KORE Group Holdings Inc (KORE) 2023 Q4 法說會逐字稿

Hello, and welcome to the KORE Group Holdings fourth-quarter 2023 earnings call and webcast. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to David Freund, Manager M&A. Please go ahead, David.

Thank you, operator. On today's call, we will refer to the fourth quarter 2023 earnings presentation, which will be helpful to follow along with as well as the press release filed this morning that details the company's fourth quarter 2023 results. Press release can be found on our Investor Relations page at ir.korewireless.com.

Finally, a recording of the call will be available in the Investors section of the company's website. Later today, the company encourages you to review the Safe Harbor statements, risk factors and other disclaimers contained on this slide in today's press release as well as in the company's filings with the Security and Exchange Commission.

Which identifies specific risk factors that may cause actual results or events differ materially from those described in our forward-looking statement. The company does not undertake to publicly update or revise any forward-looking statements after this webcast. The company also notes that it will be discussing non-GAAP financial information on this call.

The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation.

I will now turn the call over to Romil Bahl, the company's President and Chief Executive Officer.

Thank you, David. Good morning, everyone. Thank you for joining us for our fourth quarter and full year 2023 earnings call. With me is Paul Holtz, KORE, Chief Financial Officer. As always, I'll start with a brief overview of the key events and announcements for the fourth quarter. Paul will then review our financial results, and then we will review our sales pipeline, key wins and a summary of how we view the year ahead. We will finish with a Q&A session.

Slide 4 presents some key announcements from the fourth quarter. First, we launched a pioneering eSIM powered medical alert device in collaboration with Medical Guardian. This device is designed to facilitate active aging as defined by the World Health Organization.

This revolutionary technology overcomes the challenges of limited carrier flexibility and coverage, enabling network switching to optimize connectivity across different regions and operational phases and enabling optimal 24/7 connectivity. This medical alert device leverages KORE's industry-leading connectivity services.

KORE eSIM optimizes opportunities for health participation and security for aging adults, enabling end-users to age with dignity. This innovation shows how revolutionary IoT is in addressing some of society's most daunting obstacles. In this case, an aging global population and how IoT can enable a better world. IoT for good, as our purpose statement says here at KORE.

Second, we continue to receive recognition from numerous industry analysts and locations for our best-in-class connectivity product. For instance, Gartner recognized core as a managed IoT connectivity services worldwide leader for the fifth consecutive year. KORE's CaaS offerings, including Super SIM, also received the 2023 IoT Excellence Award from TMC and Crossfire Media.

This recognition cements our unwavering reputation for understanding our customers' needs and creating cutting edge solutions that simplify the complexities of IoT and empower our customers to achieve their goals. The Gartner Magic quadrant leadership is especially encouraging since we improved our position in the leaders' quadrant, even as large, well-known carriers and competitors dropped out and also on the vision and strategy dimension KORE is now firmly among the top three providers globally.

As evidence of our industry-leading strategy and specifically with respect to our investments in pre-configured solutions. In the first quarter of 2024, we landed our first major connected health telemetry solution, or CHTS preconfigured solution. This $26 million TCV achievement will have core supported global home respiratory therapy to over 65,000 patients.

The solution involves managing the capture, secure transmission and delivery of home ventilator and oxygen concentrator data telemetry to the patient's care team.

This customer will utilize KORE CHTS, a gateway device management and configuration cloud platform. And with CHTS temporary data repository cloud service. The customer will map their existing patient engagement and support workflows to KORE CHTS cloud to enable the care delivery teams to configure, install and monitor their home respiratory therapy for thousands of ventilators and oxygen concentrators.

This win demonstrates KORE's ability to streamline the IoT deployment of a complex medical device with our integrated, secure and regulatorily compliant cellular connectivity and data routing infrastructure. These capabilities enable continuous health care monitoring from the comfort of patients' homes, significantly improving patient outcomes and comfort.

