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

Good afternoon. Welcome to Plover Bay Technologies 2023 Annual Results Conference Call. We have just released our annual results and the results may be downloaded at [ hongkongexnews.hk ] (sic) [ hkexnews.hk ] or at the Investors section of our website at ploverbay.com. For the power point slides that we will use on this call, you can also find it from our website. Our Chairman, Mr. Alex Chan and myself, Chris Tse, CFO of the company, will present our results today. The call will start with sharing our business updates, and then I will wrap up with a financial recap. Then we will move on to Q&A. So I'll pass it to Alex to share with you the business updates.

Thank you, Chris. So I just want to take a second to explain again so who are we and so -- Plover Bay Technologies, so we enable supercharge the connectivity by combining multiple connect service together. So these connections can be fixed [ end ] networks, mobile networks, satellite connections, and we just combine them into 1 single pipe. So our customers to users can build and always on a super reliable network anyway. So the general expectation of connectivity is mostly around 4 major factors. So that is it should be simple. It should always work, it should be cost effective. And it should be there when it is needed. So this is the general expectations. But in reality, we can see the existing solutions are overly complicated. And the fixed lines cannot reach anywhere (sic) [ everywhere ] and the mobile network is not always reliable, too. So -- and where you need the connectivity, most of the times that you need to enter into a contract for multiple years. So our approach to enable this supercharging connectivity is we built an ecosystem. So this ecosystem is surrounding by purpose-designed SpeedFusion routers. So SpeedFusion is our proprietary technology and our [ routers ] all based on this technology. And at the same time, we have package of connectivity software and cloud services just to make all these SpeedFusion routers easy to use, similar to use for [ air ] for various applications. And then so our approach or our approach -- our go-to-market approaches, we work with a group [ professional independents ] to enable all these applications in various [ different ] vertical markets. So the customer benefit is we have got a faster, more reliable network, and they can be deployed anywhere, and we can enable a lot of new use cases. So when we look into the connectivity, we can look into the basic Wireless Connectivity, which is mostly being used for remote work from home applications, or transportation, IoT or boats. And then those are some applications, some scenarios that would require Better Connectivity, which means a bad connectivity means they should have [ failover ] capabilities or they should have a faster bandwidth or a little bit more reliable than the wireless connectivity piece. So these are the retailers, small business, pop-up stores or home offices. And then is Essential now, where we go into a bigger network, which is, for example, those large [ events ], construction sites, enterprises, the banks. So connectivity to them is essential. And for some other applications, we call this Mission-Critical Connectivity. So this could be the public safety applications, broadcastings, telemedicine and maritime. So you can see is our products are covering from basic connectivity to mission-critical connectivities. So I want you to like this, 1 application what we're starting. So actually, the home [ base ] started like 2 years ago and that is also some first adopters. They begin to use our Starlink and Peplink solutions in small deployments. So these are, for example -- so they live in a remote area, or they stay on recreation vehicle, so they need connectivity. And then so they are using the Starlink and Peplink Solutions combined for their broadband access. And then so later on this, we also see small business and home users in remote communities, they also started to use the same solution, which is having a Starlink and Peplink solution working together. So the aware -- the awareness of this Peplink-Starlink solution started to spread around. And then so we are starting to see larger deployments, for example, public safety, first responders, they started to use the solution. And that is so later on, and so we are seeing even larger applications like these are the large events, the mining sites, they're putting multiple Starlinks with the Peplink products to bond them together. And then as also last year, we have [ launched ] one of the largest cruise boat operators in the world. They deployed at a very large scale Peplink-Starlink solutions on the entire fee. So yes, last month, we became starting to authorize the technology provider. So in early 2024, we also launched a new product called B One series. So this B One series, we intend to use this product for fixed wireless access because we are seeing the fixed wireless access and the founding -- and the signing applications. These internet services are actually very complementary to each other. So in situations where you have FWA or with a Starlink, then there's -- you want reliable connections. And then so you also want a router with all the integrated features to seamlessly enable execution over the FWA and the Starlink. So that's how -- that's why we started to build this product. And we are trying to address a market, which we have not been putting a lot of effort in the past because in the past, our focus was really into the higher-end market. So to recognize the market or the essential connectivity market. But now we are seeing the Starlink and the FWA fixed wireless access market. These are the booming markets, and we believe our technology can play a pretty good role in this space. And we're looking at slightly different approach from the general approach. So usually, people just build a CPE for addressing that market. But we see that probably it's not really the device itself. It's actually the ecosystem. It's actually the whole user experience. So we're working on the Peplink app such that so we can use this Peplink app to easily set up the devices to route your traffic to different cloud or power locations or even so we can use this app to enable some very simple VPN. Okay, basically, to turn the VPN process into a much more simple process. And we also believe so with this Peplink app and the B One series, this is going to open up a new market for us to address more general markets, which people are facing the challenge of having a 2 complicated setup or maybe happened as carrier contract that requires multi-year commitments. But then so -- we are not replacing that multi-year commitment, but we are enabling new options that people would use this for on-demand applications. And over the last year is we're also seeing our deployment scaling to a different scale and that -- so for example, there's a one global leading electrical EV manufacturer. They have deployed hundreds of Peplink routers in their factory in Texas. And then -- so they also plan to scale this into their other factories in Germany and China. And then so now our data services is exceeding as 2% of our revenue in 2023. And while our Network as a Service business model continues to see strong growth, but we are also seeing that as it also attracts -- also expanding rapidly to contribute to this 20% of data sales. And then we also did some gear up on growing on the e-commerce platform. So this B One, we just launched at actually available at the very attractive price point, and it is a very easy-to-use product. It is so well suitable for ecomm shoppers. So the idea is to boost the lead generation and sales conversion. So in terms of the investment highlights, this is the same thing we illustrated to the community in the past. So we have an ecosystem. And this ecosystem is growing. So we are growing our purpose-designed routers and devices. We are enriching our subscription-enabled features -- subscription-based convenience features. So again, our subscription approach is better than from most people in the market. We address the convenience features. So we do not enforce our customers to subscribe, but we provide a lot of convenience for the software features that they need, and this is completely volunteer. So they can choose to subscribe or not to subscribe. And at the same time as the SpeedFusion proprietary technology is enabling our reliability to this ecosystem. And by the way, this year 18 years of experience. So SpeedFusion is 18 years old. So it is a mature technology. And at the same time, we are still developing some new enhancements on that. And at the same time, we are really proud of growing passion-driven go-to-market partners. This is actually very important piece of us. Because when our customers -- for those who have experience working with Peplink Plover Bay, and that is that they can see our go-to-market partners, so they are not just doing their job. They're really passion-driven. So the second thing that we want to highlight is Low Earth Orbit satellite services. They are expanding our addressable market. So Starlink is growing really fast. And that is -- so now is enabling this Peplink-Starlink enterprise solutions, and that is -- this is increasing our brand profile. And at the same time, we also receive direct referrals to Starlink. So these guys are -- for people who wants to have a lot of Starlinks working together, they need connectivity, and they see connectivity as a mission-critical or very essential piece. So the Peplink features a technology complements this -- are very well. And then this is also another investment highlight is now we see multiple drivers are pushing the need for Supercharged Connectivity. So based on some market research, the number of IoT connections are growing and the mobile data traffic expanding and fixed wireless access connections, they're expanding to grow from 130 million to 330 million. Actually, this number is really big, and we are actually a little bit surprised by these numbers. And that's why we are seeing this might be interesting growing path for us. And that's why we work on this B One service. This B One series router is designed to address the home offices and small business in the FWA market. And then so we are pretty excited to share with the investment community that our recurring revenue has grown pretty well. So the underlying drivers of this subscription growth is we have increased our user base driven by the device sales. And also we are increasing the subscription content value to drive user subscription rates. And our subscription growth is actually pretty strong. So the number of devices under subscription at 31st December last year has increased 40.2% year-over-year. And the subscription take-up rate increased to 28% at December. So last year, that was 24.5%. And then also we have additional revenue -- additional recurring revenue growth potential with the data services. This thing was launched back in 2021 and now is exceeding -- it has exceeded 2% of the total revenue in 2023. And then we see a compounding growth from growing installed base and increasing data consumption trend. So I'll pass to Chris to share our results with everyone.

