KORE Group Holdings Inc (KORE) 2021 Q4 法說會逐字稿

Greetings. Welcome to the KORE Wireless Group's Fourth Quarter and Full Year 2021 Earnings Call. (Operator Instructions) A question and answer session will follow the formal presentation. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Vik Vijayvergiya. Thank you. You may begin.

Thank you, operator. On today's call, we will be referring to the fourth quarter and full year 2021 earnings presentation that will be helpful to follow along as well as the press release filed this afternoon that details the company's fourth quarter and full year 2021 results, both of which can be downloaded from the Investor Relations page at ir.korewireless.com. Finally, a recording of the call will be available on the Investors section of the company's website later today.

Please note that this webcast includes forward-looking statements. Statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate and similar expressions are forward-looking statements and are based on assumptions and beliefs as of today. The company encourages you to review the safe harbor statements, risk factors and other disclaimers contained on this slide and today's press release as well as in the company's filings with the Securities and Exchange Commission, which identifies specific risk factors that may cause actual results or events to differ materially from those described in our forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after this webcast.

The company also notes that on this call, it will be discussing non-GAAP financial information. 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'll now turn the call over to Romil Bahl, the company's President and Chief Executive Officer.

Thank you, Vik. Good afternoon, everyone, and thank you for joining us today for our fourth quarter and full year 2021 earnings call. My name is Romil Bahl; and with me is Paul Holtz.

I am pleased to announce, in case you missed our press release last week, that Paul, who just celebrated his 5-year anniversary at KORE and has been serving as interim CFO since November, has been named KORE's EVP, Chief Financial Officer and Treasurer. My congratulations to you, Paul, and I know our entire team looks forward to partnering with you on our exciting journey ahead.

On to the objectives of our call today. First and foremost, we will provide an overview of our financial results for Q4 and full year 2021. I will provide a brief summary of our results, and then Paul will take you through additional detail later in the call. Second, we want to continue to help the market understand what we have built here at KORE. It is clear that as the first pure-play IoT company in the public markets, we are not well understood. This is why on our last earnings call I spent some time introducing the company and providing an overview of our services, our market and growth dynamics, our strategy and competitive positioning and even shared a customer use case example. Today, I will elaborate on how we are well positioned to take advantage of our tremendous opportunity over the course of the next decade and beyond with world-class intellectual property or IP. The deep dive topic for this quarter is, hence, our innovative technology stack and how we enable our customers to build the IoT building blocks that are fundamental to their success. We will then hold a Q&A session to round out the call.

Now let's look at our fourth quarter and full year 2021. And as summarized on Slide 4, we recorded strong revenue of $64.3 million. These results continue to be aided by a significant project with our largest customer, which will be substantially complete by the end of Q1 '22. Our full year revenue for 2021 was $248.2 million, up roughly 16% over 2020. Our adjusted EBITDA grew over $2 million 2021 over 2020 despite significant public company costs and increased people costs, which Paul will discuss further.

And now let's look at our outlook for 2022. Adjusted EBITDA in the range of $63 million to $64 million and revenue in the range of $260 million to $265 million is the guidance we are providing today. We now confidently expect to exceed $508 million in revenue for the 2021-'22 2-year stack period compared to the $457 million we forecast in our go-public model, which was comprised of $219 million in 2021 and $238 million in 2022. I should also note that this increased revenue expectation comes directly in the face of some of the strongest headwinds facing the industry.

The sunsets of 2G and 3G networks are well documented and have impacted our business as have supply chain constraints and some issues unique to KORE. Despite these challenges, we continue to deliver good growth even as 5G infrastructure is just beginning to take hold, further brightening our growth prospects over the Decade of IoT ahead.

It is now time to move into the deep dive topic of our earnings call, a quick overview of our powerful IP story, but let me start with a quick reminder of KORE's growth strategy. When we say we are the world's only pure-play IoT enabler, that means something specific to us. First, we attack the very complexities that have held back IoT. We help our customers deploy, manage and scale their IoT solutions with a broad range of services spanning connectivity, solutions and analytics. The enabler part refers to the fact that we do not deliver end solutions or applications to the end customer or end consumer or patient. Rather we are a pure B2B company, and we enable these business and enterprise customers to provide end solutions.

So we are not asking our investors to make a particular bet on any one use case and how we will be the best at it against our competition. Instead, we grow with IoT in general, and this is a huge growth market. From 12 billion IoT devices at the end of 2020 to 75 billion by 2030. $9 trillion in value by 2030 is the midpoint of McKinsey's analysis on the IoT market updated just recently, in fact.

And as a reminder of why IoT deployments are so complicated, here on Slide 6 is our 7-by-7 deployment framework. The colors overlaid showcase how we function as the only pure-play enabler of IoT, the one-stop shop. I do not intend to take you through this chart in any detail but just want to point out that what we are doing is taking every step of this deployment life cycle and making it more efficient, putting more intelligence into our software into our platforms, making IoT easy to adopt. Not so much the first 2 steps, which consulting firms might be involved with, but starting at step 3, which is connectivity; steps 4, 5, 6, which are the set of IoT Managed Services, we have been building out more recently; and finally, step 7, which comprises analytics and represents a huge opportunity for our future.

Our technology, our IP, is at the very heart of our value proposition. Without our IP, we cannot deliver our promise. For example, the multi, multi, multi-IoT-CaaS offering doesn't get off the ground without a multi-tenant, multi-carrier, device-agnostic and technology-agnostic IoT platform. And many of our customers' applications and use cases don't get off the ground without our Connectivity-as-a-Service. It is just too complicated.

