Spirent Communications plc

Hello and welcome to Spirent's First Half 2021 Results. Please take note of our Safe Harbor statement.

To begin, I'd like to refresh you on our strategy as laid out at our Capital Markets Day last October. Our ambition is to be the global leader and trusted partner for innovative technology test and assurance solutions.

We focus our strategy on three key pillars; customer-centricity, innovation for growth and operational excellence. This slide summarizes our overall strategic direction.

On the left side of the slide, you'll see both Spirent of yesterday, where we sold mostly products and hardware to primarily service providers and network equipment manufacturers. We led in the lab and our presence in assurance was mostly in network service assurance.

By executing on our strategic pillars, we are well on the way to the Spirent of tomorrow on the right-hand side. We continue to offer market-leading products and hardware, but we are increasing our solutions, services and software.

We continue to sell to the key markets of service providers in NEMS, while diversifying in the new customer segments and geographies. And we continue to help our customers solve their problems in the lab, but we are now solving their challenges in the live network and for the broader assurance market.

I am delighted to update you today on the proof points that this strategy is a winning one. Before I pass off to Paula to go into the numbers, I'd like to highlight some of the key takeaways from today's presentation.

We had another strong half with orders up an impressive 14% and revenue up 9%, resulting in healthy growth in our order book and more predictability and visibility. This is on top of our continued strength through 2020 during COVID-19.

5G remains a major enduring growth driver for Spirent and you’ll hear a lot about 5G today. We are market leaders in the 5G test and assurance market, continue to win key deals, including over 400 deals in the first half.

Lifecycle Service Assurance maintained their strong momentum, growing revenue by over 17% during H1. Our focus on solutions and services is driving new business and increase in visibility.

We continue to expanding into new customer segments and geographies with a focus on hyperscaler and government customers. And we began our targeted M&A with the acquisition of octoScope in Q1 this year and we continued to invest in organic growth, while we evaluate other inorganic opportunities.

At this point, I’ll pass it over to Paula to go through the numbers in some more depth.

Thanks, Eric. Hello everyone.

Let me take you through our first half performance. Again, we present a set of financial results showing robust growth and progress.

And looking at the key metrics here, order intake at 14%, revenue of 9%, orders ahead of revenue means our book-to-bill was 103 in the period and our order book continues to increase. We continue to win more multi-year contracts driving increased visibility.

Indeed, we are now in the fourth year of demonstrating revenue growth. A good reminder and an evidence of our strategy to deliver sustainable, profitable growth is working and the technical cyclicality in our portfolio is being clearly managed.

EPS progresses well. Cash remains strong at $156 million.

And continued progress allows us to make a double-digit increase to the dividend too. So, looking at the H1 figures in a bit more detail, we had a very good start to the year, as you can see and drove very good top-line growth.

The combination of deep and respected relationships with our customers together with enduring market drivers means we are well placed to leverage from opportunities. Orders growth at 14% as I mentioned, organic growth was 11% and revenue growth of 9% translates into organic growth of 7% and represents a super start to 2021.

Our acquisition made in March which is around $6 million to both orders and revenue. As Eric mentioned, we delivered material growth in the services revenue and together with strong sales of 5G device test, which has a higher vote in the TV content is what’s going to slight impact to gross margin in the half but not change to full year outlook.

OpEx includes cost inflation and some focused investments. So, with revenue growth and careful cost management, operating profit increased by 13% to 44.7 million and gave some uplift to our operating margin, as well.

So profit before tax is shown here for acquisition-related costs. Taxes are in line with our guidance.

Looking forward, we estimate 15% for the full year 2021. We'll have to wait and see what the impact is from 2022 onwards with any changes from the U.S., which could be material to our effective tax rate.

Cash remains in a strong position as well, as it continue with our growth agenda. So in relation to segments, just take a recap here about our changes effective from the 1st of January this year.

We successfully merged our Connected Devices business into Lifecycle Service Assurance and we also moved our small Wi-Fi business into the same segment to combine with our recent acquisition octoScope. And you can see this from the diagram here.

As we recap our Networks & Security segment, our High-speed Ethernet Service Assurance segment with a more integrated approach with our security solutions ad our positioning products. So we are leading our Lifecycle Service Assurance segment going forward.

The market growth potential is strong. We are well positioned to leverage from a newly formed portfolio, which is driving more solutions for the live network, i.e.

more software, more multi-year contracts, which forms more recurring type business. So turning to the performance of our segments.

We can see progress across the business. Both segments delivered revenue growth and increased profit in the period.

And indeed, looking at the trend here for the last three half periods, significant progress has been made. In 2020, we devote our operating profit from circa 20 million to 40 million and despite a strong compare to the period in this half we are growing $0.13 increase to 44.7.