Thank you, Alex. So I'll start with the financial recap. In FY '23, our revenue increased about 8.6% year-on-year to USD 94.3 million. Our gross profit increased 9.5% year-on-year to USD 15.9 million. OpEx, other income and gains and finance costs decreased by 11% to about USD 18 million. This is because of a foreign exchange loss of about [ $1.6 billion ] that we booked in the previous financial year compared to about [ $300,000 ] gain that we booked in financial year -- this current financial year. So overall, our net profit increased 24% year-on-year to USD 28.1 billion, and our diluted EPS is $0.0255, an increase of 23.8% year-on-year. Gross profit margin increased slightly to about 54%. That's a 0.4 percentage point increase. And our net profit margin increased to 29.8%, up 3.7 percentage points compared to last year. Finally, for the second half of the year, we are declaring our second interim dividend plus special dividend together about HKD 12.4. This brings the full year dividend to HKD 19.4. Diving deeper into our sales growth. Our Fixed First Connectivity segment slightly increased by 1% year-on-year to USD 14.6 million. Mobile First segment mildly increased by 6% year-on-year to USD 49.3 million. Warranty & Support Services segment grew 12.6%, reaching USD 23.8 billion and the Software Licenses segment rose 46.4% year-on-year, reaching USD 6.5 million. We believe that the overall picture here very well reflects what we have been working on in the past few years, that we wanted to grow our recurring revenue base by selling products that provide strong value propositions to our customers. Now let's dive into recurring revenue. In FY '23, our recurring revenue rose 20.7% year-on-year to USD 28.7 million. Now recurring revenue makes up over 30% of our sales compared to around 27% a year ago. More importantly, it makes up for over 50% of our gross profit, which we will touch on later. The underlying drivers of recurring revenue also paint a positive picture on the continued growth of recurring revenues. So as Alex shared earlier, the number of devices that are under a subscription increased 40% year-on-year. Our take-up rate has increased to 28% compared to 25% in FY '22. Subscription dollar amount, the actual dollar amount that we received for subscriptions and booked into contract liabilities, that also increased 22% year-on-year. Next, revenue by region. Sales to North America grew by about 4.6% year-on-year. EMEA grew about 26.7%. Sales to Asia fell around 10% and other regions grew about 25.4%. The relatively strong growth in EMEA is driven by strong performance of new partners and resellers in Eastern Europe. In other regions, growth mainly came from Australia and New Zealand. Now gross margin. Our overall gross margin increased to 54% from 53.6% last year. The reasons for gross margin improvement include: first, a higher sales mix of recurring revenue. Recurring revenues have a gross margin of around 92%, which is much higher than the gross margin of nonrecurring products. The gross margin of nonrecurring products, which mainly include Fixed First and Mobile First segments also saw improvement in the second half of 2023, compared to the first half or the second half last year. As you can see in the chart in the top right, this is because we leveraged the economy of scale from our contract manufacturers and we also consolidated our product. So now we have more products sharing the same platform on a smaller number of core platforms. So more broadly, the supply chain has also moved past the acute shortages in the last 2 years. So material costs have also come down to a more reasonable level. As I mentioned earlier, recurring revenue now accounts for 52% of our gross profit, showing that we are no longer just a hardware vendor. Lastly, our balance sheet and cash flow remains very healthy. During the year, cash from operating activities increased substantially. This was mainly due to a significant reduction in our inventories compared to FY '22 and to a lesser extent, the continued growth of contract liabilities from subscription bookings. The significant reduction in inventories is due to a few things. First, as we mentioned, we consolidated our product portfolio, which helped us increase the efficiency and inventory management. At the same time, the supply chain shortages with -- it largely behind us, production lead times have largely returned to normal. All these mean that we can now take a smaller, much smaller inventory while still meeting the growing demands from customers. Other than that, bank borrowings and gearing remain minimal. As a result, our cash levels and our overall balance sheet remain very strong for our business needs. So this wraps up the financial recap, and we can start the Q&A. [Operator Instructions]

