KORE Group Holdings, Inc. Q4 FY2023 Earnings Call

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. Both of these 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 statement, 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 identify 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 we'll 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's 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's 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 here at KORE. Second, we continue to receive recognition from numerous industry analysts and publications for our best-in-class connectivity products. For instance, Gartner recognized KORE 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 3 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, pre-configured solution win. This $26 million TCV achievement will have KORE supporting 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's CHTS gateway, device management, and configuration cloud platform and the CHTS temporary data repository cloud service. The customer will map their existing patient engagement and support workflows to KORE's 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 healthcare 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's 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 topline 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 customer. While these deferrals impacted both IoT connectivity and IoT solutions, solutions experienced a 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. Moving 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 one-time 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's 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 Romil 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 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. IoT Solutions revenue declined 10% year-over-year to $17.1 million or 24% of fourth quarter 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. The 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 SIM count reflects the deactivation of low-revenue SIMs 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 are more active in cleaning up their zero usage SIMs 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 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 gained from the Twilio IoT acquisition in June were excluded from the calculation. Our 2023 DBNER was impacted by our largest customer's LTE transition project, which occurred from June 2021 to June 2022 and significantly benefited our topline performance. As a reminder, we saw revenue from our top customer double during this period. Excluding our largest customer, DBNER 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 our 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 and 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 noncash 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 a CARES Act Employee Retention Credit as the company has taken a conservative approach not to yet recognize the benefit from a U.S. GAAP perspective. Moving to cash flow. Cash used in operations for the 3 months ending December 31, 2023, was approximately $10 million. This amount increased 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 of December 31, 2022. Turning to our full year 2023 results. Total revenue 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 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. The 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 in 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, Romil.

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 won and closed lost, and a larger than typical year-end cleaning out of the funnel led by our new CRO, Jason Dietrich, who joined KORE 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 won 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 sold TCV is recognized as revenue over 4 years. And it is important to note that the closed TCV figure is aggregated across all of our services, which have different durations 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 KORE 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 homebuilders in the United States. This customer was overpaying for some substandard connectivity services with next to no customer support. KORE's connectivity products opened with the conversation and the company optimized the customer's entire connectivity system. Then, after demonstrating that KORE's high-bandwidth pre-configured 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 U.S. There are significant opportunities for European expansion with this customer as well as further avenues for growth from new product introductions. Finally, a provider of vehicle and asset tracking IoT solutions with operations spanning 3 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's connectivity products, including OmniSIM and Super SIM, are uniquely suited to our customers' needs and simplify the complexities of IoT deployments. 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's 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 one-time transformation investments needed to establish KORE as a leader in IoT and capitalize on the explosive growth of connected devices. 2023 was the last year of these transformational investments, and they will not occur in 2024. After taking these one-time 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 basis. 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 one-time transformation expenses to show a clearer picture of KORE's 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 sunsets and customer deferrals, a rebound in KORE's 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 topline performance throughout the year and increases our profitability overall due to IoT connectivity's 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, and we expect this performance to gain momentum throughout the year. But before I continue to talk about this 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 in 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 present 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 won 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 core 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 for macroeconomic uncertainty among our most prominent end markets. While customers remain cost-focused, the inventory correction at our customers 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. I am 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.

Today's first question is from Scott Searle of Roth MKM.

Romil, to discuss the 2024 outlook, it seems you're anticipating double-digit growth in connectivity. Could you provide some insights on connected units and your thoughts on ARPUs after hitting a low point? It appears that some low-end end-of-life connections are no longer an issue, so should we expect an upward trend? Additionally, regarding the TCV pipeline, could you share the annual recurring revenue component? A rough estimate suggests that around 15% of that funnel might be ARR. I'm trying to understand this in the context of the TCV wins you've achieved in the fourth quarter of 2023.