And I remind you not so long ago, that was our annual profit figure. Selecting each segment, Lifecycle Service Assurance, on the back of a strong year as achievement in 2020, we are delighted with the ongoing momentum.

Revenue was up 17% to over 114 million and a strong uplift in operating profit. We again saw double-digit growth in online solutions with 5G continuing to be the strong driver.

And for those that are curious, we delivered double-digit growth in what was our Connected Devices segment with superior operating margin, as demand for our 5G device test continues. We’ve been busy merging our acquisition with our own Spirent Wi-Fi business and addressing our route to markets, integrating our sales and technical approach and the market growth potential remains very positive.

In Networks and Security, as a reminder, in the second half of last year we saw some slight revenue decline as lab closures simply due to COVID impacted customer selling patterns and as you can see here, this has been reversed and we returned to growth in this segment. We’ve been busy integrating our security solutions as our high-speed Ethernet products and this has got a an very increasing demand and our G&SS positioning business have been also very busy breaking into new customers we have seen some pickup on government business with a very good start to the beginning of the second half.

So copper costs in the period, they've gone up. They include a small amount of foreign exchange translation, cost inflation, some investments into our governance model and a new employee share scheme.

There are many new compliance matters facing us and importantly we are proactively managing our investment into ESG, develop, incorporate according on climate-related matters and investing on our controlled framework as we face a UK SOX-type environment. So well placed for these important initiatives , but it do increase our corporate costs.

Now turning to operating costs, I mean not too much to say here really as you expect by now we keep a tight rein on all of our costs. And as we grow, we invest for a very targeted approach.

In the period, as you can see here, we focus on sales investments to underpin our growth. A desire to expand into new markets, regions and customer types and Eric will provide some more detail shortly.

But our sales strategy is working and the potential was to drive our solutions to widen our geographic base. But before anybody gets excited and simply doubles the first half OpEx and the full year amounts, I remind you that in the second half, we had increased sales commissions and bonus accruals driven simply by the weighting of the business performance.

We expect a pickup in travel and have the full year effect of our acquisitions to include. The share will be similar to last year.

So turning to cash. This graph demonstrates our cash movements since December.

We have been busy deploying our cash with both returns to shareholders totaling $69 million and investment for acquisitions at $51 million. Further movements of course include our usual spend on CapEx, share purchases and so forth.

Looking forward, we estimate CapEx to be in the range of $12 million to $14 million for the full year. The closing balance at the end of June were $156 million and shows we clearly have a strong balance sheet and indeed fire power for more acquisitions in line with our stated strategy.

Interest in the cash conversion in the period was 127%. Our debtor collection have been strong and we are securing more services in core contracts where we bill upfront despite the service being led over a one to two year period creating a nice working capital benefit.

So, to summarize, we are delighted with the strong set of the H1 results as we continue to invest and reshape for the future but to build and scale our business. Our financial focus on cost and cash management remains resilient and we are well placed going into the second half.

Cash, our capital allocation policy remains unchanged. We are well positioned to support our targeted growing M&A pipeline.

So we set our targets for single-mid-digit organic growth and H1 has landed strongly, but you’ll also recognize we got a busier H2 to deliver like many other companies we continue to manage supply chain and logistic challenges from COVID. But in short, we are well placed.

So with that, let me hand you back to Eric.

Thanks, very much, Paula. Before I dive further into the strategy, I want to discuss5G.

GG has been the single most important driver over the last couple of years, and this slide indicates some of the reasons why we believe it’s an enduring one. More than a 150 5G networks have already launched and almost twice that number are planned over the next couple of years.

The majority of those networks have launched with a non-standalone architecture, meaning, they use 5G radios, but with a 4G core. However, truly delivering on the promise of 5G requires a standalone architecture, which is fully virtualized and cloud-native.

This shift from non-standalone to standalone comes with a whole new set of challenges for mobile network operators and Spirent is very well positioned to help them along that journey. 5G standards work continues and creates a steady stream of 5G network and service enhancements for the remainder of the decade.

The Open RAN model is intended to improve competition, network flexibility and cost. Spirent has brought initial ORAN solutions to market and this expanding ecosystem represents an exciting market opportunity for us.

Another opportunity comes from 5G private networks, which is forecasted to grow rapidly due to their potential for providing essential wireless communication in sectors including industry, healthcare, and public safety. While it’s still very early days for 6G, with initial deployments not expected until the end of the decade, early research on game-changing new technologies is already underway and represents emerging opportunities.