So in summary, across connectivity solutions and analytics, we continue to simplify IoT adoption by putting more intelligence into our software and platforms, and that is what I will showcase today.

Our technology stack enables our customers with an easy way to assemble and configure the IoT Building Blocks they need to deploy their end solutions. IoT Building Blocks start with edge devices, depicted at the bottom of this slide, and end with the data being delivered to the IoT applications, depicted at the top. Each device needs one or multiple SIM cards. We believe these will increasingly be eSIMs and then iSIMs as companies understand the power of the eUICC standards. And our eSIM offering is branded KORE OmniSIM in multiple versions, example, OmniSIM Reach and OmniSIM Rush. These connectivity management services are delivered through the combination of 3 key technology stacks.

First, our KORE One platform, which has 7 open modular and scalable engines. The 7 engines uniquely addressed the biggest IoT challenges, example, data aggregation, data streaming and analytics, rating and billing, network intelligence using metadata, north and southbound integrations and a robust API UI interface. Importantly, the KORE One platform enables us to create services for our customers but also enables our customers to build their own applications and services. These KORE One engines help deliver the world's leading multi, multi, multi connectivity proposition, multiple devices and technologies in multiple regions and countries in the world with multiple protocols.

Second, our hyper KORE and eSIM tech stack provides the cellular KORE network capabilities that enable us and our customers to drive connectivity offerings. Without our own KORE network, we would not be able to offer our creative, multi-MC and eSIM global offerings. And further, with our KORE deployed on a licensed basis, our customers can take control of their own networks and global connectivity needs.

And finally, our preconfigured solutions offer customers the ability to jump-start their IoT journeys and reduce their time to market from an average of 18 to 24 months to 18 to 24 weeks or even less if they choose to use the KORE one-stop shop.

These technology stacks are designed to comprehensively deliver world-class IoT technology services to our customers, so they can create their own IoT solutions. The key IoT services we provide with our IP are depicted on the right side of the page. Our KORE IoT CaaS offering, including our OmniSIM offer; security and network intelligence services, which provide unprecedented visibility to edge devices; data management services that range from ensuring that data is coming off each customer device to transporting set data safely and securely and, in some instances, cleansing and transforming set data; and finally, industry-specific tech services for our Connected Health and Fleet Management customers but also in the form of location-based services, which are becoming ubiquitous in their usage across industries.

As shown on Slide 8, KORE simplifies the complexities involved in harnessing the IoT Building Blocks that enable customer IoT solutions. Indicated first on this slide are the 4 key IoT Building Blocks: hardware, connectivity, data processing and support and managed services. So how do we help our customers harness these IoT Building Blocks into solutions? First, with the 5 services I just reviewed on the last slide. But then we go one step beyond in terms of helping our customers consume these services. We provide a developer ecosystem complete with a developer portal, APIs and analytics. This self-service mode of consumption is critical to building our enterprise customer base of the future.

And that leads to the real purpose of the journey: getting data to the customer applications and driving customer outcomes. As a part of enabling customer outcomes, we facilitate easy integration into other ecosystems, such as AWS and Azure. We have and are investing in unique integration technologies that we jointly build with these hyperscaler partners. In a nutshell, our focus has been to build an ecosystem for enterprises and their developers to build their IoT solutions, which lead to meaningful business outcomes, whether it's building a cloud-based patient monitoring service or a mobile app for pet tracking. Or it could be integrating the data into an ERP or other back-office system to drive operational efficiencies. Bottom line, our IP simplifies the process at the edge so that our customers get the outcomes quickly and easily. When our partners at AWS say edge to outcome, this is what they mean.

Slide 9 brings our deep dive to an end today by connecting the dots back to the different ways we enable our customers' IoT solutions. With all of our IP focused on making it easy to deploy IoT Building Blocks, KORE is positioned to drive growth through the Decade of IoT. In KORE, our customers have a flexible, experienced partner, a company that has been enrolled in over 10,000 use cases over 20 years, a one-stop shop partner that can help with many parts of an IoT deployment.

And now we are investing in preconfigured solutions. So not only can our customers get help from us across the 7 steps we saw earlier, but in some use cases now, they can leverage preconfigured solutions built to solve the most difficult and most common challenges in those deployment journeys. Our industry-oriented approach to preconfigured solutions will continue to focus on the highest-growth use cases in our focus verticals. Health care providers, for example, will be able to quickly deploy powerful connected health solutions. Companies in need of Fleet Management solutions can quickly harness the capabilities of our KORE fleet offerings. Final comment here, we believe that as we deploy preconfigured solutions at scale, we will improve the profitability of our IoT Solutions business line.

With that, I will now hand the call over to Paul to cover the financials in more detail.

Thank you, Romil, and good afternoon, everyone.

Per Slide 10, we finished a great year with a strong fourth quarter that again exceeded our internal projections and guidance. I'm extremely proud of our results and the hard work from our team. Total revenue for the fourth quarter of 2021 was $64.3 million, an increase of $6.8 million or 12% compared to the same period last year. Revenue for the quarter was comprised of the following: IoT Connectivity revenue of $43.2 million, representing 67% of total revenue, decreased $0.4 million or 1% compared to the same period last year.

