in other words, you will be seeing people are connecting to low orbit satellite modems together or people may be mixing the 4G or mixing a fixed wireless service together with all these LEO service. So these are the 3 major markets that we have seen growing very fast, and these are all we consider as a small-sized networks. So what is essential for this market is, again, it's a reliable connectivity. So people might be using 5G or people might be using multiple LTE. But the catch here is, they cannot rely on a single network. So multiple connectivity is needed. And then the second area, second opportunity that we can -- we see as a tremendous growth in front of us. But it's a multiyear IT deployment cycle. So we have seen SD-WAN has been deployed by a lot of enterprises, but that is with all these SD-WAN installations, if they want to connect to the 5G network. So they will probably just -- they probably want to stay with what they have today. That means they are not switching away from their SD-WAN vendor, but they would love to add 5G connectivity on top of this. And then there's another 4G upgrade cycle. So people upgrading to 4G to 5G and then so on. So who are going to upgrade on here. So we are talking about, for example, the vehicle WiFi, the public transport WiFi or the maritime market or the construction site or these fixed wireless applications. So in the past, they might be using 4G, they might be using LTE or they might be using a slow DSL connection. But then as now they are seeing is when they upgrade to 5G, it may be lower -- it may -- first of all, it will be faster. But at the same time, the overall cost might be even lower than the past. So the third area that we see a tremendous growth is people are looking for an ecosystem. People are looking for a simple way to get connected. So today, if you look into the connectivity market, people need to go to the operator to subscribe a data plan. And then at the same time, they need to go to shop their hardware, the devices or maybe in some cases, the operator is going to bundle a 5G router to you or to the customer. But this is only limited to 1 operator choice. So people are actually -- as we discussed earlier, people are actually looking for freedom of choices. People are looking for the best connectivity to get connected. So we see that there's a big motivation for people to find a simple way to have everything together. So in other words, we believe the Peplink ecosystem, which is including the Peplink devices, our router devices together with our SpeedFusion infrastructure and together with a very easy-to-use mobile app. So all these things when we add up together, together with our e-commerce platform. So we will be providing a huge benefit for the users, for choosing the conductivity providers. So that means now they are not limited by 1 provider, but they can use more than 1 provider any time. And at the same time, they do not need to have a very complicated process to sign in multiple year contracts and things like that because now all these things automatically, electronically delivered. And then this is always this there's actually a big benefit for the operators too, because now we are expanding the market size for operators. So in the past, when people are selling a router, they are selling together with 1 connection over there. So that means there's only 1 operator provided for 1 device. But now -- so the new -- now the provider can -- I mean the market size for these providers are actually hugely expanded because now the customers are going to connect your multiple networks. And when they connect multiple networks, that means the market size for the operators is actually getting bigger. And then so this is definitely a good thing for Plover Bay because this is going to create a good recurring revenue for us. But at the same time, for the end user, the benefit for them is this is a simple and easy way to access for connectivity. And then this also for the operators, we are expanding the market size for everyone. So in summary, we see these 3 major drivers going to contribute to our future growth.

Okay. Thanks.

Thanks, Alex. So let's start the Q&A session now. [Operator Instructions]

Yes. Can you hear me?

Yes.

Yes. Thank you so much for the presentation and your time this afternoon. Just have a couple of questions on the margins for the first half. So if I can refer to Slide #25, we can see that, yes, there are 2 factors that could explain the decline in the margins compared to last year. So the product mix and also the raw material prices increase. So between these 2 factors, could you give us, share a bit more, especially on the raw material side? And you mentioned also semiconductors shortage. To what extent, this raw material issue has impacted the margin for the first half?

