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

Good afternoon. Welcome to Plover Bay's First Half 2026 Earnings Call. In this call today, we have Alex Chan, Founder of Plover Bay Technologies; and the rest of the management team and also myself, I'm Christopher Tse, CFO of the company. We just announced our results a few moments ago. You can find our announcement on the HKEX News website. The updated slides that I am currently using is also available on our website at ploverbay.com/investors/earnings. We will start with prepared remarks for the financial performance of first half 2026, and then we will have a business update section followed by Q&A. Please note that all dollar amounts will be in U.S. dollars unless otherwise stated. Let me begin with the financial section. In the first half of 2026, our revenue reached USD 74.6 million, up 18.5% year-on-year. Gross profit reached $43.8 million, up 25% year-on-year. Our gross margin increased to 58.8%, thanks to product mix and some sort of economies of scale. Operating expenses and finance costs reached $11.6 million, up 13% year-on-year. Finally, net profit reached $27.7 million, up 28% year-on-year, with net profit margin reaching 37.2%. During the period, diluted EPS was USD 0.025 per share, and we declared an interim dividend of HKD 0.1566 per share. Let's go into the details. First, revenue breakdown by segment. Fixed First Connectivity segment increased to $10.9 million, increasing 44% year-on-year, while Mobile First segment increased to $40.3 million, up 9% year-on-year. Overall, the increase in both segments was attributable to strong growth from purchases from MSP partners. And we also saw some of our edge computing products growing quite strong as well, which is reflected in the Fixed First segment. Next, the Warranty and Support Services segment increased 21% year-on-year to $16.2 million. Software Licenses segment increased to $7.1 million and increased 41% year-on-year. Overall, the increase in these 2 segments mainly came from the continued growth of recurring revenues from subscriptions. During the period, recurring revenues accounted for 30% of our total sales, reaching $22.1 million and increasing 25% year-on-year. In comparison, nonrecurring revenues grew 16% year-on-year. Meanwhile, the number of devices with a subscription increased by 26% year-on-year from a year ago, and the take-up rate further increased to 41.4% compared to 38.6% from 6 months ago. These indicators both point to continued future momentum of our recurring revenues. Next, in terms of geographic regions, our sales in North America grew 27% year-on-year to $43.7 million. Our sales in North America was driven by growth across a wide cross-section of customers and industries, which include the MSP customers that I previously mentioned. In EMEA, our sales decreased by about 3% to $19.9 million, mainly due to the timing of a large multiyear project. However, sales growth across multiple countries in this region also grew at a remarkable pace. Our sales in Asia and other regions also performed very well, together growing 35% year-on-year. Growth was particularly strong in Australia and Japan. Moving on to gross margins. Our gross margin increased to 58.8% during the period. The increase in our gross margin was partly due to favorable product mix towards high-end products and also, a higher mix in recurring revenues. Having said that, cost of components such as memory chips remain highly volatile, and we will do our best to maintain gross margins within our historic range in the coming months. Next, our operating expenses. Our operating expenses increased 13% year-on-year to about $11.5 million. The increase was mainly from new hirings in R&D and marketing. The increase is modest compared to our revenue growth. So that once again points out our strong operating leverage. In terms of percentage of sales, operating expenses was 15.4% of total sales compared to about 16.1% in the first half last year. Finally, on balance sheet and cash flow, the main changes are in inventories and trade and other receivables. The increase in receivables is mainly due to commitments and deposits paid to manufacturers and suppliers to secure future components and allocation. And the increase in inventory is due to increase in raw materials. Our raw materials balance within inventory increased almost 3x compared to December 2025 levels. And this is because we have taken steps to ensure we have enough components to build into finished products for customers and our growing markets. Overall, we feel that the memory cost increase is manageable. And as I said previously, we'll do our best to keep it within -- keep the gross margins within historical levels. This wraps up our sharing of financial results. I will now invite Alex to give us a business update.

Thank you, Chris. So, on the first half, we are particularly excited about 2 important things that is happening around Plover Bay. So we are working very closely with Starlink. And then there is the multi-Starlink solution that we have been pushing has been very well received in the market. So people are -- the market and the customers are realizing that with the multi-orbit -- multi-Starlink solution, this can increase the uplink substantially, and it enables a lot more applications. So the Starlink thing is very exciting. And then as well, we are working on a number of new products, including some new products that is related to the direct -- yes, to the DTC market. It is directly using mobile technology to connect to the satellite. And then as -- so we also have other things that is happening that is exciting. That is the physical AI. So we are working with a couple of leading autonomous manufacturers, and they are using our technology to make these autonomous systems, teleoperated systems, stay connected. So I would say is these two things are going to be a new growing market for us, alongside with the market that we have been serving for the last 20 years. And I want to emphasize once again is, we serve a very long-tailed market. So we do not rely on one particular market because we make connectivity reliable, and this reliable connectivity is actually needed by almost all industries. So I think we can take questions now.

Sure. [Operator Instructions] First question is from [ Warren Yang ].

I'm just curious of what you call the mobile segment is going to and that disappointed you?

Sorry, Warren, I can't hear you very well.

Can you hear me now?

Yes.

Yes. Congrats on the great result. I'm curious to hear what your views are on the mobile segment growing 9% year-on-year. If that was lower than your expectations?

Yes. So Warren, can you repeat your question, please?

Warren, maybe we'll move on to the next question first from Adrian.

Hello? Can you hear me?

Yes.

Well done to the team. Excellent results again. I've got 2 questions. The operating cash flow dropped quite a lot to about $15 million from $22 million the previous half. So I just wondered whether you could provide a bit more color into that. And secondly, I see that Starlink are making their own routers. I suppose Plover Bay supplies more the enterprise customer, but I just wanted your views on that as well, please.