We have won more than 400 new 5G deals in the first half of 2021, bringing our cumulative 5G total to more than 1,400. We're the acknowledged leader in lab-based 5G core network testing and we are working with all of the world's top 10 5G service providers.

Building on the 5G picture I just presented, you can see below some more detail on 5G market opportunity showing projected growth in 5G standalone network rollouts, devices, subscribers, and capital expenditure. Turning to some of our key 5G wins, Digital Twin is a great example of our solution selling mindset, leveraging assets from across the Spirent portfolio.

In this case, Spirent helped the major defense contractor to develop a 5G testing ground for its country’s intelligence community. Using our solutions, the customer created an emulated version of the new 5G core along with a way to test cyber threats.

Network Benchmarking was a strategic services win for us. We worked with a Tier-1 service provider to validate the 5G latency and throughput performance of its network relative to its competitors.

This enabled them to fully validate the 5G network claims and to troubleshoot issues in markets where their performance was falling short. As hyperscalers target 5G standalone opportunities, Spirent is helping them along their journey.

One of our recent wins with a top tier hyperscaler helped them validate 5G core network and edge distribution offerings on their platforms. The lab-to-live win example listed here was with an existing Landslide lab customer preparing for their 5G standalone network upgrade.

Spirent helped the customer fulfill their need for a highly automated 5G core testing environment to safely accelerate its live network release. Now on to our strategy, and the first pillar, customer-centricity.

Customer-centricity means we put the customer first, and our deep understanding and relationship with our customers has proven essential. Throughout the pandemic, we stayed tightly connected to our customers listening to what they need and investing to solve their evolving business problems.

Our cross-company approach to services brings differentiated strategic offerings to our customers. Our expanding portfolio of outcome-driven services is fueling multiyear deals and reducing the risk of cyclicality in our business.

The proof of this strategy is in the numbers. Services revenue was up 16% for the first half.

Our unique Test-as-a-Service offerings continued to win new business globally, including additional top-tier service providers in North America and Europe helping customers test key services better, cheaper and faster. Like I mentioned in the previous slide, another innovative services win was our 5G benchmarking win at a tier-1 service provider.

We worked with them to benchmark 12 dimensions of customer experience including, video, data, and voice across 120 markets. We continue to invest in our world-class sales team.

In the first half, we added new key talent to expand our reach into new segments and geographies. Our key account management program enables us to become a more strategic partner for our biggest customers and solve mission-critical business problems on their behalf.

We continued to invest in this program adding two new key accounts over the last year for a total of ten and it delivered another round of excellent results. We’ve focused more resources on winning new business hyperscalers and governments across the portfolio, including 400G and 800G, Landslide, and our positioning solutions.

The next pillar of our strategy is innovation for growth. Innovation is key to market leadership.

We continue to invest in R&D across the portfolio developing new, easy-to-use solutions for the business problems of today, and tomorrow. We are partnering with our customers on both lab-to-live journey, materially increasing our live portfolio.

The lucrative radio access lucrative radio access market is beginning to be disrupted by Open RAN and our strength in 5G positions us well. We have already brought our first Open RAN solution to market, won initial customers and established key ecosystem partnerships.

Through our leading positioning, navigation and timing solutions, Spirent enables innovation in technologies that are influencing more and more areas of our lives. We are innovating to address multi-center use cases, as well as assurance in operational scenarios.

We are investing and innovating to maintain our market leadership including in high-speed Ethernet where we are already seeing early wins with our 800G solutions. As mentioned earlier, following our acquisition of octoScope, we’ve consolidated our position as the market leader in Wi-Fi test.

Wi-Fi technology evolution represents an enduring opportunity as it promises greater throughput, lower latency, and greater range over more use cases. We have expanded our global navigation satellite system leadership position, particularly for high end military defense segments.

Now on to our LSA business, which had another strong half with 5G driven growth across its lab and live portfolio. We commercialized expansion beyond our core NEM and service provider customers, especially with large hyperscalers.

We also benefited from our investment in the sales organization to expand our penetration of the government space. As you know, we commenced targeted M&A during the period acquiring octoScope, which combined with our existing Wi-Fi business, gives us market leadership in Wi-Fi testing.

The transaction has been well received by customers and integrating the octoScope organization within our sales progressed to plan. Our VisionWorks Live Network Assurance Solutions saw strong growth during the period adding strategic new logos and significantly growing its opportunity pipeline.

We continued to expand our solutions and services offerings, including the Digital Twin and 5G benchmarking wins I highlighted earlier. Our LSA business announced an exciting collaboration with Amazon Web Services to deliver automated 5G network testing using Spirent’s Landslide test automation capabilities.