Sure, absolutely. So basically, it's -- I think for the time being, okay, -- maybe let me restart. So first of all, in the past, what we have done is we just want to make sure that our supplier -- supply to the market is stable. So that means in order to do that, we are willing to buy from the spot market. So we have explained it to everybody in our previous call. This is our strategy. So we just want to make sure the supply is stable. So when we are buying from the spot market, so definitely the price is much higher than what we usually pay for, but then that is still needed. So that's 1 reason that is driving down the profit margin. And then the other one is, as we mentioned is, we see -- bringing customers to the Peplink ecosystem is super important. And we believe it's our services, our products. Because all these things are tightly integrated. So it is actually pretty -- I don't know if we should use the word addictive, but I'd like to use that word internally. So I think I would say our service is actually pretty addictive. So the good thing is when people are starting to use our products, they will be expanding to some other higher-end models too. They will not stop in using 1 devices. So that's why we also tried to make sure certain products are really attractive to the market. So that's why we have a change of mindset. So basically, it's the some of the products. We are very happy to live at a profit margin even like 10%, 15%. So we're willing to do so. Why? Because we see this is actually a great way for us to market our product. And we also see this is a great way for us to bring in new customers to our ecosystem. And we are also seeing this as a great way for our channel partners, because we are bringing in a very disruptive and interesting and exciting price for some quality products. And then so this is going to help our distributors. This is going to help our resellers, to do more business. So -- that's why we're actually not too concerned about the product gross margin. And also, if you look into the big picture, what we care about is the net profit margin. So even our gross profit margin dropped, even the product margin dropped a bit, but our net profit margin and the net profit, the absolute amount, they are increasing. So yes, so that's why we see this is actually a sustainable and long-term strategy.

Okay. Just a follow-up on that. So given what you say, should we expect the margins -- the gross profit margins to stay a bit under pressure for the second half?

Okay. So first of all, I won't call it pressure because we intentionally going to -- we intentionally do that. We all know, okay. So we are going to face a tough economy. We are going to have a rough world. We are going to see inflation coming. So all these things are actually not good. So -- but I think this is a great opportunity for us to grow really fast. Why? Because when everybody is having the inflation and everybody is having a situation -- a tough time like that, if we are offering a very attractive price point to the market, then the more people are going to switch to our product. People -- more and more people are going to switch to Peplink. And when they switch to Peplink, then is our operating costs won't go up substantially because we have a very efficient operation. That's number one. And the second thing -- and the other thing is we worked very closely with our distributors, with sellers. So that means we have the ability to scale the business at a very efficient way. And then also, in order to -- okay, but I would say you might see that this kind of margin might drop further a little bit. But this won't be forever because, as I said, the economy is going to be bad. So at the same time, I believe our contract manufacturers, I believe the suppliers, I believe in all these cellular modules and all these SoCs and all these things will have an oversupply at some point. And when -- and at that point, that means some people, they don't manage their inventory that well, they need to do some fire sell. And I'm not talking about a fire sell or the end product. I'm talking about the components. And especially what we have seen is over the last 12 months, a lot of people, they really place a lot of orders for their components. And now all these components are starting to pop up to the warehouse. And then, there is a so -- if they are able to digest that fast enough, fine, but I'm pretty sure that some people won't be able to digest that fast. So that means we will have the opportunity to have low-cost components along the road. So I would say this might not happen in the next 3 months, this might not happen in the next 6 months or 12 months, but it will happen at some point. So that's why I see it having -- I would say, is being proactively doing something like this. This is good for our long-term business. But at the same time, don't forget, Plover Bay, we do not make commodity products. And our products are not a me-too products. We have an ecosystem we build our product from an ecosystem mindset. So that means when people started to use 1 of our products, they will have an excellent experience and then is that they will be expanding to use it for other applications, too. and then this together with our management system and also the ease of use and all these things together, they will be using more and more of our products. So -- and then it's also, I would say, some of our higher-end models, which we have no competitor elsewhere. So those products, we won't -- I would say is our profit margin is still maintaining at a very healthy level, and we have no pressure to drop the price down for those higher-end models. So in the combination of all these things, you might see the gross margin varies a little bit. But I don't think we should worry about that. And that's why I suggest we should not see that a suppression.

Yes. Thank you for the detailed reply. If I may, just a last question for me. You mentioned some orders that have been delayed during the first half. So should we expect that's the -- some easing in the supply chain for the second half and that can we deliver these orders in -- more easily in the second half?