The fourth quarter of IoT Connectivity revenue in 2020 was aided by an abnormally strong quarter for SIM revenue and benefited from revenue provision releases that were taken earlier in 2020 when the effects of COVID-19 on our business and customers was unknown. Removing these 2 factors, IoT Connectivity revenue would have increased $0.6 million or 1% year-over-year. The remaining $21.1 million of our total revenue came from IoT Solutions, representing 33% of total revenue and increased $7.2 million or 52% compared to the same period last year. As mentioned earlier, the increase in IoT Solutions revenue was aided by the timing acceleration of a significant LTE transition project from our largest customer.

For the full year, we delivered $248.2 million in total revenue, an increase of $34.5 million or 16% compared to the prior year. IoT Connectivity revenue was $168.8 million, representing 68% of total revenue and increased $10.1 million or 6% compared to the prior year. IoT Solutions revenue was $79.4 million, representing 32% of total revenue and increased $24.4 million or 44% compared to the prior year.

Overall, gross margin percentage in the fourth quarter was 48% compared to 52% in the same period last year. This percentage decrease was primarily due to the accelerated growth from IoT Solutions revenue, which comes at a lower gross margin compared to IoT Connectivity revenue. Note that IoT Solutions gross margins will also fluctuate from quarter-to-quarter depending on the mix of hardware and services in that particular quarter. We also continue to see margin pressure within IoT Solutions due to a variety of reasons, which included growth at our largest customer, which has lower-than-average gross margin, increased hardware costs due to supply chain constraints and higher shipping and labor costs. IoT Connectivity gross margins remained relatively stable in the fourth quarter year-over-year at 59% in 2021 and 61% in 2020.

For the full year, gross margin percentage was 51% compared to 54% in the prior year. The percentage decrease year-over-year was due to the same reasons that led to the decrease in gross margin percentage in the fourth quarter. Again, IoT Connectivity margins year-over-year were stable at approximately 60%.

Total connections at the end of fourth quarter was 14.6 million, an increase of 2.8 million or 24% compared to the same period last year. Dollar-based net expansion rate, or DBNER, for the 12 months ended December 31, 2021, was 122% compared to 106% in the prior year. We are pleased with this result, which indicates our continued success in customer retention and growth. As a reminder, we do not expect the growth of this ratio to be linear. In fact, the past 2 quarters' results have been aided by the significant LTE transition project with our largest customer. As this project concludes in early 2022, we do expect DBNER to decrease. Our goal and expectation, however, is to maintain this ratio above 100% and to continue to grow this metric over the long term.

Moving to Slide 11. Operating expenses in the fourth quarter were $37.7 million, an increase of $1.1 million or 3% compared to the same period last year. The increase was driven by go-public company costs. For the full year, operating expenses were $142.1 million, an increase of $16.8 million or 13% compared to the prior year. The key factors in the increase of operating expenses were higher sales commissions and bonuses due to exceeding internal targets, increase in salary and benefit-related items due to the constrained job market and materially higher-than-expected go-public company costs.

Finally, as reported, operating expense was also affected by adverse foreign currency movements with certain countries where we have global or regional shared services experiencing currency appreciation.

Net loss in the fourth quarter was $12.0 million, an improvement compared to the $15.7 million net loss in the prior year. For the full year, our net loss was $24.5 million compared to $35.2 million in the prior year. Adjusted EBITDA in the fourth quarter was $12.9 million, a decrease of $0.4 million or 3% compared to the same period last year. The decrease was primarily due to the increase in operating costs from going public.

For the full year, we delivered adjusted EBITDA of $59.9 million, an increase of $2.0 million or 4% compared to the prior year. Our adjusted EBITDA margin profile was 24%, which is in line with the 27% in the prior year after taking into account the material increases in operating costs from going public in 2021.

Moving to cash flow. The business used $14.8 million from operations in the 12 months ending December 31, 2021. This compared to the business generating $26.5 million of cash for the same period in the prior year. Cash flow from operations will vary quarter-to-quarter based on the timing of payments, receipts of accounts receivable as well as prepayment of inventory. In 2021, cash flow from operations was negatively affected primarily due to the large amount of inventory that required prepayment for the previously mentioned significant LTE transition project at our largest customer. In 2022 and beyond, we expect to return to generating positive cash flow from operations.

At the end of fiscal 2021, cash and cash equivalents stood at $86.3 million compared to $10.7 million at the end of fiscal 2020. This change is primarily a result of the net proceeds from the business combination and backstop financing offset by cash flow from operations and capital expenditures.

Lastly, on Slide 12, we are reaffirming our financial policy going forward. We are targeting to delever from a total senior net leverage of 3.7x as of December 31, 2021, to approximately 3x within the next 24 months. We will do this with the free cash flow the business is expected to generate as it grows and with no shareholder distributions expected in the near term.

M&A, like the recent Business Mobility Partners and SIMON IoT acquisition, is targeted to be accretive in deleveraging. We continue to look at potential targets with an emphasis on tuck-in opportunities to expand geographically, build out capabilities and use cases in industry verticals and enhance our technical and analytical know-how.

Thank you. And with that, I'll pass it back to Romil.

Thank you, Paul, and that's an impressive set of results.

Let me wrap up our prepared comments with a reminder on Slide 13 that we have crystal clarity on our 5-year strategic plan. We are executing to a 3-phase transformation plan overall. And as we move forward in 2022, we feel confident in bringing Phase 1 to an end. I described successes earlier in the call related to OmniSIM and the KORE Developer Portal as just a couple of examples. But we now have a tremendous technical foundation from which to launch our industry go-to-market and eSIM leadership objectives and then lead with 5G and analytics, which are effectively phases 2 and 3 of our overall transformation.