Now let's look at our fourth quarter financial results on slide 5. KORE fourth quarter revenue of $72.4 million increased 16% year-over-year, driven by an acceleration in high-margin IoT connectivity, which was up 27% year-over-year, a decline in low margin IoT Solutions revenue partially offset this growth in IoT connectivity,

While double-digit top line growth in Q4 is impressive. We should note that these results were below our expectations due to additional unexpected customer order deferrals in Q4, including those from our largest customers. While these deferrals impacted both IoT connectivity and IoT solutions, solutions experienced the greater impact due to customer managing year-end inventory levels and further delays in remote patient monitoring and clinical drug trial deployments.

Reiterating what we said last quarter these orders and customers have not been lost. We fully expect to continue to serve these customers in 2024 and beyond. That said, during our 2024 business planning process and partially in response to the lumpy characteristics of hardware revenue in our maturing IoT Solutions business line, we have decided as a company to reduce our exposure to low margin hardware revenue.

Going forward, we will only accept hardware orders that are essential to winning a customer contract. This decision resulted in a reduction in our TCV pipeline and obviously a lower projection of IoT Solutions revenue in 2024. However, this marginal short-term headwind is more than offset by the increased predictability, visibility and profitability improvement that shrinking our reliance on hardware will deliver in 2024 and into the future. Further, we expect growing momentum in KORE's IoT connectivity business to more than offset any onetime headwinds resulting from this decision.

On this point before handing the call to Paul to cover the financials in more detail, I wanted to touch on our outlook for 2024.

At a high level with the 2G/3G sunsets and the worst of macro uncertainty behind us, we expect a reacceleration in our high-margin IoT connectivity business to be KORE primary growth driver in 2024. This growth will offset a decline in low margin IoT Solutions revenue and drive year-over-year revenue growth and more substantially exciting double digit growth in adjusted EBITDA. Overall, we expect 2024 revenue to be between $300 million and $305 million with adjusted EBITDA between $64 million and $66 million. I will provide more color on our 2024 outlook later in the call.

But with that said, Paul over to you.

Thank you, Romil and good morning, everyone. Turning to our results on slide 6. As Romel highlighted, fourth quarter revenue increased 16% year-over-year to $72.4 million compared to $62.4 million in the fourth quarter of 2022. By segment IoT connectivity revenue of $55.3 million, which includes the Twilio’s IoT acquisition, increased 27% year-over-year and represented 76% of fourth quarter revenue.

Organically IoT connectivity grew in the mid-single digits year-over-year. This growth is despite continued delays in planned upgrades at some customers in the second half of 2023 that have been pushed to the first half of 2024. For IoT Solutions, revenue declined 10% year-over-year to $17.1 million or 24% of Q4 revenue.

As Romil mentioned, the decline in IoT solutions reflects customer deferrals, including from KORE's top customers to show the magnitude of these deferrals. No orders from our top customer were received in the quarter as they continue to manage their inventory from their large LTE transition project.

Total gross margin in Q4 2023 was 52.6%, a decline of 150 basis points compared to the fourth quarter of 2022. By segment IoT Connectivity gross margin was down 650-basis points year-over-year to 58.6%, reflecting a full quarter inclusion of the lower margin Twilio IoT revenue.

Additional year end revenue provisions were also made in Q4 with some smaller customers struggling to make on-time payments. So IoT Solutions margin was up 450-basis points to 33.2%, reflecting the lower mix of hardware versus services revenue in the quarter.

Total connections at the end of the fourth quarter were $18.5 million, a decline of over $400,000 from the third quarter of 2023 and an increase of $3.5 million year -over-year. The decline in quarter-over-quarter same count reflects the deactivation of low revenue streams from a single CaaS customer that is transitioning their base to be managed in-house.

KORE and the customer have been working together during this transition as we informed them in 2023 that the CaaS business was being deemphasized by the company going forward. With the fourth quarter also being the year end for many of our customers, some were active in cleaning up their zero usage since prior to year-end to save costs heading into 2024.

These deactivations will not have a material effect on IoT connectivity in 2024, again due to their very, very low ARPU.

Dollar-based net expansion rate or DBNER for the 12 months ended December 31, 2023 was 96% compared to 92% in the prior year. As a reminder, DBNER is like same-store sales as it measures the growth of existing customers in the trailing 12 months compared to the same customer cohort in the year ago period. This means that customers gain from the Twilio IoT acquisition in June were excluded from the calculation.