We also saw a positive impact from the 5G upgrade cycle as our Connected Devices test business grew strongly at chipsets and device OEM customers in the U.S. and APAC.

Let me give you a real world example of how LSA adds value across the entire lab-to-live customer journey and expands our opportunities. You’ll see from the illustration how the pivot through product sale to an outcome-driven services model drives net new opportunities in live networks.

In this case, a Tier-1 service provider was seeking alternatives to the traditional lab testing model. We proposed a Test-as-a-Service offering where we use the vendor now own the business outcomes, certify the virtualized elements of their new standalone 5G infrastructure.

This outcome-based project was highly successful. Our powerful automation capabilities were a key enabler to this success and has led to more opportunities in their labs, as well as their change management process.

Once we’ve proven our value in the labs, they invited us to discuss their live 5G network assurance challenges. The initial engagement of Test-as-a-Service was several times larger than a traditional product sale and has enabled many more lucrative opportunities that we might otherwise not have had visibility to.

As far as our priorities for LSA, we are focusing on developments of the next evolution of VisionWorks that will be even easier to deploy and use in a cloud-native environment. We planned to further leverage octoScope’s expertise and assets integrating them into our existing wireless test solutions to realize a comprehensive, services-driven RF platform that covers both Wi-Fi and 5G use cases.

We’ll be expanding our initial Open RAN test offerings to deliver a comprehensive end-to-end capability, as the Open RAN ecosystem grows. In line with our focus on developing outcome-driven services, we plan to expand our network benchmarking, security, and certification programs to offer additional analytics, and insights to our customers to help to improve the quality of their 5G networks.

Now on to our networks and security H1 progress. Driven by 5G, cloud, IoT and Internet traffic growth, we are seeing continued year-over-year growth in a number of 400G Ethernet solutions, as well as demand from early 800G early adopters.

We have extended our G&SS simulation leadership position, particularly for high-end government applications, increasing the realism of our simulation and enhancing our anti-jamming, and anti-spoofing capabilities. We expanded our penetration of new verticals with success in SD WAN, the automotive segment, and in our cloud portfolio .

I referenced our growth through hyperscalers a few times already, and this is also true of networks and security, which also saw hyperscaler growth across its portfolio. Integrating security solutions more fully into our cloud and IP business against the backdrop of escalating customer demand for improved quality of experience and security.

This led to growth of device manufacturers and telcos. As 5G grows, our cloud portfolio is benefiting as we help our customers ensure their end-to-end infrastructure to application deployments, and we expect this trend to continue.

Engagement of our Positioning business with the emerging low Earth Orbiting segment has enabled significant new customer opportunities. Looking forward, we intend to consolidate our early position in 800G Ethernet test with first-to-market solutions that build on early engagements.

Building on early positive indications, our Positioning business plans to complete its evaluation of the space-based P&T market and low Earth Orbiting segment’s potential. As with analysts say, we are expanding our addressable market with new 100G and 400G test platforms supporting layers two to seven, leveraging the integration of our security solutions capability into our core test platform.

We are enhancing the way we monetize our software and launched a new platform to build our software and subscription business and accelerate cloud test and assurance. And we plan to leverage our G&SS expertise in an offering that will help assure real-world performance in the segments such as unmanned aerial systems, and autonomous vehicles.

Operational excellence is the final strategic pillar and is foundational to support our growth. As mentioned, we invested to grow our sales team, focusing on key accounts, hyperscalers, government and new geographies.

This has already resulted in strong order and pipeline growth. Our growing order book and recurring revenue streams are increasing our visibility and predictability.

We maintained our strength during the global pandemic due to our operational discipline and supply chain management. We continued to invest in our services delivery infrastructure and team and this is already helping us win and deliver strategic services to our customers.

We maintained a strong cash balance, which leaves us flexibility to do more strategic M&A bolt-ons. Another key part of operational excellence is our ESG program future positive.

As Paula mentioned, we’ve done a lot of great work revamping our ESG strategy. We take our responsibility to ensure a sustainable future seriously.

In fact, our senior executive remuneration is linked to carbon emissions reduction in 2021. You’ll see our 5G promises on the left-side.

I won’t read through all of them, but we have set some ambitious targets to be held accountable to and we’ve made some exciting progress already. In 2020, we sourced a 100% of our electricity from renewable sources.

We’ve reduced our scope 1 and scope 2 carbon emissions by 9% last year meaning we’ve reduced absolute emissions by 33% since our 2014 baseline. We are committed to achieve carbon neutral certification by 2022 and aim to achieve carbon net zero by 2035.

Our products are enabling our customers to operate more sustainably. For example, using our Velocity Solution, we help the customer consolidate four labs into one, reducing the size of the lab by 71%.