Phase 2 kicked off last year with the launch of our first 2 industry practices, Connected Health and Fleet Management. And we have started to see encouraging results from these 2 launches already in terms of attracting and serving large enterprise customers and identifying opportunities to build preconfigured solutions. As an example, we launched CHTS, our Connected Health Telemetry Solution, at Mobile World Congress Americas 2021.

After we build out our focus industries and even as we continue to build on our leadership position with eSIM and iSIM, we will focus on 5G leadership and leading with analytics. As 5G matures, the promise of edge computing and IoT, where artificial intelligence meets IoT, will come alive. And we are well positioned at KORE to help our customers unlock this promise.

We are focused on executing our growth strategy. We have ambitious goals in place, and many headwinds are coming to an end as we get the technology sunsets behind us and the supply chain opens up. I am confident that we are well positioned for future growth and value creation.

And as Slide 14 shows, we are starting to show what we can do. You heard our guidance already for 2022. And I know there were many questions about the impact of the timing acceleration of our largest customer's LTE transition project. Despite that approximately $15 million pull forward, we are confident we will organically meet our original forecast of $238 million. And we have pulled off our first tuck-in acquisition since our public listing. In BMP, SIMON, we found a great strategic fit, representing a double down in Connected Health, specifically in Life Sciences. And with this new team part of KORE, our total guidance is $260 million to $265 million in revenue.

Importantly, given we listed on October 1 and given the moving pieces of timing acceleration, et cetera, we talked about the 2021-2022 2-year revenue stack. And it is with delight that I sum up our call today by saying again that we will beat our go-public 2-year forecast by over $50 million.

I want to take a moment to thank our entire global team of IoT-ers, as we call them, for their hard work and commitment to KORE. And with that, we'll take your questions.

(Operator Instructions) Our first question is from Matt Niknam of Deutsche Bank.

So I have 2. I'm going to start with one on the CaaS business, and then I have one on the margin outlook. So on the CaaS side, obviously, I know beginning of this year, we've seen or will see some shutdowns of legacy 2G, 3G networks. I'm just wondering how we should think about the revenue trajectory for connectivity in 1Q and 2Q as some of these revenues begin to roll off with these shutdowns.

And then secondly, on margins. So the guide for next year calls for 24% margins, which would be flat year-on-year. Yet obviously, exiting last -- in 2021, we've seen margins decline to about 20% in 4Q. So I'm just wondering what gives you the confidence that the annual outlook for next year of 24% is sort of achievable given the lower exit rate in '21?

Yes. Thanks, Matt. Look, on the second question on margins, I'm going to let Paul take the lead on that one. But I'll just say, I mean, our confidence stems from the fact that there's a bunch of onetime things, including this onetime large engagement at our largest customer that is the least profitable part of our portfolio of customers. So it's -- yes, it's with reasonable confidence that we say what we say.

But let me spend some time on the CaaS, the first question, myself. Look, so I understand the concern about these sunsets coming up, but I would really continue to reiterate what I've been saying for a while. We have been dealing with these technology sunsets for 4, 5 years, right? From the time I got here, one of the first NRAs, as we call them at KORE, no-regret actions that we took even before we had a strategy for what KORE 3.0 would look like, was to get after these transitions, to get our customers moving on their migration plans because even though there was a negative ARPU effect to us and our business, it was the right thing for them to do and so on. And so we have been dealing with these. We have been dealing with those headwinds coming from 2G and 3G devices being shut off and 4G devices coming on in their place at significantly lower ARPUs literally for 4 and 5 years. So even as the market sits back and says, oh my gosh, what's going to happen when these sunsets happen, we're celebrating because we're almost through this, right? So that's sort of overall comment, number one.

Overall comment number two is, for the very first time in 2022, in the 4-plus years I've been with the company and the 5 years Paul has been with the company, we have seen a rather different set of dynamics around, let's say, P times Q, which is how our CaaS business runs, right, the price times the volume, right? Every year, we have been growing, on average, over 20% on volume. And then we've been giving up most all of that in price. In fact, if you look at our average ARPU Q4 '20 over Q4 '21, it's almost exactly a 20% decline, right, the average ARPU for the month.

However, going into 2022, we're going to see something closer to the 10% or 12% range in terms of volume increases. And the primary reason for that is the supply chain constraints that have hit our customers and, therefore, indirectly but in a very real fashion hit us, right? Now what's saving us this year is what I've long been predicting in this business, which is that ARPUs will finally start to stabilize and maybe, just maybe, even start to grow as higher-bandwidth plans, higher prices come out and certainly with 5G, we're going to see more of that. It's just that 5G isn't particularly real and mature yet for our CaaS business today. And so those are some of the things I would talk about in answering your -- the CaaS part of your question.

Let me stop there for a second, and before Paul hits margin, just make sure we've hit question one.

Yes. No, you did. You did. And then any commentary on margins would be great as well.

Yes.

Yes, so I'll take that one. So on the margin side and where we are from a timing perspective already in March here in 2022, we're already seeing the increase or improvement in margins on both the connectivity and IoT Solutions side. So firstly, on the IoT Solutions side, as Romil mentioned that the onetime LTE transition project with our largest customer had a pretty lower -- significantly lower margins that is now going to be trailing off at the end of Q1. So we'll see a lot more of the healthier business come in for the rest of the year, and we're already seeing that in Q1. Then on the connectivity side of things, same thing, we're optimizing better. We're getting better pricing from our carriers. Overage is increasing more usage that has higher margins. So we are seeing margins already improved in Q1, and we expect that to continue throughout 2022. So I'd say Q4 was -- sorry.