So we already have a first question. Can you comment on the business trends in the first 2 months of 2024? Are we seeing similar growth rates versus '23? And do you think Starlink will show a material revenue and profit contribution?

Sure. So the first question is actually is that we are -- yes, today, it's actually so this is at the end of February. So as I look into the first 2 months, we are actually slightly better than last year. So question number 2 is starting to show material revenue above the contribution. I think is that we are not doing a simple Starlink sale, so at the momentum we have -- the joint solution with Peplink and Starlink is actually very strong. We have reached a new number of partners. Then they are looking for or they are impressed by the capability that the Peplink-Starlink joint solution can deliver. So I don't think we have a time line to say when this is going to be material. But the fundamental of our business is just combining multiple connectivity technologies together. So it could be 5G, it could be fiber. It could be Starlink. It's just more growing connections, the more connectivity options. It is better for our business. Second question.

Second question comes from Lucas. Hold on. Starlink boost wired or wireless sales, wired router sales reduced 18% in the second half. So let me answer this because in the second half of last year, we started to wind down one of our key products in the Fixed Connectivity segment to get ready to launch for the launch of the B One series. So the next question is -- can you comment on how the direction of your product pipeline differs from other networking peers? What features do you emphasize that they do not? What trade-offs have chosen?

I think this one necessarily contains some trade secret, and I prefer not to answer here. But generally is, I would say, Peplink Plover Bay is not [ mediocre ] company. We see things from a very different way than most general company operates, because as this company, including myself, including a lot of our engineers, including a lot of our teammates, we have the owner mentality. So we still have the owner and the founder mentality. And that's why when we look into the things, we always look into the fundamentals of the problems. And that is instead of chasing WiFi 5, WiFi 6, WiFi 7, getting by faster and faster speed. So we don't look into it like that. And I guess maybe for our investors [ requesting SD-WAN ] for the last couple of years, you have seen that we were sharing with everyone that we are not just an SD-WAN company. So while everybody is emphasizing on the SD-WAN, but we believe we don't think we are just an SD-WAN company. We look into why people need SD-WAN. So when people need SD-WAN, they just need better connectivity, or they just want to have more connectivity options in a much more easier way. So that's how we emphasize on this. But -- how do we turn that into a product, or how do we materialize that? That is -- so I think in the next couple of months, in the next few months, you will see a series of new products that we come up and then -- so when we have the product launch, we can -- you can see from there how we see the market.

Next, will Starlink require exclusivity with Peplink, or can we sell through other LEO companies?

Absolutely. Actually, we are already working with other LEO companies, but it's just not in type of our way like -- so we do not have a press release providers. But first of all is that there's no exclusivity for this. So yes, there's no exclusivity between this relationship. But at the same time, is -- and again, SpeedFusion is 18 years old, and we believe we have the most mature technology in the market. And we are also -- or we have been working with other LEO providers as well.

How big was the cruise ship contract with the company? Would you share some rough numbers? Was it our largest deal in 2023?

Oh, definitely not the largest.

It was?

No. Yes. No, definitely, it was the largest deal.

Well, it's between USD 5 million to USD 10 million.

Great. I wanted to emphasize that is, actually, we work on projects, but this is not a project-based company. So a lot of time is when the customer is deploying our products in -- let's say, in this example, they deploy this product into their fleet. And then so it started with 1, 2 ships. And after that, they started with three, four. And we -- and in addition to all these maritime fleet, we also have a lot of bus fleet customers. We also have a lot of other customers, who are having a lot of branch networks. And we also have customers who have a lot of our peers. So yes, we don't engineer or we don't organize our company like a project sales company. No, it isn't like that. But we have a pretty long tail of channel partners, vertical market partners. And these long-tail vertical market partners, they are bringing us a lot of these exciting opportunities. And that is actually giving us a lot of excitement, almost on a weekly basis. And this is also helping our team to energized that -- almost like all the time because we have a lot of all these opportunities that we have never thought off, we have never heard of. And it may be small at the very first beginning. But it could be -- it may be very small at the very first beginning, but some just happening faster than the others. So maybe some is after 6 months then it turns into something pretty interesting, and then the deal intake becomes pretty big, and then sometimes we worked with these long-tail opportunities 3, 4 years later and all of sudden, it turns to be a huge opportunity. And in fact, as the starting thing is not a day one thing, yes. As we just shared, our with journey with Starlink deployments. So you will see a couple of years back, it actually was very small. Now I think this is getting very interesting. But at the same time, as -- this is not the first one, and this is not the last one.

Next one is, do you see greater industry consolidation and vertical integration? If so, how do you see Plover Bay continue to compete as independent outfit?

Oh, absolutely. We are definitely seeing is that the market is consolidating. And then there's a lot of vertical integration going on. But I think this is actually going to be an advantage of us because it doesn't mean the bigger is better. So the thing is we are asset light, we do not manufacture the products by ourselves. But if you look into our manufacturing partners, they are huge. They're very big, and then they are influential in the industry. So it actually is that they can help us to turn 100,000 devices in a couple of months. They can help us to build our products very fast in a very good quality. So I would say is this industry-wide integration is actually making everybody become big elephant. But we are small, and we love to be small. We want to be a small giant in our industry. We want to be dynamic. We enjoy being dynamic and adaptive because then is, it helps us to see opportunities faster. It helps us to execute faster, but at the same time, as a way, we work on an opportunity that needs to still -- need to scale fast. We have the manufacturing partners supporting us to do so.