I’ll talk more about our diversity and inclusion strategy, as well as flexible working and career development on the next slide. I am proud of the work we are doing to be a better corporate citizen and look forward to sharing more about our progress on this journey key.

A key part of being a sustainable business is making Spirent a great equitable place to work. The Spirent culture is one of joining forces and playing to win and we’ve done a lot of great work advancing our values.

This half, we launched our diversity and inclusion strategy with clear, actionable priorities set out to do better over the next few years. We worked with a third-party consultant to take an honest look at where we are and what would be the most impactful steps to take to improve.

This includes enhancing our family-friendly benefits and ensuring we are recruiting from diverse interview pools. Like many companies, we’ve had to do the hard work of keeping productive, while the majority of our workforce has went fully remote during 2020.

We learned a lot about remote and flexible working and as we look to return to resume on-site working in some areas, we initiated permanent flexible working for most of our employees. On the right, you’ll see a great example of our Spirent Celebrates program, highlighting some of our bright female engineers for International Women in Engineering Day.

We continue to invest in our people including clear leadership succession planning and a new talent mentorship program. And with so many of steps, we ramped our internal communications to keep everyone connected and informed.

Our strategy, as laid out in the Capital Markets Day last year is delivering great results as evidenced by the continued strong orders, revenue and profit growth in the period. By expanding our services and software offerings, we are driving sustainable revenue growth, while decreasing cyclicality risks in the portfolio.

Investments in innovation across the portfolio to support our growth agenda remains a key priority. We are also curetting an opportunity pipeline in support of our targeted M&A strategy.

While COVID-related uncertainties and disruption are likely to continue, Spirent’s strong relationships with its customers and supply chain should ensure the impact of any such disruption is reduced. Given this backdrop and the momentum seen within the business, I am increasingly confident in our ability to meet our commitments.

Thank you.

Hi. Thank you very much for taking my questions.

The first one maybe is on the – your comment around multiyear contract and given the strong pipeline that you see, can you help us understand the visibility that you have now and I mean, in the second half of the year, but also towards 2022 it seems that the industry given the tightness across the board seems to have more visibility short and medium-term I would say. So, can you help us understand what is your visibility on your second half?

A follow-up after that if you don’t mind.

Yes. Sure.

Thanks, Francois. And I’ll ask Paula in a moment to maybe give a statistical view.

I just want to comment on kind of what’s driven the strength in the multiyear deals. So – and one is, we put a big focus on it.

And it is important to us. I think all our stakeholders to have more visibility and predictability in the business.

And so, it’s the kind of thing that we put a big focus on, and it's working. Yes, we are executing upon it.

To me, having success in that regard, it is evidence that we are adding value to our customers’ business and that they respect and trust us and want to continue to work with us for the foreseeable future. So, I think it speaks well to our reputation and the way customers received us.

But, Paula, if you have any further comments you want to offer around kind of the nature of the additional visibility it’s given us.

Yes. Sure, let me give you some numbers.

We are bringing in about 6% of our order take it’s multiyear compared to our 4% half in the previous year. So when I look at the order book analysis and I look at the tale of when it’s mentioned as revenue, I mean we have $90 million in our order book, which is 43%, which is a delay for beyond 2021.

And that compares to about $72 million previous year. So, this is really great progress and as Eric said, the focus on the types of deals bringing our customers along with us for a longer outlook duration is creating and I think we said that 3% hopefully those numbers that I gave you with a bit more statistics around it, Francois.

Yes. That’s great.

Okay, thank you. And maybe on the exposure or maybe going forward toward hyperscalers datacenters, can you help us understand where you are now?

The progress you are making. Any data around that would be great.

Thank you.

Yes. So, it is something that, well, less than 12 months ago, we really beefed up the sales focus on that market segment.

And I think it’s already paying dividends. It does typically takes some time to develop relationships and perceive the progress and winning business after investing and making incremental investments in certain customer segments.

But we were really delighted that we’ve made a lot of great inroads across all the big names that you would expect amongst the hyperscaler base. We referenced nice win at Amazon, but it’s just one, actually it’s several.

And I think in a lot of respects it’s kind of tip of the iceberg, because as I said, if we add value the way that we expect to, they are obviously giants with big budgets. And I think we are just getting started there.

So, traditionally, we really – our bread and butter was of course, traditional call communication service providers and network equipment makers. And the relationships with those customers will always be important, but increasingly hyperscalers are going to play a bigger role for us and in certain dimensions, they will be the early adopters for some new technologies.

So, it’s really valuable that we have the kind of strength and focus that we do and the momentum now with that customer segment.

Okay. Thank you.