No, go ahead, Paul.

No, I would just say Q4 was basically kind of a low point just because of the volume of the LTE transition project and then just with year-end and doing final accruals and everything on the connectivity side that it just ended up being a lower-margin quarter.

Got it. Yes, my follow-up is just going to be your comments of improvement in 1Q were sequential or year-on-year, but it sounds like it's off of the lower 4Q base. So I appreciate it.

Yes, of Q4. Yes.

Our next question is from Meta Marshall of Morgan Stanley.

A couple for me. Maybe first, if you could just kind of walk us through maybe the seasonality of the year and just anything we should be mindful of, whether it be supply chain or just project-based network turn-off base that we should just be mindful of as we look at the year.

And then maybe the second question is just is there any kind of material revenue contribution we should be thinking of from SIMON IoT or Business Mobility Partner acquisitions throughout '22?

Thanks, Meta. Let me take a crack at those 2 questions, and then I'll glance over to Paul and see if he wants to clean up my act any. But -- so the first one is, look, the seasonality question, so we have relatively little seasonality in our business, right? I mean relatively speaking, the first quarter, because it's a shorter quarter with fewer weeks in February and the like, tends to be a little bit lighter on connectivity. And relatively, again, to the other quarters, the fourth quarter tends to be a little bit light on the IT Solutions business largely because between the Thanksgiving and Christmas holidays and warehouses being closed and the like, there's less shipments going out.

Now both of those relatively minor seasonality points are sort of being overcome, if you will, by these larger movements that are happening, including the timing acceleration of our customers' largest project, right? And so that's going to have more effect here, right? So what we should be looking at for this -- let me talk about what we should be looking at for this year, right? For this year, obviously, as we've said clearly now, the one-time pull forward of our largest customer's LTE transition project largely comes to an end by Q2 -- sorry, by the end of Q1. And there might be a smidge of revenue in Q2 but much, much less. Equally, the little bit of contribution coming out of BMP, SIMON will have a full quarter in Q2, while it was obviously a partial quarter in Q1. And so Q1 and Q2 will look sort of similar-ish, and there shouldn't be any surprises.

The big question then is the second half of the year. Does the supply chain start to open up? Do we beat our 10% to 12% estimates of volume? And can we get more revenue from there as the rest of the business grows and as the onetime thing comes -- the onetime noise, if you will, comes out of our system? Those are the questions we're looking at. We'd certainly like to think of -- like to think that our business is strong, and the growth in the business organically will fill these holes from the onetime project coming off and that H2 will be equivalent or maybe even much stronger than H1. But that's -- if there's any uncertainty in the year, that's where I would point, okay?

And then -- I'm sorry, I forgot now what your second question was. It was revenue from -- yes, so look, so we're obviously not disclosing specifically the revenue from SIMON and BMP, but equivalently, you can see it. I mean we're saying we're confidently going to beat the $238 million original forecast. So you want to put a number on that, then I'm not -- these are not my numbers, but if your number was $240 million, $245 million, whatever that number was, the rest of that $260 million, $265 million guidance is obviously SIMON, BMP.

And then the only thing I would add to Romil's comments on the seasonality part, and it's not really seasonality, but from quarter-to-quarter, obviously, depending on the supply constraints and things like that or the mix of hardware shipments versus services and IoT Solutions can have an effect on the revenue and, in particular, on the margins of that quarter for IoT Solutions. So again, depending on how the supply chain reacts for the rest of the year, you could have some lumpy quarters in solutions.

Our next question is from Lance Vitanza of Cowen.

I think you may have just answered this question, but the first question I have is on the revenue guidance. The increase in the 2-year revenue stack, 11% to 12% higher than at the time of your SEC filing is when you were going public last year. And could you bridge that delta for us? I mean it sounded like, if I heard you right, that it's almost entirely just the acquisition of SIMON, BMP, but maybe I misheard that. And if there are other factors, I'm wondering if you could just sort of discuss that in terms of connectivity versus IoT services or how concentrated the upside is between verticals or amongst customers and any negative impact from the supply chain that maybe you're offsetting with other growth, et cetera. If you could just maybe help me think through that, that would be helpful.

Got you. And I'm rapidly going to forget all of the factors you mentioned there, Lance, so I appreciate you on puzzling me here on this call. But let me get going. It's an interesting way to think about it. I hadn't thought about it this way about the $50 million beat, hopefully, more than $50 million by the time we're done on the original sort of forecast when we were coming public.

So the first thing you said is it's mostly BMP, SIMON, and I would say that's not true, right? And so let's just, for example, look at 2021. 2021 ended up at a little over $248 million. We had said $219 million. Rapid math would say that's about $29 million worth of beat. We said about half of that, roughly $15 million, was from the onetime timing acceleration. Obviously, the rest of it, because this was '21, BMP, SIMON wasn't even done, was our business just performing better and the UPOD model that Paul and I believe in, right? And so that's sort of an example of where it is. Obviously, I can't do that math for '22. It's all ahead of us yet. But I would just again reiterate that we believe that, organically, we will beat the original $238 million. By how much remains to be seen. And so I think that starts to bridge that gap for you.

Now the next-level question you asked was where is it sort of -- where is the beat coming from? I will just say that in 2021, just to keep it in terms of what we've already talked about and put numbers out there on, most of the beat came from connectivity, right, because, really, while we grew in solutions, I think we would largely attribute that to the onetime LTE transition engagement with our largest customer. And so I think that provides some level of insight. And then I don't know if Paul wants to add anything or...