Actually, I would say is that in terms of supply chain, we don't worry too much about the supply chain, because we are very realistic. We are very -- our team is extremely realistic. So when things are in shortage, that we are willing to pay for a premium. We are willing to pay for a premium in exchange for fast delivery or in exchange for the availability. But at the same time is, we also stock up pretty good components to cater for our growth. I would say, is the thing, that is totally beyond our control is the city lockdown or anything like that. And then -- so we don't -- I mean, we all don't know about how this COVID world will evolve. But that is -- every time when the city is kind of like slow down or lockdown, that is bad for the supply chain because it's the contract manufacturers or the factories they are not operating, that is something beyond our control.

Okay. Thank you. That's all for me.

Moving on to the next question. In a chat window, we have received quite a few questions first from Brian Chan. And so again, this is a question about the gross margin. And so the filing basis products have grown over 40% year-over-year, but all those sales only grew by 22% and gross margin dropped sharply on both wired and wireless to record -- to record low. And so what is happening on a higher end and blue chip products. How would you tackle that segment? Are you expecting the gross margin to remain at that level?

Brian. So actually, our profit margin for the higher-end models has not changed at all. Again, let me remind why we have -- why we have seen that the margin dropped quite substantially for certain products. It's because we are willing to pay for a premium in exchange for the product supply, in exchange for the availability. So at one, I don't think it is going to last long. And actually, what we are seeing is the supply chain has improved a lot. And -- so I would say is that is not a long-term trend. But at the same time, as our higher-end models, we don't have that problem at all. So the profit margin are actually, is still extremely healthy.

Sure. And then we're going for more question in chat box from Jack Peng. So how should we think of -- sorry. Let me repeat the question again. How should we think of the pickup rates of your software warranty subscription moving forward? Chris? Chris, would you like to take this question?

I think we heard, his airpod is out of battery.

Okay.

So Jeff, maybe will wait a little bit for this question. We'll come back to this question.

And then from Stephen Wong. If the economy and inflation in U.S. and Europe further worsened, are we worry about our customers will slow down their IT investment spending? And then would it affect the price and demand of our products?

Well, actually, we don't worry at all because it's based on our experience back in 2008. So during the global financial crisis, it's actually that we did extremely well. The reason why is because of our approach is -- we always use the analogy that we are a low-cost carrier. So we use the low-cost carrier approach to run our business. So first of all, is I think it's the economy inflation in U.S. and Europe if they further worse, so people will be cutting budgets. But they still need to get connected because this is -- the connectivity has actually become a necessity these days. It's just -- connectivity is just as important as electricity. So people will still need this. But then so, are they going to be -- just behave like the old days, for example, they still choose to -- okay, in a lot of times, people don't want to make any changes. So in good times, people don't want to make any changes. But than they does in tough times. People are forced to look into alternatives. So when people are starting to look into alternatives, they will see is that our total cost of ownership is actually at least 23% to 50% less than the other options today. So I think people will actually look into alternatives and these behaviors are actually good for us.

I want to get back to Jeff's question about our take-up rates and how our software subscription is going to move forward. So our take-up rate has been pretty -- I would say it's increasing gradually over the past 12 months. So the take-up rate, when we began to look at this figure, it was around 25%. So that means out of the 100 units that we sold around 25 of those currently have an active subscription. So that's what take-up rate means. So going forward, I think we will see a pickup in the take-up rate because as we are pushing our installed base with high-volume products. And then we're also beefing up our software features, such as there's a new feature called InTouch that allows your in-control to subscription to basically manage your cameras and IP phones and all other IoT devices without having -- adding additional infrastructure. That's very useful for a lot of our partners and customers. So I think going forward, take-up rate will improve.

Sure. And then moving on to the second question from Stephen Wong. And so how do we think about our difference in positioning with Cradlepoint and Sierra Wireless, it seems that on has the highest brand awareness for customers in the West and customers in general have high regards on their user interface. How can we improve our brand awareness and use our interface going forward?