Our 2023 DBNER was impacted by our largest customers. LTE transition project, which occurred from June 2021 to June 2022 and significantly benefited our top line performance. As a reminder, we saw revenue from our top customer doubled during this period. Excluding our largest customer DBNER our for the year would be 101% compared to 103% in 2022.

Turning to slide 7. Operating expenses, including depreciation and amortization in the fourth quarter were $47.7 million, a decrease of $50.4 million compared to Q4 2022. The decline in operating expenses reflects the noncash goodwill impairment charge in Q4 2022 of $58.1 million, which did not exist in the current quarter. This decline was offset by increases in depreciation and amortization, incremental operating expenses from the Twilio IoT acquisition and one-time professional service fees from our debt refinancing completed in November.

Fourth quarter interest expenses, including amortization of deferred financing fees, increased year-over-year to approximately $12 million versus $9.7 million in the fourth quarter of 2022. This increase is due to the higher borrowing costs on our prior senior secured term loan. As a reminder, we refinanced our previous $300 million term loan in the fourth quarter with a new $185 million term loan and a $150 million preferred stock placement. We also incurred a $2.6 million loss on the extinguishment of our previous debt.

Net loss in the fourth quarter was $33.7 million compared to $69.6 million in the prior year. The $35.9 million decline in the net loss year-over-year was mainly due to the already mentioned non-cash goodwill impairment charge in Q4 2022 of $58.1 million. This decline was offset by year-over-year increases or one-time costs relating to the refinancing of our long-term debt increase in interest expense and incremental costs associated with the Twilio IoT acquisition.

Adjusted EBITDA in the fourth quarter was $13.8 million, a decline of $1.9 million or approximately 12% compared to last year. Our adjusted EBITDA margin in the current quarter was 19.1%, down 610-basis points compared to the same period in the prior year. The EBITDA margin decrease is mainly due to the majority of incremental revenue year-over-year coming from the Twilio IoT acquisition, which as we previously disclosed, would be at negative EBITDA margins for most of 2023.

It should also be noted that our adjusted EBITDA or net loss in the fourth quarter does not include approximately $4 million in funds received as the CARES Act Employee Retention Credit as the company is taking a conservative approach, not yet recognize the benefit from a US GAAP perspective.

Moving to cash flow. Cash used in operations for the three months ending December 31, 2023 was approximately $10 million. This amount increase year-over-year, mainly due to the additional one-time expenses paid related to our debt refinancing. At the end of the fourth quarter, cash and cash equivalents were $27.1 million compared to $34.7 million as in December 31, 2022.

Turning to our full year 2023 results. Total revenues of $27.6 million increased 3% from 2022. IoT connectivity revenue increased 15% to $202.3 million more than offsetting the 25% decline in IoT Solutions revenue of $74.3 million. The full year gross margin of 54% was up 210-basis points from 2022. This was driven by a higher mix of connectivity revenue and a 250 basis point improvement in the full year solutions gross margin to 31%. These factors were partially offset by a 180-basis point decline in IoT connectivity gross margins to 62.4%.

Adjusted EBITDA for the year was $55.6 million, resulting in an adjusted EBITDA margin of 20.1% this compared to $62.8 million and 23.4% in 2022. Full year full year 2023 net loss of $167 million, which includes goodwill impairment charges increased by $60.8 million relative to 2022, excluding the goodwill impairment charge of $78.3 million in 2023 and $58.1 million and 2022. Our net loss increased by $40.6 million to $88.7 million. Our annual net loss increased due to higher interest rate expenses, increased costs due to the Twilio IoT acquisition, a change in the fair value of our warrants and the one-time costs associated with our debt refinancing.

With that, I'll pass it back to you, Romo.

Thanks, Paul.

Slide 8 presents a snapshot of our global sales pipeline as of December 31, 2023. As I mentioned, we have decided to reduce our reliance on low margin hardware revenue. This decision has obviously reduced our funnel in total size, as has the relatively large number of deals that were closed in Q4 both closed one and closed lost and a larger than typical year end cleaning out of the funnel, led by our new CRO, Jason Dietrich, who joined core in the middle of last year.