Thanks, Scott. I might have difficulty recalling everything, so please remind me as we continue. The key point you highlighted at the beginning of your questions is important. With 2G and 3G now in the past, we're in a straightforward pricing times volume business. During the first four years I was here, we dealt with the forced churn of devices transitioning from the 2G and 3G networks and our cautious clients who averaged roughly 20% churn per year. It has been challenging to navigate this business. When I joined, we had around 6 billion SIMs. We've more than tripled that number, but our revenue hasn't seen a similar increase. Much of this discrepancy is due to the significant price differences between LTE, 4G, and 5G compared to 2G and 3G. As those differences diminish and volume growth returns to levels closer to the 25% to 26% compound annual growth rate we previously experienced, connectivity will become an exciting business again. We are beginning to see signs of this in 2024, anticipating around 20% top-line growth, although not all of it is organic. Our volume growth is rebounding. On the pricing side, we've observed stabilization, which we discussed last year after a low point with average revenue per user in one quarter being about $0.95. By the end of last year, we saw a slight uptick to around $0.98 or $0.99, and Q1 is showing even better results. While this may seem minor, it's significant for us. This aligns with what we've predicted regarding high bandwidth trends and the shift from high-priced ARPU devices to more affordable ones. The main driver for our optimism moving forward is IoT connectivity. Additionally, our high-bandwidth products and pre-configured solutions have started off very well. I'll stop here to see if that makes sense, and I believe you had a question about TCV and possibly something else, Scott.

Yes, that was perfect. It's great to see the increase in the ARPU. I just want to clarify how the TCV translates into an ARR opportunity. So, the annual recurring revenue on and...

Yes. Since about mid-last year, particularly Q3, Paul and I worked with our teams to assess the situation regarding deferrals. Scott, who is a knowledgeable IoT analyst, highlighted the challenges related to inventory and modules. Companies were utilizing their stock, which they had accumulated during the COVID supply chain constraints, leading to deferrals across the board, and we experienced that impact as well. We realized that having so much variability in our numbers didn't make sense since we operate as an ARR business. As we intensified our focus on connectivity in Q4, we achieved nearly 87% recurring revenue from connectivity alone. For 2024, we estimate that this will be between 78% and 80% based on our budget for these solutions. Thus, our recurring revenue initially starts at 78% or 80%, and we also consider the additional growth from our solutions customers. Consequently, that 87% should remain stable and could even increase, which is a great aspect of our business model.

Great. Perfect. And 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 us as we look into the current year and beyond?

Yes, we are genuinely focused on that win. We've built a strong reputation with our customers over a long period, and this was the moment it all came together. The head of our health services has been pursuing this opportunity for several years, not just one or two, in the enterprise sales cycle. When they were deciding whether to buy or build, our extensive experience in the IoT managed services model played a significant role in why we secured that deal. Regarding the market size, respiratory therapies are currently smaller than cardiac rhythm monitoring, which is primarily led by the major players. However, it is growing much faster. Last night, I met with our European connected health sales team, and they are exploring around 50 opportunities in the connected health clinical trial arena, which are very promising. Approximately 20% of those potential contract values are focused on the respiratory sector. There is one particularly exciting opportunity with a customer worth 5 million. While I can't commit to a timeline for when we might win that, I can say it's an appealing segment of connected health that is rapidly expanding.

Thank you. The next question is coming from Michael Latimore of Northland Capital Markets.

Yes, Romil, on the 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? Just maybe just elaborate a little bit more on that.

Yes, let me start with some fundamentals that you are likely familiar with, Mike. Paul may also want to contribute at the end to help clarify my points if I miss anything. Firstly, it’s important to state that we are not a manufacturing entity or a hardware producer. Our approach has primarily been to resell products from other companies when it simplifies the process for the customer. Our pipeline focuses on making IoT solutions less complex for them. We found it easier to source devices from places like Taiwan, configure them, and deliver them efficiently through our management and reverse supply chain services. While we are willing to do this, the profit margins on standalone hardware have not been particularly impressive, and in some instances, they have been quite low. However, we engaged in this because it aligned with our goal of providing comprehensive connectivity across devices and supporting our overall IoT strategy. As we assessed our operations towards the end of Q3 last year, we noticed that hardware revenue had started to occupy about 25% to 30% of our sales funnel, which was becoming concerning. It introduced inconsistency into a business model that is designed to be stable and primarily recurring in nature, as indicated by our 85% to 87% recurring revenue. Additionally, while the margins on this business typically fall within the low single digits, we questioned the viability of continuing this approach. We will continue to provide hardware when necessary—especially when customers prefer to manage expenses differently over the course of two to three years. However, we will not allow it to negatively impact our overall margins. On a positive note, our IoT solutions are experiencing growth, climbing from about 27% to 30% when heavily hardware-oriented to now approaching the mid-30s. Our target is to achieve 40%, supported by several factors including our focus on higher-margin pre-configured solutions and the reduction of hardware as a share of our total revenue. Paul, would you like to add anything?