Okay. Yes. This is a great question. So first of all, yes, Cradlepoint and Sierra Wireless, they are popular. They are considered the highest brand awareness for customers in the world. But we are not nobody. So people actually know about Cradlepoint, people know about Sierra Wireless and people also know about Peplink. So actually, these are the 3 choices that usually people pick around. And again, I think in good times, people are using an existing product from their existing vendor. They don't need to look elsewhere. They don't need to make any changes because times are good. So why bother? In tough times, people will be revisiting the cost side of all these things. So I would say -- first of all, yes, as I said, we are not nobody here in the market. So actually a lot of times is that people are using our products to compare with these players. But in good times so we have 1 disadvantage because we do not have a big direct sales team. So we work with our channel partners. We work with word of mouth, and then we rely on our products to grow the market. So in good times, yes, we might not be growing as fast as them. But then is so I think it's our long-term strategy and also what we are doing right now is we are expanding beyond the devices, we are expanding beyond the cloud management. Everybody has a device. Everybody has a cloud management. But how do you manage your connectivity? How do you manage your SIM card? How do you manage multiple network providers? So we see this as actually the pain point of the customer. And that is so definitely, we have spent years of R&D efforts in going after that area. So that's why I'm very optimistic about -- we actually -- I mean we are not -- we actually not really need to focus on the brand awareness. But even saying about that is, are we going to do nothing? No, no, no. Actually, in fact, today, we just do something that is going to create a big brand awareness for us, because we just dropped the price of our market-leading 5G product, BR1 Pro 5G we dropped that from 1.99 to 9.99. So to give you a comparison, so at a price point 1.99, USD 1,500. That is already the market's lowest-price 5G routers. So we are 20% to 40% less than the competitor already but we are going to take 1 big step further. So we're going to drop it down to USD 1,000. And then so we do the -- we have done the math for 3 years total cost of ownership. So we will be 50 -- the exact percentage point is 40%, we will be 48% less than the alternatives. So I'm sure that this is going to improve a big time for our brand awareness. And that is a sale for the user interface, yes, we are aware of decision -- we are really aware of this. So that's why we are also working on a mobile app that is going to solve the user interface problem, the user interface issue. However, every Quant has two sides. So we also hear a lot of engineering-oriented customers, tech customers, managed service providers, network operators, they are telling us that is our user interface is actually way, way, way better than the alternatives. Why? Yes, it is hard to use. It is not as beauty as others, but it is a feature which -- it actually saved them a lot of time in doing the same job or doing a better job to manage the networks. But on the surface, yes, it's not as fancy as others. But then this way. So we are going to tackle this problem by having a mobile app, which is beautiful and easy to use. But at the same time, we will still keep our feature-rich functionality on our existing user interface. So in summary, yes, we are competing in -- we are competing. But then we are just competing in a way that we believe that I mean, we don't like the idea of playing catch up. So we always look for game changers. And we believe our approach is actually being able to compete in a better way rather than just follow what others are doing.

Thanks, Alex. And moving on to next question, again, a question from Stephen Wong. So how long can we see for our order backlog currently?

That's around 3 months.

Okay. And on the last question about the InTouch work. How does InTouch works, previously just mentioned about. Do you want to add more details on this, Chris?

I don't have anything to add there. Alex, do you have anything to add for?

Okay. So basically, InTouch is we -- okay, in technical terms, we call that our band management. So basically, as for example, you may have a remote network. And then in that remote network on that remote network, maybe you have a network printer, maybe you have devices. So those are not -- those devices are not coupling devices. So traditionally, if you need to go into changing the configuration for those devices, you need to send somebody over there or maybe for other industry players. -- they will ask you to buy a device called OBM devices. So -- and then -- so you click that device to the console part of the remote devices. And then so you can remotely go into that device and then is -- due to configuration and setup and things like that. So that means that when people want to save a truck roll, people want to save a trip in order to reconfigure something, then they need to buy a device to do that. But with the Peplink, InTouch service, so you don't need to buy anything else because we are leveraging our routers, we are leveraging our multi-connection routers. We are leveraging our cloud services. So we are able to remotely do all these things in a very secure way. So that is the general idea. And I think we should also take this opportunity to introduce the Plover Bay YouTube channel. So basically, we understand is a lot of our investors, they might want to understand certain technology, how it works or fundamentally why Plover Bay is different? Why Plover Bay is different from other guys? So yes, that's why we have created a Plover Bay channel. And that is, we will be doing another version of more simplified explanation on what we do and services like the InTouch. So yes, stay tuned that we should have more information over there.