Sure. Operating cash flow is mainly because of the increases in trade and other receivables and also inventories, as you can see in our balance sheet, right? So inventories increased a lot, as well as, to a lesser extent, our trade receivables. I think that's a normal course of business.

Okay. Yes, let me add a little bit on that. So basically, yes, we are stocking up a lot of memory and cellular modules and the needed components to build products. But at the same time is, these products have a very long life cycle. So first of all, again is, we are not in the consumer business. We are not in that space. And then is -- so, the inventory that we take is we see that as a strategic move. That is actually important to make sure that we have the product supply to cope with the growth. So that's why I say it might look like impacting the cash flow, but at the same time is, these things are not sitting at the warehouse doing nothing. So you will see is that these inventory are turning into products and turning into revenue and turning into profits. So, yes, we are not too concerned about that cash flow issue. And then -- so regarding your second question about the Starlink router, we do not compete on the consumer space or we do not -- okay, so we do not address the consumer market. We are mostly on enterprise market. And now with the enterprise market, the product requirements are very different. So we do not compete with the Starlink router, but at the same time, we are just making the Starlink and other networking technology like 5G, other LEO technology, we just make them work better.

No, that's great. And just 1 more thing on, I suppose, capital allocation. You've previously been paying a dividend. Would you consider share buybacks with the share price has taken quite a drop maybe from the all-time high of about 30%? Any thoughts about that? Do you think it's due to jitters about the upcoming demerger?

Actually, we are very open in looking into different ways to increase the shareholders' value. I think, yes, earlier today, there's an on sale. We cannot do that this morning. Oh, no, not this morning. We cannot do that a couple of hours before. Right. But yes, I agree with you. Yes, when there's another moment like that, we should seriously look into the share buybacks.

Maybe, Warren, would you like to try again?

Sure. Can you hear me now?

Oh, yes. Very well. Yes.

Yes. Congrats on the great result, and sorry my mic had an issue earlier. I wanted to get your thoughts on the Mobile First segment growing just 9% year-over-year, in the first half. Was that lower than your expectations?

Oh, Warren. Yes, you know what, actually, when we look into the products, I think is the Mobile First or Fixed First, sometimes this is getting harder and harder to differentiate. The reason why is, as I mentioned earlier, we address a very long tail market. So when people are working in the construction site, when people are using our product in the construction site, most of the time, that is a fixed deployment. But then is when people are using that in the boat or in the train, and that's a mobile deployment. And then as we are getting more and more powerful devices, and these more and more powerful devices, it's getting harder and harder to differentiate whether that is a Mobile First or Fixed First. So that's why I think maybe you can look into the hardware devices as 1 bucket.

Sure. That's very clear. And also a question on your operating expenses. Yes, it grew much lower than revenue growth, but it's still higher than history. So I'm just curious if this should be the normal rate of growth in operating expenses going forward.

So, of course, we need to treat our team very well. We need to have salary increase. So, yes, I would say actually our biggest cost is salary. Yes. We keep hiring people. And then so is the salary cost is actually the single biggest cost for our SG&A. So I would say is, you can assume is that, SG&A will keep growing.

Understood. And just 1 final question from me. I think you mentioned that the Europe, Middle East region had the effect of a high base because of a multi-year project. Has this multi-year project concluded, or it was just not very active during the first half of this year?

Oh, no, no, no. Yes.

It's mainly project timing. So the delivery schedule didn't happen in the first half, that's it.

Let me clarify that. That is EMEA, Europe, Middle East, Africa, so it's not particular to Middle East. It's the whole region.

We can take some questions from the chat. So first is from [ Lucas Liu ]. Level 2 bridging network poses significant risk to retail or branch offices. With the new generation of SASE architecture, all equipment can incorporate to SD-WAN moving from L2 to L3 levels. So will this reduce the client's need for the company's expertise in L2 bridging?

Oh, no. Not really. Not really at all. Yes, I think is what people look -- okay, the fundamental value that people look into our products is to make it more reliable. So it's the multi-WAN capability is actually more important. The bonding capability is more important. And then is that with all these SASE architecture, 0 touch architecture. Layer 2, Layer 3, and all these kind of things. This is very industry standard. There are tons of solutions being able to do that, but our biggest value is the multi-WAN bonding.

Next question is Marlink, is Starlink's authorized integrator and a major MSP in maritime markets? Has the company considered collaborating with Marlink to provide, for example, ship side link bonding services? In addition, will mainstream shipping companies, such as Maersk, consider to bypass MSPs such as Marlink and partner directly with the company in the future?

Okay. So, we have a very strong ecosystem, and our ecosystems is including as a MSP, distributors, and resellers. Our partners are super important to us. And so, it is always not our intention to bypass anyone for better margin or anything like that. We don't need to do anything like that. But at the same time is, we keep rolling out new products, new technology and solutions with our channel partners to address the market need. So we are very open in working with everybody in the industry. And actually, we have some really exciting partnership that's going on. But we're not going to name them -- name these names here. But I would say is, in general is, our technology is being recognized as the market leading technology. And then as always, we have a lot of partners, they treasure and value our technology and wants to work together. And at the same time, we respect their knowledge in the vertical market as well as the market presence. So we would love to partner with all these partners.

Okay. Next question comes from [ Mufasa Capital ]. So the first question is, what opportunities do you see in space data centers? Are you doing anything proactive to capture this market?

Okay. We are doing what we are doing very well. That is to bond multiple links reliably. And then this is our fundamental business, and this is what we should focus on right now. And then whatever happens in the future about the space data centers and things like that, just like any other opportunities, we'll have something when it happens.

And are there any updates in the robotics vertical?