Why the number of employees reduced from 200 to 177 this year?

I'm sure it's -- yes, I was wrong last year because actually last year, some investors asked us about the geopolitics -- and then so I was saying that it actually -- no, no, no, that's not the case. To a certain extent, I was wrong, but I was not entirely wrong. Because the #1 thing is, yes, geopolitics is happening in the world. But at the same time, as our business is not really affected by the geopolitics. However, yes, we also faced the situation that some of our team members chose to move to other countries, to other locations. And the great thing is our engineers are staying with us. Some of our engineers, they moved to U.K., they moved to Canada, they moved to Taiwan, they moved to Singapore, and they are all staying with us. But at the same time, as some operational roles, they have been moved to other countries. And then -- I mean these operational team members, they moved to other countries, and that is -- we feel like it's okay, maybe that's the moment for us to review the situation. When we review the situation, sometimes we even find a, hey, maybe we do not need to do that by ourselves. We can just work with our manufacturing partners to do part of it or maybe we can just work with our go-to-market partners to do part of that. So actually, that exercise that was an opportunity to let us review the whole operations again. And when we review operations again, just like in this case, it is not bad at all. It's actually making us more efficient.

Can you share any road maps for the future product line? Will Peplink focus on the lower WAN network.

Lower WAN, yes, we do have a lower WAN product, okay. What I can share with everyone is -- so first of all, is everybody is connected. So from an EV charger to [ sense ] network, to a branch network to POS, to [ kiosks ], everything needs to be connected. And again, now we are entering into this AI era. And that is with all these AI era and is every thing, every data, people would love to [ call it ], and do the analysis to the training and all these kind of things. So there will be a booming of connectivity. But this is not new to us. We always believe connectivity is needed. And at the same time is when connectivity is needed, what people want to have is a reliable and simple connectivity. And then so people do not -- imagine that an AI company, they do want to bother with the connectivity. They just want to focus on collecting the data. They just want to focus in and analyze the data and build the things that they're really good at, which is AI. And that is also for us. We can be a user of AI. We can use the AI to build better products or to help our operations to become even more efficient, right? But the fundamentals have not been changed, which is everything needs to be connected, and it needs to be connected reliably. So I think in the future, you will see our product road map will basically go into 2 extremes. One is we will have more and more advanced, high-end -- more and more high dollar value products. And at the same time, as you will also see, we will have more and more affordable products and then this will be leveraging the online e-commerce platform and also working with MSP partners to have -- we will have -- brought our products, the building blocks for these MSP partners, to enable IP camera connectivity. Yes, phone replacements and all that kind of thing. So again, basically -- simply said, we will have more and more higher-end products and more and more mass market products.

Could you share with us how you see the business [ loads ] going forward in particular, as you develop [ good bots ] and revenue streams, are there ways to improve switching costs and network effect?

Oh, absolutely. We are a big fan of network effects. And then also, we did various experiments trying to learn more and trying to see how it works. And we are still continuing -- this is an ongoing effort. And actually, we are very interested in looking into the network effects of how we can scale even faster. So by having an ecosystem, I believe we will have a better chance than before to enable these network effects. And what we are talking about is the switching cost, again, SpeedFusion is a great thing, in control, our centralized management think is a big thing. And these 2 technologies, this is not a new one. Yes, both of them are actually 18 years old. So I think this is actually helping us to make switching costs [ different, not difficult ]. But at the same time, we are looking at how we can make other -- how -- okay, we're looking at how can we make switching costs easier for other industry players to switch to Peplink, to switch to our products.

I saw eSIM was offered by some distributors. Is that the same thing as SpeedFusion data plan?

Oh, no, it's different. It's totally different. So we do not -- okay we -- our features and data plan today is mostly on eSIM. And we see the fusion SIM as a different way for us to build an infrastructure business. So in other words, today, we do not have an infrastructure business. We have enterprise business. We have a mobility business. And now we are entering into a more mass market, which is the [ post-summer ] market. But I think it's the fusion SIM at its early stage, but it could be a very interesting building blocks for us to enter the infrastructure market, which is our MSP or operator infrastructure market.

Does the new B One series address a niche market or is it going to be a significance to the company in terms of sales?

Oh, absolutely. We have high expectations on this product. We hope this product can be our one -- can be our fresh ship series for the consumer market.

Can we comment on our relationship with Starlink? What impact will it have on future revenues and profits? Does it require any capital investment?

Not really. We don't require -- it doesn't require any capital requirements. And I think the impact will be a lot more on the branding, the market awareness. And technology-wise, so Starlink is a great technology. It's a great technology. It's a great connection method for people having a high bandwidth to connect to the Internet. And band is SpeedFusion or the Peplink [ in RG ] is making it much more reliable. And bandwidth is -- so this is really complementary to each other. And bandwidth -- so I think we -- definitely, it is going to help us on future revenues, but this -- the way that we look into things is not really driven by numbers. We are -- again, our thought process is driven by the fundamentals, why people want to use this. And why people want to use that or what are the barriers or what are the frictions for people to use the technology. So we just try to solve these problems. Because over the last couple of years, we have seen this by focusing in these fundamentals, the numbers is just amazing.

I see a question from Steven.