Okay. Moving on to the next question from Brian Chan. So you're having a record high in inventory to ensure to meet the customer demand. How long do you expect the inventory to last? Are they mainly for the volume products?

Sure, Brian. So yes, we have a record high in inventory. But that is so if we dig into the details about all these inventories, is all about SoC. And our SoC is actually the latest generation system on chip. So that means that these inventories won't get obsolete. And that is all this inventory or 5G modules. So that is we have made -- okay, we have to make sure that we have the inventory available for us to move for the volume products. And then for our higher-end models. So we don't worry too much on that because those -- the volume of those products are decent, but it's not to the extent, okay, I should give you some idea. In the past, when we were -- when the product was selling something like it's a 20,000 units a year or something like that, we feel like, okay, that product is doing well. But now we are looking at selling 1 SKU at 200,000 units. So we are looking at a volume like that. So in order to prepare for that, that's why we need the inventory. But at the same time, all these products is they are not obsolete the product or they are not -- or these are not fire-sell sale. These are actually pretty popular products. For example, the 1 I just mentioned about the 5G router with WiFi 6, with a 2.5 ethernet port. So we have a very decent throughput and it support eSIM. So all the state-of-the-art technology, all the latest technology is over there. So we are expecting to sell a lot of all these products. So that's why we don't worry too much about the inventory. And again, so for example, now let's say, we have about $40 million in inventory. But if we are looking at $100 million revenue, so it's only 40% of that. So that's why we -- yes, it is a record high, but we don't think there is a concern over there.

And next question is from Stephen Wong. Is there any new development in the autonomous driving area?

Okay. I think the autonomous driving area, we have a decent number of customers having our products in their development. But I would say is we -- in terms of the volume growth and that kind of thing and that is we don't have a huge expectation for this area in the next 12 months, because that thing is really a long-term thing. However, we are also seeing some really cool application. For example, people are doing tally operations with our products. So they are putting our -- they are putting our routers into the caterpillar machineries. So these are actually pretty big -- I mean we have a YouTube channel, we have a YouTube on that thing. So maybe in the next couple of pages, we should upload that or we should link that to the IR website. So the idea is we are seeing a lot of tally operations. People are using our products to ensure a smooth operation because tally operation means some people are operating the thing remotely. So I would say is that, that area, we have -- we have a pretty good presence, and we see that is probably more prominent than the autonomous driving in the near term. However, those delivery robots is a totally different story. The little delivery robots. People are shipping that in large quantities and then these delivery robots. Some of them are actually having our products over there. Okay. So I see Stephen has another question. How would the drop in price affect our margin? Overall, I don't think it won't affect too much. Why? Because as you probably have seen, basically is when people are buying our products, they will subscribe the service as well. So -- okay. So Chris, maybe can you help me to explain is that the dynamics about the subscription and the product relationship?

Yes. So you talked about the drop in price, I'm assuming you're talking about the 5G devices that Alex was talking about. So let's use that as an example. So for -- when you purchase this machine 1499, you -- you will usually subscribe the subscription for 2 more years, so in total 3 years, right? So in total, the margin is around 70% for all 3 years, device, including subscriptions. But then after lowering the price, we're also reducing the discounts available to distributors for this particular device because it's -- now it's fast moving, right? So it's another category now. So the margin on the device itself will talk a bit. But then, however, if you look at a long-term 3 years horizon, then the margin would still be around maybe 60%, 55%. So does that makes sense?