Yes. I think just going forward, from a split like this year, we were 68-32 on the connectivity versus solutions. Next year, looking closer to 67-33, and so it goes down a little bit. But because of that LTE transition project being such a big part of this year, we are growing there to make up for that amount, but connectivity, as Romil said, is also growing. So hopefully, that...

That's super helpful, guys. My second question is just if -- could you talk a little bit more about the SIMON, BMP acquisitions? I'm wondering if you could walk us through a little bit more exactly what you acquired, the strategic rationale for doing so. And I think in the slide deck, you kind of explained this, but it looks like that is indicative of the kind of deals we should expect going forward. I'm wondering if we could also perhaps see something a bit more dramatic in terms of size and/or scope going forward.

Thanks, Lance. I think you should say dramatic a few more times for Paul to hear. But look, let me just say a couple of things on BMP, SIMON, right? So the way you should think -- first of all, these are sister companies that kind of joined ownership and that sort of thing. There was a third investor/founder that came in when they started SIMON IoT, but it's really -- it's one acquisition. I know it looks confusing because, legally, we had to put an end in between those 2 units, okay? But think of it as one company. Okay.

Now the BMP part of that company, Business Mobility Partners, does exactly what we would call IoT Solutions. And SIMON IOT is their Connectivity business, right? So if you think about our business from a horizontal capability perspective, SIMON IoT goes right into our CaaS, right into IoT Connectivity, BMP goes right into IoT Solutions. So, a, we're buying more of what we know how to do. We're learning from them already in some respects. They're obviously adopting some of our best practices. Certainly, all of our eSIM and great technologies that they did not have access to, et cetera, we expect some synergies out of that.

But here's where it gets really quite exciting, right? As you know and we have said to the market, we see enough growth in Connected Health and Fleet. And we have enough investments work to do across our dramatic transformation and broadening of our portfolio of services that we did not want to organically, right, invest a bunch of dollars, OpEx dollars, EBITDA dollars into launching the 3 new industries that we already are targeting, and maybe there will be others over time.

So we're doubling down in that sense into Connected Health and Fleet. And this particular acquisition represents a specific double down in Connected Health and, even more specifically than that, into Life Sciences, right, where this explosion in decentralized clinical trials right, remote clinical trials, not just drug trials, by the way, all kinds of clinical trials is absolutely exploding. And a very, very big part of the BMP, SIMON, I mean, overall small revenue, but a big part of that comes from the life sciences sector specifically -- to give you a sense, about 85% to 90% of their business is from Connected Health, and 90% of that is from Life Sciences.

And so this really filled a gap, brought some capabilities there, brought some anchor customers there, brought some great talent. And so anyway, we're very excited about it. And as I have said to everybody who would care to listen, I couldn't think of a better first acquisition after going public.

And then the last part of your question was should we expect more of the same. In keeping with what I just said about how happy we are with this acquisition, if we could find 5 more of these, we should just do them. We should just close our eyes and just do them. But that's unlikely, number one. And you are correct that one should be bolder and -- but a lot of things go into that, right? I mean you got to find the opportunity. You've got to win that opportunity. The private equity markets are so much more aggressive in terms of how they value businesses like ours than this public market is right now, it's not even funny. And so we have to deal with all of these dynamics. But hopefully, we're going to start building our way out of all of that with this call today and get a better multiple so we can put better multiples to work out there in our M&A strategy.

Our next question is from Scott Searle of Roth Capital.

Paul, congratulations on the official appointment.

Thanks, Scott.

Maybe quickly to follow up on some of the earlier questions, as it relates the legacy contribution, I know that's been winding down with 3G end of life, and we had some of those milestones hit in the second quarter. I'm wondering if you could frame where we are today. I think we're getting close to 1 million connections probably as of year-end out of 14.6 million connections, so becoming more de minimis in terms of its impact. Could you just kind of frame how we exited the year, how you're thinking about that winds down over the next couple of quarters? And is part of that with the supply chain, right? You're still constrained in this environment. You're talking about 10% to 12% growth in terms of unit volume this year. I'm wondering what the demand profile looks like right now. In an unconstrained environment, what could you guys ship against? What does that pipeline look like?

Yes. So the -- so that's actually, yes, remarkably accurate depiction of where we ended the year and -- or the beginning of this year on the number of SIMs to sort of absorb through this change. Obviously, since 2/22/22, right, that was AT&T's 3G sunset date, we're starting to wean that off. It hasn't been a dramatic all of them going off one time. Obviously, AT&T is one of our largest carriers. I think it's relatively well-known fact that a large number of that million-odd SIMs that you just talked about are there. But then there are some with sort of the old Sprint, T-Mobile network and Verizon that have to come through.

I would just say, Scott, largely that's going as planned, no real major surprises. It really helps that KORE's experienced at these transitions. We're one of the few companies that have actually handled this stuff before when AT&T transitioned its 2G network a few years ago. We took our customers through that. We applied a lot of learnings from that. We've been helping our customers transition, as I said earlier today, over the last 4 years now. So it's been a relatively smooth process and no customers kind of pulling their hair out and that sort of thing, right? So that's that part of it.

Net of that, we're still saying 10% and 12%, right? If we didn't have that drag on us, we'd be saying a bigger number. And certainly, if the supply chain was more open, we'd be saying an even bigger number, right? Now I can't really put a number out there of what that looks like because remember, our -- the majority of our impacts are sort of indirect, right? Because it's the customer who can't get their device, they can't deploy it, and therefore, we aren't getting the orders or we aren't getting the shipments and that sort of stuff. What we can control largely, we have controlled relatively well. And again, I'm not in the prediction game of when supply chains open up and the like. In fact, you guys are, in some ways, as familiar about this because you're covering public companies and the device manufacturing space that are telling you about what they expect them to open up. But we're thinking things look better towards the end of this year. And certainly, we're hoping that 2023 and 2024 is open and maybe even has some pent-up demand to get caught up on. So that's kind of where we are.