Alex, this is Steven. Results are very strong and resilient. I just have like 1 or 2 quick questions. And sorry, because I joined the meeting late, so I hope that I'm not asking a question that someone has asked already. So the first question is on Starlink. We also noticed the announcement that you made regarding Starlink. Can you like elaborate a little bit more on like what's our actual role in that like cooperation? Are we either like the go-to supplier or distributor for quality products? And like how does it make the difference between if suppliers or customers go to Starlink and buy directly or buy through us? Like what are our roles actually? This is my first question.

Sure, sure. Okay. So first of all, Starlink doesn't need people to sell products for them. [ CIG is ] in hot demand. And that so this is their product and their services is highly desirable. But then this also -- but there is a situation because this is the nature of the LEO, Low Earth Orbit satellites. This LEO satellite, they move very fast and then this is low earth orbit. So latency is great, but then -- so from time to time, there may be some seconds outage. So for most applications, if you are just doing some web browsing, this subsecond outage might not be a problem. However, there will -- their applications that some people would love to see, I don't want to have any subsecond outage. I want a super reliable pipe. And again, even though this is not Starlink, even though this is fiber. Yes, fiber is reliable. Fiber is fast. But again, if people need essential connectivity, mission-critical connectivity. If they cannot afford to lose a single second of connection or any downtime, then people would want to use SpeedFusion, our products, to bond these links together. So again, these links could be Starlink. This links to could be FWA. These links could be 5G, FWA or fiber connections, or it could be anything, or if your prefer, cable connections. Right? So again, these are the fundamentals. And then there is a -- so is a Starlink. Both Starlink and Peplink, we are also seeing a situation that is -- now if the customer needs to go to 2 places, okay. They need to go to Starlink to acquire the Starling technology, the products and then they need to go to a Peplink partner to go to find these products. So actually, this is actually not ideal. But by having one single place to have all these 2 great technologies working together. It is actually a great benefit to the end users. So that's why we work together and then is -- so we enabled our channel partners, our go-to-market partners to have the Starlink offerings. Working with the Peplink products, [ capping ] technologies together. So basically, this is much more like a convenience. But again, Starlink has a huge branding value. And everybody are excited with that. So yes, that's why we are also excited about this opportunity.

Okay. So what about -- I mean, the contract roll. So you mentioned that it's actually not a really very big need a special role, right? It's more like a recognition of our relationship, but rather than like we are picking up some responsible responsibility. I mean, on behalf of Starlink, right?

First of all, you know what, sometimes we have a tendency of simplifying some really cool stuff as simple stuff. Yes, actually, this is not a simple partnership. Actually, there is a lot of effort because if you look into the integration of Starlink product and Peplink product, so the integration is a big deal because there's a lot of integration effort. You don't want your customer to go to 1 portal to do this and another portal to do that. You want a single pane of glass to do everything. So this thing is not that simple. But I would say is -- yes, I would say is the stuff behind the scene -- just behind-the-scene stuff is actually both Starlink and Peplink, we have done a lot to integrate all these things together. And -- but the ultimate goal is to make customers feel like this is easy. But behind-the-scene thing is actually a lot, including our back-end integration. And again, these days when you're buying a router, this is not just a router, there's a lot of integrations with our wireless devices.

Okay. My final question is on the dividend. To be honest, I mean, we are very happy to see the payout to be close to 100% for -- in a full year basis. Because we previously expected, actually, you mentioned or you hinted that the payout would be -- it will be reduced slightly because you might want to prepare for M&A. So are we going to expect like you will continue to pay out most of the profit? And does it also mean like we are not going to have any M&A very soon?

Okay. Actually, these 2 things are not really contracted things. When we decide how much dividend is going to pay out, it's really depending on our cash level. So when we are having a cash level that we are really comfortable with, and we do not want to keep it in the bank. So we want to -- we want our shareholders -- again, the reason why is a lot of our team members, including myself and a lot of our engineers, a lot of our team members. We are shareholders of the company. So -- and at the same time, we also appreciate you guys that have been with us for a long time. And in a very volatile market, you can see actually our stock price actually didn't change that much. And we appreciate you guys' support. So we feel like when we have sufficient cash in the bank, then we would just distribute the extra cash to our shareholders. So actually, this mentality has not been changed from day one. And then so speaking about the M&A thing, yes, we are still very open minded on that. But when we look into the M&A thing because as we shared earlier, now we have really Tier 1 world-class manufacturing partners working with us. So they have all these financial resources to build products, build hardware. And then -- and even in some situations, there these kind of partnerships are helping us to reduce the need of acquiring chipsets. So that is important, and that is good. So if we are going to do the M&A, it is very likely to be software companies. And if that is software companies and then we want people to feel like -- to feel excited about joining the team, I think it's the best way to reward people maybe with our shares. And maybe as our shares is even more valuable than the money. And that is also the goal that we want to see. We want everybody in the team to have an owner mentality. So it doesn't mean that we are not doing the M&A thing, but if we are doing the M&A thing, the preference is the software. If the preference is the software, mostly, that is the people. And then if that's the case then, so we do have -- and we do feel like -- we strongly feel like if we need to raise cash, if we need to borrow money from the bank, it shouldn't be a difficult thing for us. And at the same time, we would also like to use our shares to -- as an incentive, as a valuable currency for acquisition if an opportunity arises.

If we go back to the list of questions in the chart. So what AI opportunity do you see for Peplink?

Oh, absolutely. So I think at this stage, it's AI in our eyes is definitely a great tool that we cannot miss. We are actually doing a couple of experiments, trying to learn how we could use AI to build better services or even can we use AI to enable some convenience features that we could offer as subscription services. So yes, this is an area that we are very excited, and it is -- and there's a lot of [ implications ]. So we are definitely working on that. And at the same time, we are also seeing that AI is going to make edge computing much more interesting. So that is going to enable a new generation of hardware platforms with a lot of possibilities for enabling convenience features. So this is not the next 3 months frame, the next 9 months frame, this is an ongoing thing. But definitely, AI is a great tool that we cannot miss, and [ this respects much my ] commercial internet was introduced back in 1995.