Sorry, sorry. Sorry, guys. Let me emphasize that a little bit more. So actually, you know what, even though we made the first move, dropping from 1,500 to 1,000, it sounds crazy. It stands dramatically, but it's not. The reason why is actually, after the discount and all that kind of things, we don't drop $500. That's number 1 thing. And the number 2 thing is we are also seeing the customer acquisition cost for us is very different. So in other words, if you look into the gross margin level, so some companies, they might need a 60% gross margin in order to achieve a single-digit net margin. But for Plover Bay, we don't need that. Even our gross margin goes to 40 -- sorry, okay, even our gross margin goes from, let's say, 60% to 40%. But it is very likely that we can still deliver a 25% to 30% net margin is because our operation dynamics is totally different from other guys. Our business model is a low-cost carrier model.

Okay. The next question is from Jeff Peng. It seems that some of the distributors stock up quite a lot on their competitors' products as 10 customers, as 10 end customers double order last year. Do you see similar issues with your channel partners?

You know what actually is I won't know our distributors stock up a lot of our competitors' products. Yes, I'm not aware of that. And if they are still but enough to do something like that, I just wish them good luck. So the answer is, do you see similar issues with your channel partners? No, we don't see anything like that because they don't -- our distributors are owners, most of our distributors, they are owners. And I don't think these only managed the business. They will just stock up the product like that. Jeff, maybe can you elaborate your question again because it seems contradicting. You are saying that as some of the distributors stock up quite a lot of our okay. So you're saying that is our distributors carry multiple products. And then they stock up a lot of competitors' product, double. And then so are they going to okay, so this is not contradicting. So your question is ,they stocking our products double I'm not aware of this.

Alex, this is Jeff. So I think I can clarify that a bit. So I think some of your competitors distributors stock up their products because they got some double ordered and they have a backlog in their channels. But I'm wondering if the same issue is happening with you and your distributors. Does that make sense?

Yes, yes, does Okay. Yes, that makes sense. I don't think so because there's no need to double order from us. I mean we don't give people in -- we don't give people financial incentives. I mean it's why they double order from us? You know what I mean. I mean, it's so we produce as a stable supply. Why do they need to talk about from us?

The next question is from [ Gerard ]. Given the exciting prospects of the company, do we have any concerns about production capacity from our contract manufacturers?

Actually, no, no. The good news is, first of all, with our existing contract manufacturers. These guys are actually Tier 1, Tier 2 contract manufacturers, they're pretty big. And that is so they can scale -- they can definitely scale to weigh back level. And at the same time, we are also expanding our contract manufacturers beyond Taiwan. So we are actually talking to someone in Vietnam as well. So I would say that we don't have a problem with that. The good news of being a public company is our financials are pretty transparent. So all these contract manufacturers, they can look into the financials and they understand that we are a fast-growing company. And then so from time to time, it's on LinkedIn. So we were approached by new contract manufacturers, and then we welcome all these new contract manufacturers to help us to scale the business. So we are not too concerned about the production capacity. As I said, we are more concerned about the COVID lockdown. Yes, that is actually more -- that's a small concern that is totally beyond our control.

And the next question is also from [ Gerard ] What is the customer concentration currently? How much of the revenue the top 5 customers will represent?

It's around 45% to 50%.

Yes, I think we can elaborate further because we work with distributors. And one of our distributors, they are operating in U.S.A., they are also operating in Europe. So they have covered 2 regions, but they have different teams in -- they are different -- totally different teams in Europe and U.S., but this is a great partner. We have been working with them for a long time. And that is -- and our products are usually sold through distributors. So that's why you might see a concentration there. But the reality is actually it's not the concentrator because they are a distributor. They are not end users, all these distributors are selling to resellers.

So now we have to finish up our questions in the chat box. Does anyone have any more questions? If not, that seems to be all the questions that we got for today. Thank you very much for joining the Plover Bay's 2022 Interim Results Conference Call. And we look forward to speaking to all of you again soon. Enjoy the rest of your day.

Thank you everyone.

Thank you.

Thank you, everyone.

Yes. Thanks, everyone. Thank you.