And maybe one last one for me, if I may. If you look at your mid-term target of 4% to 5% in the medium-term, do you assume or do you bake in any, I would say, market share towards the hyperscalers in this or is it like an upside if you manage to get traction for your mid-term revenue targets?

Yes. I mean, it’s, look, our sort of expectations are sort of an all-in assumption across the customer base.

I would say that, as we sit here in early August and – but this is a half year achievement. We were – as we came into the year, it was a very unusual sort of comp in 2020 of course.

It continues to be a challenging environment in a lot of respects. COVID is still an impact in different parts of the world and in different ways and it’s had impacts on supply chain and so forth.

But we’ve really seen nice momentum in the business as we’ve gone through the year. So, we are – as always, there is a lot to do in the second half and we still – despite all the great progress we’ve made in more software, more multiyear deals, more services, more business in the live network and not just the lab, all of which are very – very much aligned with our strategy and what we laid out at Capital Markets Day last October.

We still like to do in the second half of the year, right? And so, but we feel quite optimistic about the momentum that we have as we sit here today.

Okay. Thank you very much.

Yes, thanks, Francois.

Thank you. Thanks.

Good morning, Eric. Hello everyone.

I just wanted to ask, first of all, I'll ask one question of Eric and then I've got a couple for Paula, please. So if you can, Eric, just to sort of try and give us some numbers or stats, so you've been working to sort of grow Spirent's reach into hyperscalers and governments and also in new geographies, as you say in the statement such as EMEA.

But quite frankly, at this stage, a bit like Francois, I don't actually know how much revenue you earn from hyperscalers and the government excluding your Positioning business. And I guess, worse, I don't even know the order of magnitude of revenue that you hope to earn over the next few years.

If it's possible to help me that would be really good. And similarly, please say which countries you are looking to expand into in the next few years?

And again, at least give us some sort of order of magnitude of revenue that you hope to earn in these, please.

Yes. Hey, John.

Good to hear from you. And, well, I may not give you as much satisfaction as you desire in terms of detail here.

I will tell you, as it relates to hyperscalers and governments, I really believe we are entering in those spaces. And so, we put focus on it.

I feel like we are scratching the surface really. I mean, the deals that we are getting are nice size deals.

They could be – and for us deals that over $1 million are nice size deals and we have a few of those in that space. But it’s – we see great momentum.

It’s early days. We see a growing pipeline, particularly in the government space with our partners, because we work with defense contractors and people that face with the government.

We have several large bids pending that we are chasing new business. So, we’ve landed some nice deals already.

There is a bunch more in the off and I think, probably as we exit 2021, this maybe material enough that we’d be in a position to sort of break it out and give some better visibility around to sort of order of magnitude. In terms of new geographies, the areas where we are most focused, we’ve got a strong base, of course and a lot of, I’ll say organizational muscle in the U.S.

and in North America, more generally and certainly within Asia, China. So we spend a very strong point for us.

So, the areas that we are really looking at for expansion are Europe including Eastern Europe, select countries there and sort of rest of Asia and developing Asia in particular, where we don’t have as much of a historical base of business. We relied a little bit more on channel partners to get to market with some of those customers.

But as we achieve some success, we are going to put more of our own dedicated resources in some of those markets. The other thing beyond just new geographies, we are going to continue to extend our key account management program.

We’ve added two more we are up ten and we have plans to take out further. We are looking at, at least two more over the next couple of quarters and maybe more than that.

It’s been very successful for us. It gives us much better visibility into those key customers.

And so, it is – it requires an investment. But we found that where we do it in a targeted way and we get the right folks on board as we’ve gotten a very good ROI out of it.

And if I can just add a bit more color for John, to put him in the right direction a couple of bits here. John, there is an appendix slide called driving expansion.

We are getting set up to give you more data and trend on revenue by customer type you’ll see for the first time and we've introduced the hyperscaler slice to the pie chart. So, more on that to come in due course.

And in note three of the press release on the accounts, you’ll find more color on the individual regions and a bit more color by country. And a bit more information there for you.

With that, sales and investments that we’ve made in the first half to be some very much direct target investments into restructure around government and hyperscalers. And indeed, we've been investing small pizzas in various parts of Europe.

So more on that to come. But we are getting set up to give you more trend analysis on both of those things.

Thank you. Thank you, both.

And if I may, just ask the two number-related questions. So a year ago, you did say that your top 10 accounts generated 44% of total revenue.

That was the first half of 2020. What was the number for 2021 please?

And then, secondly, so that I don't interrupt you again, I think it's been about 2.5 years since you actually had a working capital outflow. And also this morning, Paula, you told us that with the service contracts, you get paid in advance.