Next is, could you please comment on the increase in your receivables? Could you please comment on the level of inventory in your distributor channels? So for receivables, the trade receivables, I think, increased about -- in line with the increase in our sales. However, other receivables increased. That's because deposits that we made for the purchase of some goods related to Starlink.

When speaking about the inventory at our channel partners, I think at this stage, it's almost impossible to stop the channel because our industry is a mature industry, and many people have been in this industry for a long time. And then you cannot just give them a little incentive and then stop them. Nobody is going to do this. The reason why is all of these products is -- it changed generations pretty fast. So for example, with the 5G modem, like the CoComm SDX 55. Now this is the generation of SDX-62, 65. And then it's a very [ issue ] turned into SDX 72 and 75. So all these generations, the pace of all this generation launch is getting faster and faster. So in terms of WiFi, the WiFi 6, WiFi 6E, WiFi 7 and all these things happened in only 2, 3 years. So nobody is going to build up the inventory because of some incentives. So -- and at the same time, it's a lot of our channel partners they are owner managed. So these guys are owners, and they're not [ still good ]. So they won't be doing anything like this. But at the same time, this is not our practice from day one. Because if we stop the channel eventually we have to deal with it. So I would say is our inventory level at our channel partners has been pretty much consistent with the previous days -- previous years.

For the new EV car customer in Texas, why do they need our products and services?

This is a private 5G application. So for the private 5G application, so there are 2 important pieces. One that is the 5G -- the private 5G base stations. So yes, we are not in that space. So that space is actually have a lot of other players. And that is also the reason why they picked our product is because they need private 5G, they need WiFi, and they want the devices being able to have a seamless connection. So basically, this is a SpeedFusion between private 5G and WiFi. And again, they chose us is because SpeedFusion is a mature technology. This is 18 years old, and then -- so when they use our product, when they picked our products during their evaluation, they can just basically as -- it's just almost like plug and play. And then -- so we deliver a very reliable results in bonding these WiFi and private 5G connections together, making a seamless connection. So that's what we -- that's how we started to work together, and that's how we started to grow the business there.

What's the impact of direct-to-sale satellites from Starlink to your business?

The direct sales satellites. I think the analogy is, you can look into all these satellite base stations. So it is very much similar to -- we use our phone to connect to our base station, but we still use a mobile router to connect your base station. So I think these 2 things are not mutually exclusive. So you can use your phone to connect to your satellite to send SMS, to make calls. But at the same time, you still need a router to connect to the satellite for your other IoT devices for your IP phone, for your cameras, for your other IoT devices.

As mentioned nowadays, the AI development is very fast. The cost and difficulties to find how the network vulnerability is much more easy. May I know if Peplink will react on this side?

Peplink, probably -- we are a connectivity company. Our emphasis is to make connectivity reliable and easy and simple. So yes, with all this network vulnerability thing, we see that as -- we connect your mobile network operator. We connect your satellite network operator, we connect your fixed network operators. And I'm sure with all these operators, is that they have put a lot of effort in looking into these things. So essentially, our nature is we just make a smart modem. This smart modem is really smart and reliable and simple to use. So I think it's that the network vulnerability thing is -- it's addressed by the other guys already.

Okay. On Slide 9, we mentioned deals won in 2023. Can you talk us through deals lost in what industries and reasons of the loss?

Oh, great. Yes, so we definitely have some loss. So for example, we lost a deal in one of the world's largest bank. And so this is a bank, this is a financial institution. So when they invited us to participate with their RFP and then so -- with their RFP and then so they liked our technology a lot. They liked the product and they liked the technology a lot. But then just during the process, we have to complete almost like 100-page document about where is commercial arrangements. So -- and our go-to-market approach is very different from most networking vendors because we always want to work with a channel partner. The reason why is the channel partner, they have the local expertise. They have the domain expertise. They have the local language. They understand the local language, they understand the local culture. So when we answered that document, we also -- okay, that was actually our first attempt trying to see, trying to experiment with one thing. Can we just undercut other players. Can we just keep them any [ resistive ] price and see maybe so we can have a breakthrough. And then, so eventually that they just told us, "Oh, we like your product. We love you guys. But the problem is you cannot just say to be discussed. When you want to work with us, you need to say everything is yes, to be discussed is not an answer we'd like to see. We love to -- that is not an attitude to work with us. So that's why you guys are out." So we lost that deal. But now looking back is where we have that kind of opportunity coming back again, we should just work with our go-to-market partners. We just let them to answer those questions because they will do a much better job than us. So that's the deal we lost. And some of the times -- another example is we lost a deal to -- we lost a deal due to low cost. We recently lost a deal in Singapore, and actually, that is okay. We work with our go-to-market partner there. So we were pretty comfortable that we will be able to win that. But eventually, we lost that because of price. And then, so -- and I think is that this situation happens, it's just because in some industry, they might feel like it's okay. So this is just a check box. So when we fulfill this check box, we do not need to really look into the reliability, quality and things like that. But this is not really a bad thing to us because we have seen opportunity situations like this before and the customer comes back in a few years, and they become our long-term customers. So from time to time, yes, we lose opportunity because of price. We lose opportunity because we have a incompatible go-to-market model, especially with the Fortune-500 companies. But again, if we look into our situation, if we look into our current status, I don't think our approach is wrong. And I still think it's actually our approach is actually a pretty efficient way to grow the business. Because the world big enough, and in this industry, there are lots of opportunities for us to chase, and we do not need to become -- we do not need to follow others and just follow that path.

Recently, there are a few number of carriers out in Canada, Japan and the most recent one, AT&T in the U.S. Are there resellers able to capitalize such opportunities?