Importantly, the quality of our pipeline has improved due to these actions. Our sales pipeline now includes over 1,600 opportunities with an estimated potential TCV of approximately $545 million. In the fourth quarter, we generated an incremental $28 million of closed one TCV, bringing the year-to-date total to $115 million as we delivered our fifth consecutive year of TCV growth.

For those who may be new to our story, the majority of sole TCV is recognized as revenue over four years and it is important to note that the close TCV figure is aggregated across all of our services, which have different duration's of revenue recognition.

Slide 9 shows our customer wins in the fourth quarter. These wins include number one. KORE is growing wallet share with a leading provider of high performance software and solutions for the real estate industry. This customer is adding 15,000 units to its multi and single-family home portfolio and reaffirmed its commitment to core by signing new contracts, representing approximately $2 million of incremental TCV, KORE's one API approach and top-tier customer support helped give the customer confidence to scale its IoT deployments.

Two, we had a cross-sell win with one of the largest privately held home builders in the United States. This customer was overpaying for some substandard connectivity services with next to no customer support. KORE's connectivity products open to the conversation and the company optimize the customer's entire connectivity system.

Then after demonstrating that KORE's high bandwidth preconfigured solutions could enhance operations quicker time to market and improve the end customer experience. KORE grew our wallet share with this customer.

Three, a global fast growing specialized management network chose KORE for its primary and favorable solutions in the US. There are significant opportunities for European expansion with this customer as well as further avenues for growth from new product introduction.

Finally, a provider of vehicle and asset tracking IoT solutions with operations spanning three continents chose KORE OmniSIM as its connectivity solution for its new products. This customer's new products will contain buy here, pay here features and target the subprime vehicle loan market. This contract is worth an estimated $1.6 million in TCV.

As you can see our sales and growth momentum continues to build. Our independent multi offering is resonating with the market and our connectivity position has never been stronger. KORE connectivity products including OmniSIM and Super SIM, are uniquely suited to our customers' needs and simplify the complexities of IoT deployment.

Our products provide customers with a single unified solution that enhances our customers' operational flexibility by ensuring cost-effective uninterrupted network across borders. These are critical factors for success for individual customer deployments and the IoT ecosystem as a whole. Combined KORE strong foundation with stabilizing ARPUs and 2024 will be a great year for organic connectivity growth.

So what does this mean? What is the end result? As I said earlier, we expect revenue in the range of $300 million to $305 million, with adjusted EBITDA between $64 million and $66 million in 2024. To help contextualize our guidance, let me walk you through the chart on slide 10. The first thing to note is that KORE's 2023 adjusted EBITDA adjusts out onetime transformation investments needed to establish KORE as a leader in IoT and capitalize on the explosive growth of connected device.

2023 was the last year of these transformational investments, and they will not occur in 2024. After taking these onetime expenses into account, our 2023 adjusted EBITDA is approximately $49 million, meaning that we expect 2024 EBITDA to grow approximately 33% year-over-year on an apples to apples comparison base.

As a reminder, these investments involved doubling down on KORE's core IoT connectivity business, launching industry-specific business lines and focusing on eSIM leadership. We have been adjusting out these onetime transformation expenses to show a clearer picture, of course, financial health and operating performance.

Given the volatile market backdrop in 2023, it is worth stepping back and talking about what gives us confidence in this outlook. First, 2024 revenue growth will be driven by high visibility, high margin IoT connectivity, which is reaccelerating following the end of the 2G 3G sunset and customer deferrals, a rebound in KORE key end markets and stabilizing ARPUs.

This high-quality revenue growth is offsetting a decline in lumpy and low margin hardware revenue, which gives us better visibility into our top line performance throughout the year and increases our profitability overall due to IoT connectivity, superior margin profile relative to solutions.