Yes. Scott, I was just going to add to your kind of your numbers there. So you're correct, around 1 million 2G, 3G by the -- at the end of 2021. Then at the end of Q1, with the AT&T shutdown at the end of February and then Sprint shutting off their CDMA at the end of Q1, a rough estimate or so, you can say half of those 1 million that are gone, so we're left with another 500,000 that will trail off or convert for the rest of 2022.

Very good. Very helpful. And lastly, if I could, Romil, can you frame some of the end market demand in terms of verticals that you're seeing? Obviously, you're strong in Connected Health and have a strong presence there. But how the demand is shaping up there. And then also in the fleet market, particularly in an environment where you start to see cost constraints as it relates to gas and thinking about fuel optimization, et cetera, is that market starting to accelerate now? And lastly, if I could throw one at the end there as well, the Developer Portal that you're talking about, I wonder if you could kind of give us a better idea about how many applications and, otherwise, how developed that is, how big that is, how important that is as we start to go forward?

Yes. So yes, look, I'll talk about demand signals. I mean certainly, the impact now of gas pricing and so forth are going to hit, and we should see an increase in fuel optimization. I know we've received some requests in that neighborhood. But let me try and keep the conversation to 2021, the year we're talking about, the quarter we're talking about as opposed to getting all the way caught up on Q1 data. I would point to relatively healthy demand. Again, from a CaaS, more horizontal service business, which goes across industries more naturally, we're very pleased with the progress we made in our sales and marketing effort in 2021. And then, of course, in Connected Health and Fleet, again, those 2 industries we've built out, we feel really good about at least the conversations that are beginning around doing more for our larger connectivity-only customers and kind of that cross-sell conversation beginning and certainly some cross-sell wins and so forth as well.

Let me put some metrics to the total picture to just give us a feel for it, right? But our total created opportunities, right, this is when a lead, if you will, is qualified and accepted and becomes an opportunity in our Salesforce CRM system. Those created opportunities up about 26%, 2021 over 2020. I could give you an actual number, it would be less meaningful, but I think in the sense of momentum, 26% increase gives you that. And inbound demand is up 43%. And this was largely before we went public, although you could argue we announced the intent, et cetera, in '21. But I think as visibility increases from going public, we should see more of that inbound demand.

And then finally, I'll point to our 1 opportunities in 2021, where just in terms of deal count, we were up almost 30%, about 29%, 2021 over 2020. So the demands there, our win rates are staying steady. Well, demand is there. Demand is getting better actually, and our funnel is getting bigger. Our win rates are staying steady, yes, always improvement to be had. 5 years from now, I'll be sitting here talking to you about improvements to be had on all this, but good progress. And if these customers can be successful with their IoT Solutions deployments, can get their devices through their supply chains, we should see this revenue coming out and helping us beat what the Street thinks we can do in '23 and '24 as well.

Our next question is from Mike Latimore of Northland Capital Markets.

Yes. Congratulations on the good year here. In terms of the solutions gross margin, how should we think about that kind of trending this year?

Yes, so I'll take that one. It's Paul. So as we mentioned earlier that at the end of the year, we probably hit a low point there. And mainly in 2021, the large project with our largest customer that has lower gross margins kind of dragged that down. So as we go into Q1, which we've already seen and for the rest of the year, we should see improvement on that as that large customer gets back to business as usual, back to their regular margins and then we see more solutions-based revenue, which comes at a higher margin going forward. But again, we mentioned that quarters could be choppy depending on how much hardware is actually delivered or shipped in that particular quarter. But we do and we are already seeing margin improvements in Q1.

Great. And then just on the transition to LTE and also you called out sort of legacy acquisition churn in the past, I mean, are we basically through both of those elements exiting this year? Is that the way to think about it?

Yes, absolutely. So by the end of this year, 100% those will both be done. And going forward, that cohort will be 0.

Our next question is from Walter Piecyk of LightShed.

I want to go back to the -- I think it was the first question or maybe it was in your comments, where you were talking about 20% volume increases and then kind of matching the 20% decline, and then this year, because the supply chain, obviously, volumes were decreasing. Was it -- was the lack of 20% price declines a function of the lack of supply, meaning that you are basically going back to the customers and leaning on them saying like, look, supply is tight, pay a little bit more? Or was it just kind of a fortuitous coincidence that as the supply chain was limiting your volume growth at the same time, you weren't seeing as much price pressure?

Yes. So it's certainly less of the former, right, because any price dynamics, I'll say, on the hardware type side would kind of go into solutions anyway, not really into the connectivity ARPU, right, Walt? But I think the -- but to your point, I mean, I'll take the fortuitous, right? I mean every now and then, you need a break, right? But I'd say more than just fortuitous, it's been something we've been calling for now for several years, right, which is this notion that once you're in LTE, the long-term evolution, 4G to 5G to 6G, sure, you'll see some reduction on the per-megabyte price of connectivity itself and the raw connectivity we get. But largely, we should start to see that getting made up by the fact that people are using more bandwidth. And so the total price -- the total revenue per unit per month kind of thing really should start to stabilize. And I think in 2022, we're starting to see that.