The only thing I would add, Mike, is that during the full fiscal year for IoT Solutions, our revenue was around $92 million. In 2022, it decreased to about $74 million, representing a roughly $20 million drop this year. Some of that decline, as we've discussed, was due to deferrals. Looking ahead to next year, we're forecasting a further decline in solutions because we are eliminating some lower-margin business. Specifically, we anticipate letting go of about $20 million to $25 million in lower-margin hardware. If necessary, and if the customer insists, we will proceed, but from a forecasting and guidance standpoint, we do not expect it to be part of our outlook.

Could you share your insights on the IoT market this year? Do you see it accelerating, remaining stable, or experiencing a slight decline? Any broader observations would be appreciated.

Yes, I appreciate the broader question. We have never been as optimistic about the growth of this market as we are right now. We have consistently indicated that the trends are favorable for us. The demand for connected devices and data is increasing; while we can promote AI, it requires data to be effective. The foundational aspect of AI functioning is connecting devices and retrieving data so algorithms can be applied. This trend is significant. The movement towards edge computing and the edge to cloud transition is beneficial. As 5G continues to mature, I highlighted the impending convergence at the Embedded World Conference in Nuremberg, including with satellite technology. Additionally, at KORE, we are particularly focused on eSIM technology. Depending on various estimates, between 3 billion and 5 billion eSIMs are expected to be shipped by the end of the decade, and we believe we have a strong proposition there. Our OmniSIM with downloadable features and the legacy Twilio Super SIM, known for its stability and reliability, represent our leading offerings. Our next generation is set to integrate the best aspects of both. If we can capture more than our fair share of the eSIM shipments as the world advances towards global deployment and moves beyond regional proof of concepts, we have never been more confident about volume growth and our competitive positioning over the next five years. Our investments are strategically aligned to benefit from these trends.

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

Yes. I mean you're absolutely right. 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 5 or 6 to be our lowest. And that way, Mike, I mean just to make sure you notice that that's with no one-time costs being invested. 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 from the topline. So if Q1 is going to be in that, call it, $75 million, $76 million range and hopefully close to 20% of that EBITDA, and you're getting closer, right? You're increasing that $75 million, $76 million topline going forward, and your OpEx is actually going down, right? We expect that to increase. But Paul, would you add anything? Or did I steal all the thunder?

Yes. No, you got it.

The next question is coming from Meta Marshall of Morgan Stanley.

This is Mary on for Meta. 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 talk to her soon. First of all, this has been phenomenal. Considering the past couple of years, especially during the supply chain challenges in 2022, many customers, including our largest, accumulated a significant amount of inventory. We recently calculated that they have about 5.5 years' worth of stock to utilize. This includes healthcare devices and various other products. Customers are now more cautious and focused on managing expenses and inventory levels. We have observed a shift where customers are working to reduce their inventory before placing new orders. Most of the deferrals we've encountered are related to these industry-specific inventory concerns. For instance, we had a project planned for delivery in Q3, which we had to push back into Q4 and then into Q1. We've essentially been unable to ship anything to our largest customer since June last year. Other clients have chosen to hold off on orders until they can meet their CFO's target inventory levels. We expect that this deferred demand will return in the upcoming quarters as clients revert to their regular business operations with adjusted inventory goals. On another note, in the healthcare sector, there are also challenges due to resources being redirected to address pandemics and similar crises. This has affected the availability of skilled personnel for digital transformation efforts, such as those necessary for IoT in clinical trials. Some trials have faced delays because there simply weren’t enough resources, like nurses, to conduct them. However, I believe the industry will address these issues, and demand will stabilize over time. None of these trends are alarming. Historically, despite concerns over GDP allocations, I’ve seen this sector grow continuously, and I believe connected health remains one of our best investments.

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 look forward to updating you with our first quarter results in what the next 5, 6 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.