Secondly, we streamlined our operating costs and improved our economies of scale, as evidenced by our start in 2024. We expect this performance to gain momentum throughout the year, but before I continue to talk about the start to 2024, I should specify that we will not be providing ongoing quarterly guidance. That said, given that we are in April and Q1 is over.

We feel confident saying that our adjusted EBITDA for Q1 2024 will be approximately $1.5 million above Q1 2023. This would mean that first quarter adjusted EBITDA would be higher than every single quarter of 2023, despite Q1 historically being KORE's highest expense quarter of the year. This strong start to 2024, combined with our refined operating model and connectivity led growth, gives us confidence in our 2024 outlook and demonstrates our solid operating leverage.

Slide 11 is our last prepared slide and summarizes the key points of our prepared remarks. First KORE's 2023 revenue growth will be driven by IoT connectivity, which will be supported by stable ARPUs and connected device growth from existing customers. We are conservatively planning for IoT solutions to be down year-over-year, reflecting our decision to deemphasize low quality revenue.

Launching our next-generation eSIM product will only accelerate our momentum. Our next-generation products presents customers with best in class global IoT connectivity with compliant local access, seamless digital consumption and white glove customer service.

Secondly, in addition, to these exciting product developments. KORE delivered closed one TCV of $115 million in 2023, while identifying several improvements in our direct and indirect sales efforts, which we expect to bear fruit in 2024.

On the direct sales side of things, we hired seasoned sales executives with many years of experience who are becoming trusted partners and advisers with their customers. At the same time, we have developed relationships with GCP that's Google and other major companies that give KORE distribution to an extensive range of companies across industries sizes and geographies. This helps KORE meet customers where they are enabling successful IoT deployments and advancing the IoT ecosystem.

Taking a more holistic view, we are cautiously optimistic that 2023 was the high watermark is largely behind us and we have de-risked our exposure to lumpy hardware revenue and customer inventories. Crucially, as KORE grows, we will remain focused on profitability and operating efficiency and will leverage the economies of scale that result from IoT connectivity growth.

As a result, we have a clear line of sight into exciting double-digit adjusted EBITDA growth in 2024, driven by increased sales and greater profitability. They are happy to revisit any of these key points during the Q&A.

But before turning the call over to the operator, I want to thank KORE's IoTiers around the world for their tremendous work this past year. I am excited about where we are going this year and in the future. Our connectivity portfolio, financial positioning and sales motion have never been stronger, and we are well-placed to capture the opportunity that the decade of IoT brings.

With that, let's start the Q&A Thank you.

Ladies and gentlemen, the floor is now open for questions.(Operator Instructions)

Scott Searle, ROTH MKM Partners, LLC.

Good morning. Thanks for taking the questions. Romil, maybe just to dive in on the 2024 outlook, looks like it sounds like you're looking for double digit growth on the connectivity side of the equation. I'm wondering if you could give us a little bit of color as well is connected units and how you're thinking about ARPUs. If we were bottoming out, it seems like there's some low end of life connections that are now gone.

So should we start to see an upward trajectory. And as an extension of that, looking at that TCV pipeline, I'm wondering if you could give us an idea of what the annual recurring revenue component looks like I think of back-of-the-napkin math would say something like 15% or so of that funnel would be ARR. I'm just trying to get my hands around that and the TCV wins that you got from in 2023 in the fourth quarter.

Thanks, Scott. I'm going to struggle to remember all of those. So let's just come back and remind me as we go.

Look, the fundamental thing is what you nailed absolutely correctly at the front end of your questions, which is 2G 3G behind us in a simple PQ business, price times volume type business. When you had both forced churn of devices coming off 2G and 3G networks and ARPU declines that were averaging about 20% a year for every one of the first four years I was here.

It's tough to do that kind of business right. When I joined the business, it was in the neighborhood of 6 billion SIMs, and we've more than tripled that and we obviously haven't tripled revenue.

So a lot of that was given back to the fundamental price differences of LTE 4G, 5G type environment over 2G, 3G. When that goes away and as the volume growth gets back to, I'll say, pre-COVID type levels anywhere close to the 25%, 26% kegger. We've grown volume at connectivity becomes a very exciting business, and we're certainly starting to show that here in 2024, which would actually be 20% approximately top-line growth. Not all of that is organic. And as I said, we're still growing, right. Our volume growth is still going back.