Now I want to stress, I'm saying I think it's early, and I'm not ready to trumpet from the roof yet that ARPU is going to go up now in '23 and '24. But I for one wouldn't be surprised if we start to see ARPU actually helping us in our revenue growth going forward.

But I suppose that if it's the latter and it's, again, maybe not a fortuitous coincidence but a function of where we are in kind of the curve, then as the supply chain frees up, which it ultimately will, that it's -- you're going to have a double benefit of accelerated unit growth as well as lower -- at a minimum, lower ARPU pressure, if not stabilization or growth. Is that a fair way of looking at it?

You just earned your paycheck just to use that term that was just used. But no, look, I think that's...

(inaudible) paycheck...

Look, that's absolutely the right way to think about it, Walt. That's why we've been saying that the 14% type CAGR we put out there for IoT Connectivity was, if anything, a little bit conservative because we feel like we can grow volumes higher than that, and we feel like connectivity doesn't have to be this sort of negative 6% drag, which is how we model that, again, back to the UPOD, under-promise over-deliver sense. So yes, so look, I mean I think with a little bit of luck, we're going to start to show better than what we put out there in the go-public documentation.

My second question is, or I guess it will be a third but my second topic, is eSIMs. I believe that in the release, you mentioned shipping 1 million eSIMs in 2021. Where are we, a, in terms of the industry and kind of that evolution? Do we need -- and I realize that an iPhone is not necessarily the products that you're shipping to customers, but certainly in terms of developing the ecosystem, that could be a big turning point for eSIMs. So a, where are we in the industry? And then b, where are you in being ready for that transition with your customers and benefiting from that?

Yes. So on the one hand, we feel really good about eSIM. We launched OmniSIM Reach, which literally connects you in 190 countries with over 600 carriers; and then OmniSIM Rush, which is our high-bandwidth offer, formally in October at Mobile World Congress Americas. And so we continue to feel good about our leadership stance in eSIM and driving it, right?

The market continues to be a little bit sluggish in its adoption, not helped by all of the supply chain and other distractions that otherwise we might have used this time to be moving our customers more aggressively towards eSIM, and that just hasn't happened. And that's reflected also, frankly, in the fact that we didn't grow our eSIM shipments that much '21 over '20 as we would have liked.

And then the last thing I'll just point to is that the facts are that it's sort of okay that our larger customers are still warming up, if you will, with eSIM, are still doing proof of concepts and tests and that kind of thing with eSIM because, frankly, our more recent eSIM deployments or configurations, I mean that's cut up in the supply chain. Now I've got wait times, right? I mean the stuff I could get ahead of because I could order a bunch of eSIMs and be ahead of and be prepared, we did. But the newer stuff that we're ordering now have some wait times associated with it. And so again, it's one of these things where we know eSIMs coming. It just makes too much industrial logic and sense for a customer to not deploy on eSIM. It's delayed, and COVID and supply chain hasn't helped.

So do you think 2022 can be the inflection point? And if so, like what are the specific -- what would the seminal moment look like in terms of the inflection point where eSIM like just takes off?

Yes. Look, I don't know that there's one seminal external moment. We think in terms of 50% of our total SIM shipments being eSIMs as kind of a seminal moment, and I actually don't think that's 2022 because of all these supply chain type issues and so on. And anyway, so look, I mean I think we're over time, and I know we've got at least one analyst that hasn't had a chance to ask a question. So I'll look up to -- yes, I look forward to catching up with you on our one-to-one debrief, yes. Okay.

Our next question is from Aman Gulani of B. Riley Securities.

I'll be quick. Can you just talk about integration time line for your acquisition of Business Mobility Partners and SIMON IoT? What does that sort of look like? Do you expect that to largely be complete over the next 2 or 3 quarters?

Yes. No, thanks, Aman. Look, we take slightly different approaches to integrations depending on the kind of business and a number of factors, cultural fit and that kind of thing. And in this instance, we're actually relatively comfortable because they're pretty much along the lines of what we do and have -- we're going with an aggressive integration plan. That said, we will hold the BMP entity separate sort of at least, I think, through the end of this year for a myriad of reasons, from customer and supplier relationships and all these kinds of things is just the sensible and right thing to do.

But the leader of BMP, Jared, for example, sits already on my executive leadership team. He's on 2 calls a week with me, which is at least one more than he really wants to be on, and we're integrating away fast. Now it will take Paul and the finance team a couple or 3 quarters to get to the point of integration from a financials type perspective. But this just feels sort of like into ground was, very comfortable, great cultural fit, great people, and they do what we do, and so it makes for a great conversation.

Got it. And just one more for me. So I mean it looks like you're doubling down on Connected Health. So how should we think about the cadence of Connected Health revenue as a percentage of total revenue as we progress through 2022?

Yes. So look, so I mean obviously, it got close to 40% in 2021 given that onetime engagement. That engagement petering off here certainly in Q2 will have a reducing effect to it. But on the other hand, we expect other parts of our business to grow, right? But I mean I do not expect it to be 40% of our revenue in 2022. I also don't expect it to go back to being 1/3 of our business like it was in 2020, somewhere split the difference in there, and I think you're in the ballpark.

We have reached the end of the question-and-answer session. I will now turn the call back over to Romil Bahl for closing remarks.

Thank you, Hillary, and I appreciate everyone taking the time to listen in to our earnings call. We hope you're all staying safe enjoying the beginning of spring. We look forward to speaking with you really just in a few weeks, I guess, when we report Q1 results. Have a great evening and take care. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.