Oh, absolutely. Yes, because it's actually that -- these situations are actually good for us because people will start to understand this is not a take-it-for-granted thing. The reliability not take-it-for-granted thing. So then customers are starting to look into solutions for this. But again, yes, so it's our products is just not -- this is not -- we have an outage last week and then our business is booming this week. It doesn't work like that. But we truly believe is in the next couple of months and actually, this is just -- let people understand they can not just take it for granted to have a reliable connection. So they need to look for ways to improve the connectivity. So this is definitely a long-term advantage for us.

So as of 31st December 2023, what is the number of control registered users? That's around 500,000 -- 520,000 registered users. Results announcement, you had mentioned reaching the next USD 100 million revenue much faster. So what is your expectation to achieve that?

You answer this question.

[indiscernible]

Okay. We used 18 years to achieve today's numbers. But definitely, so we don't think that we need -- we definitely -- we don't the need that. I mean we don't get another 18 years, and I won't be happy if it take us another 10 years. I won't be happy with that. So that's my wishful thinking. But again, by enabling network effects, we do not -- okay, we do believe we will have network effect on our products. We strongly believe we can do that. But again, it's -- these are uncertainties. We are dealing with a lot of experiments. And also we actually engaged with a consultant in U.S.A., and that guy is super analytical. And then -- so we are working on the rarest experiments to make that happen. And again, when we have that network effect happening, then it will just go -- I mean we will just reach that number way faster. But again, it's even though if we do not have a network effect yet, we don't need another 10 years to reach that.

So is Peplink the only authorized technology provider of Starlink right now?

Until now, yes.

Next is, could you please comment on your sales to Russia and Ukraine? So it's very minimal to both countries right now.

Okay. We don't sell anything there?

No.

It's now minimal. We don't have anything there. Okay. Our products are today is still very expensive and also our products today, the number of channels is not that broad. So our focus in the market is still pretty much like North America and Europe. And when we mentioned about Europe, it's actually usually it's countries like Germany, Netherlands, U.K., France...

And I think I mentioned in my remarks, Eastern Europe. So that means Estonia.

Right. Yes. Actually, that is Poland. Yes, Poland and [indiscernible]. We have MSP partners. And these are MSP partners, they are not resellers. They use our products for a couple of transportation projects that we are aware of. So these are MSPs for the transportation market. And these are for the buses and the trains there. [Audio Gap] Sure. Why do you think it's so cheap with such strong growth in EPS and dividends? Yes, I have this question to you. Maybe we need some investors to help us to answer that. I don't have an answer about that. I have this question for you, too.

So I think James here is looking for more clarification on our relationship with Starlink. Are they a customer or R&D partner or both?

Okay. Let's face the reality. Now if you want to buy Starlink, then you go to the Starlink website and buy the Starlink. Great, yes, now you have the Starlink. Then after a while, you want to have a more reliable connection. They Starlink, they have a subsecond outage. So you go to Peplink. And then you go to Peplink to buy a Peplink box. So you need to talk to 2 companies. You need to make 2 purchases. And then, so you need to spend time to integrating all these together. But imagine that, if you are now building the reliable connectivity for 100 racing sites, so these racing sites are usually not -- are usually not in the urban area. So these racing sites and then -- so you need to go to buy 100 Starlinks. And then -- so if this 100 -- no, 100 sites, maybe you need 300 Starlinks. When you go to buy these 300 Starlinks, then you need to deal with all these launches, this and this and that. Then you also need to go to Peplink to buy another 300 routers to bond these Starlinks together. So this is a complicated process. Now with this partnership, you just go to the Peplink-Starlink solution provider. And then you just tell them, I have 100 racing sites. I want to have a reliable connectivity. So the guy, the reseller is going to deliver 300 Starlinks, 100 Peplinks and install that for you. So this is making people's life a lot more easier. So this is the same. And maybe even in some situations, then the customers are saying that, okay, all of these 100 sites, 20 of them -- is I want to have a Network as a Service model. I don't want to spend money. I don't want to use CapEx to buy that. Can I use a subscription model for that? So then our Peplink-Starlink solution partners, they are able to provide managed services for these 20 racing sites. So they are able to offer services for them. So this is the essence of this partnership. This is not a name dropping thing. Starlink never need to drop their name Peplink and Peplink doesn't need to drop the name of Starlink. It doesn't work like that.

So I think the next question, why can't you bundle Starlink and Peplink as a standard solution?

Okay. So again, Starlink, they have more demand than supply. And so they don't like people just do a simple resale and then so -- and at the same time, as you've probably seen this, when people are buying the Starlink people might have -- people might want to go -- okay, people will go to the Starlink website and buy the products. And then some of the time is doing the installation, there will be a lot of support issues. There will be a lot of this and that. If we are bundling the thing together, then we probably will become the largest support center for our customers. So that is not something that we would like to see. But again, people usually will just buy Starlink first. When people buy a Starlink, then than they just go to buy a Peplink B One to connect to their Starlink. We see this is actually a much better scenario and much more practical scenario for both the customers, our partners and us.

Should we see the same kind of revenue growth in 2019 than in '23?

I hope not because our revenue growth was bad. We actually missed our promise. We promise to grow 20%, but then we didn't grow 20% last year. We only grow like this 8-point-something percent. So hopefully, so we can ramp back, we can go back to the revenue growth that we promised earlier, I mean, in the last couple of years.

Then will the cost base change in 2024?

Probably not a lot.

Yes, I believe this looks like to the end of the questions coming in. So if -- oh, there's one more. Thee's also -- so let's continue. I understand you maintain price competitiveness with your operating model, externalized sales compared to various other industry players such as [ DigitalPoint ].

[indiscernible]

[ Digi ] yes, who run on a significantly lower operating margins. How do you see the ability of your competitors to move towards the leaner operating model and hence opening up their ability to compete with you on price?