On the P side of the equation, and we have seen stabilization, which we talked about last year after a sort of low point of our ARPUs, average ARPUs for a quarter, I think it was Q3, (inaudible) -- serves me correctly that since $0.95 we saw stabilization to slight increase last year up to sort of the $0.98, $0.99 level at the end of the year.

And actually Q1 is coming in at a buccal (inaudible) -- and that may not sound like a lot, but to us. It's like no other. It's like this is what we've been saying. What happened between the higher bandwidth that our costs and just the right stopping of this notion of high price ARPU devices coming off and full-price sell-through devices coming on.

So that's really the fundamental driver is IoT connectivity in terms of the outlook and the confidence. And yes, I would say also that our high bandwidth product and the -- pre-configured solution that has gotten off to a really great start.

So let me take a pause there. See if that makes sense. And then I think you asked a question about TCV and I forget what else, Scott?

Yes, that was perfect. Nice to hear the increase in the ARPU, but the just to translate the TCVs and into what an ARR opportunity looks like. So the annual recurring revenue going on -- ?

So look, so the first thing I'll tell you is that since sort of the middle of last year in Q3 and when Paul and I spent a bunch of time with our teams analyzing what was going on with the deferrals and well, Scott, as I obviously have got a good IoT analyst and, all the inventory and modules and all these problems that were out there. And people using up those inventories whether they stocked up during COVID during the supply chain constraints.

So there were deferrals across the Board and we were impacted as well. And so we said what, it just doesn't make a lot of sense to have, so much volatility forced, if you will, into our numbers because we're not really well on business, we are ARR business. And so as we've increased our focus on connectivity in Q4, we were near 87% recurring revenue, right.

Just connectivity at budget level this year, Scott, in 2024, (inaudible) -- straight will be, you know, almost between 78% and 80% is how it's budgeted these three solutions (inaudible). So you know, coming revenue starts with a base of 78% and 80%. And then you (inaudible) -- we get from our solutions customers. So if anything that 87% should be stable or maybe even increasing, which is a really cool part of our business model.

Great. Perfect. And one last one if I could. The respiratory telemetry win is very interesting. You guys have historically been very strong, I think, in cardiac telemetry. How big is the respiratory telemetry market? And are there some bigger opportunities behind this as we look into the current year and beyond that?

Yes, no, we are serious about that win. And by the way, we've had a really good reputation with our customer over a long time. And this, finally, where it started to come together. I mean, my head of health would say it's been we've been chasing this opportunity for several years, not just a one or two, the enterprise-type sales cycle.

And obviously, when they went through their sort of buy versus build decision our decades now worth of experience and engagement. And although the IoT managed services model were key differentiators reasons why we'd won that deal.

Now to the size of the market specific question, respiratory therapies are in general today, smaller still than cardiac rhythm monitoring right, which is, of course, dominated by the big three, but it's growing significantly faster, Scott. And so there's actually and in fact, last night, I was meeting with our European connected health sales team and they are looking at about 50 opportunities in the Connected Health clinical trial space, a very exciting.

And a good chunk of those about, I'd say about 20% of those TVC dollars are actually focused in and around this respiratory area. There's one opportunity with a nominal 5 million customer number. Now, how long does that take us to actually when do we win and all that? I'm not I'm not committing that right. All I'm saying is. So it's an exciting little segment of Connected Health, not total and growing fast.

Michael Latimore, Northland Capital Markets.

Great. Good morning. Thanks very much. Romil, on this decision to focus more on higher end hardware, reduce the lower margin hardware business can you just elaborate on that a little bit? Historically, I don't know what percent of the pipeline has been this lower margin hardware. Is it in different verticals? And just maybe just elaborate a little bit more on the.

Look, I mean, so let me just start with some basics that you are well familiar with Mike and then Paul may want to jump in on the end to sort of clean up my story here, if I miss anything.