And so, I guess I'm trying to get my head around what would actually need to happen operationally for Spirent to actually incur working capital outflow, whether it's this year or going forward, please?

Yes. Great questions.

I’ll take the first one. The top 10 was just under 40% for the half year and – but I guide you excluding the half year number, we can see where it lands for the full year.

So, that’s implying we are diversifying to other customers, which is good, but we’ll see we were on the full year. Working capital is interesting, it’s a lumpy chunky business and timing can affect the one day upon on a 31st of December.

So a couple of things can happen on the 31st of December where certainly very busy and leading us to that final date. As you know, with the waiting in our business and we do feel an awful lot of things in December.

And that increases working capital. We are also very busy bringing lots of inventory to make sure well supply to hit all the short demand.

The deliveries are also comes through in December. So that goes in December.

And the new nuance we are seeing is of course the most important maintenance that we sell it comes with a nice little working capital benefit. Now, the tightening of all of us on the 31st of December as it’s difficult one to call.

So, you are right. And the working capital is reducing and also with great debt collection of course, which is the continued focus in my finance team.

So I am so sticking with the working capital will increase for the full year. And I’m always delighted when I get proven wrong and we keep reducing working capital.

Cash conversion in the first half was 127%. So, it’s not something which I would set my – at the year and ever increasing ratio such as that.

So I am going to have to wait and see how this is going to play us out into the working capital model agenda to be honest with you. But December, on the 31st of December, it’s a big deal for invoicing lots of things and out the door.

So, I have to wait and see.

Thank you both very much.

Yes. Thanks, John.

Thanks, so much. I’ve got three questions please.

Just I’ll run through. Just a follow-up on the percentage of revenue from the top-10, is it just under 40% I think, I am assuming that all of a sort of key account management customers then, but actually correct me if I was wrong.

So I just wondered what the revenue base was from the key accounts? And I wonder if you could give us any color on how fast that’s growing and if there is any difference in margins?

Secondly, July, sort of maybe just – just wondered if you could talk about whether the trends and the strong revenues trends you saw in Q2 have continued. And then, lastly, just whether you are seeing any challenges in recruitment or any extra wage inflation build more units normally see.

Thank you

Maybe I’ll speak briefly to the first and the third point and then, I’ll ask Paula to add more color. But the top-10 isn’t necessarily just the key accounts.

I think others that, because it can change quarter-to-quarter or half year-to-half year in terms of who is driving the biggest revenue. But it’s largely made up of those key accounts.

And others that make their way into the top-10 obviously become candidates to become key accounts as we expand the program. I think as Paula said, I think the fact that we still view this program as being very successful.

But the fact that our top-10 is actually reduced as a percentage of our overall revenue by a little bit. It’s a really good news seen in terms of how we are diversifying the business and the reliance on really any one customer, any handful of customers.

So, we do see it as real positive. On the recruitment front, yes, I think the kind of war for talent is definitely heating up.

I think we’ve got a great employee value proposition. And we’ve been able to attract some really strong talent and in some areas where there is a real demand for talent.

Cloud skills as an example, which of course is in very high demand and we could imagine that we have to compete against in terms of other marquee names for that sort of talent. But I’ve really been delighted with – we’ve made a lot of investments in adding new leaders to the business really through the pandemic even over the last 12 to 15 months.

And I think we really made some great upgrades to the folks that we’ve got on board in the company. But it is without a doubt, I think the competitive labor environment particularly for top talent, other kind of we are trying to attract and particularly for those critical skills but in large parts, again, because we’ve got I think a great value proposition for employees.

We’ve done a very nice job and having retention success much better than benchmarks in the market in general. Paula, do you want to say more about sort of revenue trends and so forth?

Yes. I think we confirm whether your question is Q2 to Q3, was that the question?

Yes. Obviously, we saw good revenue growth in Q2 and I know using the comp certainly gets any more challenging.

So I just wondered if you got visibility on July whether you’ve seen a continuation of a momentum?

Yes. So, fairly plays into Q3 and we – I did make reference in the commentary and about along with our presentation this morning that we’ve actually, particularly in our positioning business line, particularly large material orders which we are delighted which will span revenue into both this year and next year.

So that was a great start to July for that particular part of the business and we are hoping wait and see that the government spend for G&SS products comes back and we are delighted with that, really delighted. But again, the trends are really continuing, but it’s here in August we are disclosing our July figures right now actually.

But we are on track for delivering our full year. So, not really too much to say at this point, but there is a bit more color on the positioning business.

Okay. Thanks so much.

And, could you just follow-up on the key accounts. In terms of whether they are growing quicker I guess, they’ve potentially strong because you have added more customers or your other customers are growing as quickly or faster.