This is a good question. Yes, because I like to -- I like to bring up this -- yes, okay, Plover Bay is our baby, but there's another favorite company that is Ubiquity Networks. If you look into Ubiquity Networks, they have been doing a very similar operating model. And then -- so using the same questions, same analogy, why Meraki, why Cisco, why Juniper, why other guys are not running or not moving forward to this lean operation model? So I think this is actually different companies have different strengths and also different beliefs. So I think there's a shortcoming of our operating model. So again, just like what I shared with everyone, that we failed to win the business from the Fortune-500 companies because they don't like this lean operating model. They would like to work with a much larger company. So we are trying to -- we are trying experiments to see, yes, maybe is if there's a large MSP, if there's a global MSP, so the global MSP maybe -- they will be able to address that market. So actually, we do have an example. Recently is that we do have an example is one of the world's largest operator. They actually use 100% Peplink Plover bay products to provide managed services for a large company. And then this is so we can address that market. We can go to that market, but while we can still maintain this lean operating model. And I think it's a structurally very difficult for a company -- for a large company to embrace this product because -- I mean they are there already. They have the organization there already and the team is there already. So it's very difficult to do that. And I think it's -- and another very similar situation is this [ country ] airline, it was Southwest Airlines. And then -- so they have been doing great for years. But why the traditional airlines are not able to embrace the same model? Yes, we have seen traditional airline, embracing some of the models, but can they deliver the financial metrics like Southwest Airlines? Probably not. So I hope we can answer that why it's difficult for them to compete or embracing this model.

Continuing the next question. What was the key reason that reduced revenue growth versus our expectation? Are we seeing price competition versus other competitors?

Not really. It's not really coming from the competitors. It's actually -- so we want to be a high-velocity company. That means we want to close the deal fast. We want to win fast. We want to lose fast. We want to win fast. So that means there's a lot of time -- whenever there's an opportunity happens with our channel partners, with our go-to-market partners, and that is when they ask for special discount, when they ask for special support on currencies -- currency is a big deal because in large of non-U.S. dollar countries and then -- so with a strong U.S. dollar, then it's actually -- it will make people purchasing decisions lengthen. So we want high velocity. So we will just offer special discounts or special pricing to help them to win. And at the same time, we treat our go-to-market partners as our extension. So we don't want them to sacrifice their margin. We want them to make good money because of sometimes -- if they make good money with our products, then this is very addictive. They will just sell more. So that's why we don't really look into the short-term impact for us, we don't really worry or about this and that. But again, last year, it was a volatile year. I mean in terms of the global geo tension and this and that. So yes, and a stronger U.S. dollar. And then -- so a lot of -- I would say it's actually a lot of demand has actually pushed out a little bit. And at the same time is -- I would say yes, those are the contribution factors, but this is not really driven by competition. In fact, we do not see direct competition with similar offerings. So when I mentioned that we use a deal in Singapore, we're [ bartering ] to a lower-cost players. And then -- so I think it's actually maybe our pricing is not that much expensive than others. Because this is an MSP deal, we provide the pricing to the MSP -- to the operators at MSP. But just as another MSP are offering a much lower price to win the deal. So maybe that is not due to our price, but maybe that is due. But I would say is generally [ it depends on ] SpeedFusion. It is not a lot more expensive. It is a little bit more expensive, but we are going to close the gap. And so again, when we look into all these things, we look at the fundamentals. It's not really driven by the numbers. It's not because we need to hit the 20% growth rate we promised with you guys and then -- so we just do crazy things that will hurt us in the long term. No, we don't do that. Yes, we missed at 20% growth, but we see what we do is good for the company as the long term. And again, bear in mind that this is very much owner managed, founder managed company. And I mean when I mentioned owner, founder managed, this is not myself. It's a lot of our key members are the shareholders of the company. So they have the owner mentality as well.

Okay, let's take the last 2 questions. What type of competitors do you see will Starlink [ uplink combo ]?

They just don't use it. I mean people really want to have -- okay. So I think it's maybe people were just initially -- said they just use single Starlink. Yes, because all this outage, you won't notice the outage unless you become a user. So probably is that this is like stage [ pain ]. So at the very first beginning, then is the people will just deploy Starlink and then -- so they have high expectations. And then most of the time, Starlink meets the expectation. But then from time to time and then -- so sometimes that's due to weather, sometimes that is due to various factors, then there's an outage. So again, Starlink is great, but just like any other operators. Yes, AT&T is great, but then there was an outage last week. And then -- so whenever people started to see an outage, then they will look for ways to improve that. And when they look for ways to improve that, most of the time is that they will find our solution and then they will start to use the [ proper ] products. So again, if this is a single user, if it's a single side, this is probably the buying journey. But that is if this is hundred size, if this is a fleet, this is a couple of hundred sites. Probably people would do their homework first, and then they will say, okay, maybe they should use multiple Starlinks with Peplink bonding them together. So that's the situation. And again, I think we don't see much competition on this space now. And probably is, I would say the competition is people not knowing they need this.

The last question. Any challenges on supply side for chips given the tensions and restrictions between U.S. and China?

Okay. We are not doing rocket science here. We are basically a modem company. We work with Tier 1 large contract manufacturers, manufacturing partners in Taiwan. We use Qualcomm chips, but these Qualcomm chips are very general WiFi, cellular chips. So we are not seeing anything like that.

So I think we can just wrap up the call here. Thanks for everyone for joining the call. And if you have any further questions, feel free to send me or Alex an e-mail. And we'll see you in 5, 6 months.

Yes. Thank you, everyone, for the support, and we are glad that a lot of you guys are there. We have been working together for a long time. And we truly appreciate that. Thank you, everyone.

Thank you.