But so the first thing, of course, is we're not a manufacturing shop. We're not a device or hardware manufacturer. And so we've only been resold other parties' devices if it was simplifying the complexity for the customer, right? That's our pipeline, simplifying the complexity of IoT. So it was just easier for us to get the container of whatever it was coming from Taiwan or wherever, and then configure those devices, and get them out into the field, right with our pick pack, configuration type service management services and then the reverse supply chain type services and we're happy to do it.

Now on the hardware piece stand alone, you obviously didn't make particularly good margins. In some cases, it was embarrassingly low single-digit margins. And but we did it again in the context of simplifying and for the customer for winning everything else, we're having connectivity in every device that went out there and all the other good reasons. You know, IoT solutions exist as a strategy for us, right.

And so, you know, what we then found was since it was a it's relatively easy dollar to add up and it tends to be front-ended in these three, five-year type contract cycles. And so meaning hardware revenue, right, that in some cases, I mean, it was probably between 25% and 30% of our funnel actually, right. When we looked at it hard towards the end of Q3 last year and we said, look, this is starting to be too much.

It's introducing volatility and lumpiness into a business that's solid and sort of made to the public recurring in nature, 85%, 87% recurring in nature. And as I said earlier to Scott's question.

And so we're going to -- by the way, at the end of all of that, we get in 5% and 7% with 10% margin on that business. Why are we doing this?

So again, we'll do it if the customer insists, we'll do it when a customer says, I don't want to spend all this CapEx. I want to let you guys buy it for us and OpEx, that on me, over 36 months or 24 months or whatever. In those cases, of course, we'll continue to do it, but we just we won't let it be such a drag on our overall margins.

By the way IoT solutions is already showing a real uptick. You remember how IoT Solutions was even as low as 27%, 28%, 30% when it was very hardware-driven. We're already kind of creeping into the mid-30s. And as I've long said, our goal is to get to 40%. And there were two or three drivers of that, including preconfigured solutions, which are by definition, higher margin and including hardware becoming a smaller portion of our total revenue base.

So those are the several reasons. But let me just give Paul the opportunity to add anything.

The only thing I would add Mike was during full fiscal year for IoT solutions, we were $92 million ish. And then we come in in 2022, dropping down to about $74 million. So you have say roughly $20 million drop this year. Now some of that, as we talked about was from the deferrals and so forth. But as we go into next year and as we indicated that we're forecasting that solutions will decline more. That is because we're taking out this lower margin business.

So you're talking about $20 million to 25 million of lower margin hardware that we're going to let right now currently let go or not forecasting like Romil said, if we need to take it in customers insisting then we'll do it. But from a Forecast perspective, from a guidance perspective, where or assuming it's not there.

And I guess just on the macro here, you know, can you talk just you guys have a pretty diverse view and wide and diversity into the IoT market? And what's your thought on the IoT market just kind of broadly this year? Is it accelerating? Is it stable? Declining a little bit? And any kind of big-picture stuff that would be helpful.

I appreciate the big picture question. We've never been sort of a more bullish on this market growing than we are right around now. We've long sort of said that the trends were all in our favor, right? The world wants more connected devices, launch more data. We can hype AI all we want, but AI without data sort of doesn't do much. So the first step of all of this AI. stuff working out is guys like us connecting devices and getting data back to you. So you can then apply your algorithms, right.

So that was a big trend. All of this edge, compute edge to cloud type movement is a helpful trend. Obviously, higher bandwidth things as 5G matures one of my key talking points at the Embedded World Conference in Nuremberg yesterday was about the convergence that's coming, including with satellite.

And then, of course, the closest to our hearts of KORE is eSIM and depending on who you believe somewhere between $3 billion and $5 billion eSIM gets shipped between now and the end of the decade, right. And we certainly think we have the leading proposition there. OmniSIM, whether it's downloadable characteristics, 2% from the old four years, 3%, which is probably one of the most stable, dependable, reliable products out there and our next generation's going to combine the best of those two.

And if we can get sort of more than our share or if I could be greedy and say, well, more than our fair of that eSIM shipping that's going to go on as the world goes into more global deployment takes regional POCs says, All right, let's go global. We've never been more bullish about sort of volume growth and our positioning at the end of the five years, investments are positioning to take advantage of those trends.

And then just real quick one. Should we assume that first quarter is sort of low point of the year and you get some sequential growth from there? Or how should we think about the split pattern throughout the year?

Yes. I mean, you're absolutely right, but that's pretty much always our pattern. So it's a great question. We do fully expect Q1 EBITDA, even though it will be the largest quarter we've had in the last five or six out to be our lowest and that way, Mike, I mean just to make sure you notice that that's with no onetime costs be invested in. It's our largest, right?

A significant step-up in our profitability across the Board. But we do expect the Q1 to be our lowest. I mean, obviously, all of our payroll expenses, taxes, that sort of thing, start to go down. And of course, we anticipate growth on the top line. So if Q1 is going to be in that, I'll call it $75 million, $76 million range and hopefully close to 20% of that EBITDA.

And you're getting closer, right, you've got your increasing that $75 million, $76 million line going forward. And your OpEx has actually gone down, right. We expect that to increase. But Paul, would you add anything or did I steal your thunder?

Yes, you got it.

Meta Marshall, Morgan Stanley.

This is Mary on for Meta. Thanks for taking our question. I want to ask you about the deferrals. Do you have a sense of when those projects resume? And then what have been some of the hang ups to some of those drug trials?

Thanks, Mary and our best to Meta, hopefully we'll talk to her soon. But look, first of all, this is as I was saying, I think in my response to Scott or Mike earlier even this on this call, this has been phenomenal. I mean, if you get with CRR and all those stuff, I guess just the line and Centex business or really anybody out there? Right. (inaudible)

And there was a bit of panic around supply chain issues in 2022 for sure. People pile up inventory, our number one customer, our largest customer, but we were doing the math the other day about 5.5 years’ worth of stuff in a good way.

So that stuff that's sitting out there, whether that's healthcare devices, sleep devices, whatever devices, they are well, everything else that comes with it. The modules or so forth has to be used from the perspective of customers can keep order. And, by the way, introduce then a kind of a risk-off environment in the market, more focus on expenses than ever, people watching their inventory levels at the end of the year on and on.

And we actually saw sort of a reverse read the pendulum going all the way the other direction of people really sitting out the inventory before they order. So the deferrals our most for the most part related to the rest of the industry has seen in the inventory levels needed to be used up. I mean, it's quite remarkable.

I'll give you one example. With our largest, actually the largest customer, we have PL that we thought we were going to fill and deliver in Q3, and we pushed it back into Q4. And then we would have to push it back in the Q1, right. I mean, service, maybe we can ship anything to our largest customer since about June last year. But that's sort of an extreme example.

In other cases people didn’t send us the deal and said, what we're going to get our inventory levels down to the targets that our CFO has targeted, CPO has set for us. We're just going to defer ordering. All of that will come back over the next few quarters as those customers get back to the business as usual, with the new inventory levels, right, with the new target levels. So that's sort of not worry. (technical difficulty)

The last part of what you also asked Mary, is sort of interesting is and certainly in the healthcare space, the both of resources, the resources being reallocated things like pandemics and corporate at those kinds of situations. So the availability of those knowledgeable in these type of resources to drive the digital transformation, which is that IoT enabling clinical trials or read technology, enabling clinical trials are turning data captured more of more generally. (technical difficulty)

And those resources just weren't there. Some clinical trials will be delayed because delayed because we didn't have enough resources, nurses and the like to actually run trials, right? So those things again, the industry is addressing a well-balanced will balance out over time and we'll pick up. None of these are worrying trends that have been known to say that as we have in our hands in America have been much industry about 30 years of, oh my god, 10%, 15% of GDP is, although my gosh, 20% is I think we've gone to 40% and 50%, right? And so all this is going to come back and connected health was really the single best bet we've made outside of recent. (technical difficulty)

At this time, I'd like to turn the floor back over to Mr. Bahl for closing comments.

Outstanding. Well, I really want to say thank you to everyone for your interest in attending our call here. We'll look forward to updating you with our first quarter results in the next five, six weeks. Thank you very much.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.