And then whether there is – just wonder whether you could help if there is a difference on the margin profile, do you see a better margin profile with your key accounts?

Yes. I mean, I’ll take that.

Generally speaking, the key accounts will deliver superior growth in the Group average. And having said that sometimes they are facing a phase then can move around a bit due in the quarter of the year aligned with the fact that we have a busier H2 of course.

And we have changed the remuneration of the key account sales executives to be based not just on the size of the order they bring in, but the profitability of the accounts. And by nature of doing that we got everybody focus in many key account managers on these key accounts as well and that make sure about them.

We’ve got the focus on the top-line and the bottom-line. So, yes, we got superior margins and we get growth.

And not part of continued to invest in sales executives for the key accounts and indeed are going adding more in the coming months. So, yes.

So that’s where we are with that. And Will, does that help you with that one?

Yes. Perfect.

Thank you very much.

Thank you.

Yes. Hi, good afternoon, Eric and Paula.

Well done on the first half. Congratulations.

I had a couple of questions. The first one was around sort of 800G demand, which I think you've referenced, I believe Keysight announced a product early this year.

So, I guess, the first question for me is, do you have a sort of commercial product out there yet? And secondly, is there a possibility that’s rather than perhaps seeing a post 400G sort of lull at some stage that there's a sort of almost direct transition into 800G?

So I'm just curious what your customers are sort of suggesting in terms of the timeline and road map here? And then the second question was around just the nature of the multiyear orders that you've been sort of successfully booking in the first half.

If you could maybe give us a bit more color around the products or services that you are delivering. I believe you've talked about sort of Testing-as-a-Service before, more generic, perhaps maintenance service.

But I am just wondering if there is – is there any sort of, I guess, new products wrappers that you have created that support this? Thank you.

Yes. Sure.

Thanks, Kai. Yes.

So, as it relates to 800G, I think we are very much at the front of the pack in terms of technical readiness and support for 800G. The kind of engagements that are going on with customers now, I would say, are kind of early proof-of-concept and so forth they aren’t sort of the value in place.

But we think we are very well positioned in terms of readiness of our technology. And I do think in general, 800G is beginning to percolate in this way.

And so, we are not terribly concerned about there being any kind of big gets or drop-off in the transition from 400G to 800G. I think, the max port speed kind of transition, we think is a lot less impactful to that part of the business that maybe once was at some point in the past.

The home move toward mobile edge computes, which is driving the need for casting of even some lower core speeds because a lot of the computing hours been moving into the network, as well as some other moves that we made to really integrate more directly our security solutions business with our high-speed Ethernet business has given us an end-to-end solution up and down the stack sort of across layers to up to layer seven through the application layer that I think many customers are finding very valuable. So, I think there are lot more in terms of the value that we are adding and sort of new pricing in the software business model that we’ve introduced in that part of the business that are going to be beneficial in terms of kind of smoothing things out there.

Around the nature of the multi-year deals, it is something we are really proud of and we put a lot of focus on. So, one dimension, you can look at just more traditional maintenance and support agreements and sort of extension of those and I think that is just a positive indication that customers are excited to continue to work with Spirent and are happy to sign up for multiyear ongoing engagements with us.

But that is, as I said, sort of the more traditional sort of just maintenance and support. What is interesting and where we’ve done a lot of innovation around the new services portfolio is, in things like Test-as-a-Service.

We sold several new Test-as-a-Service engagements and in fact, some of those that we sold initially we’ve been able to extend the duration of those deals and upscale those deals. We gave, kind of a depiction of the customer journey of one particular customer where we just showed how and the results presentation this morning showed the way in which initial Test-as-a-Service engagement led to some incremental opportunities to help that customer automate their change management process and then after we’ve done a lot of this work we then move to the cloud, it translated into some great opportunity for us in their production network, as well.

So that lab-to-live journey to real life example of how we’ve made that happen. Additionally, another, I think, innovative service offering that we brought forward, we’ve had our fit for launch business where we do benchmarking of network and device performance in the field.

Well, one of the things that we put an incremental focus on and it led us to nice opportunity for us is doing broader network benchmarking for some of our customers. And it’s led to some nice size engagements and then we’ve executed on it really well.

There is an opportunity to extend a few of those engagements and we’ve even brought in some opportunities, particularly in the U.S., this is new requirement as an example for E911 accuracy. There was always requirements on latitudinal and longitudinal sort of accuracy of that service.

But now, it’s being mandated that sort of in the vertical domain, up a high rise building that there needs to be sort of accuracy as well. So we are doing some more to test and verify verticals, we access accuracy as well.

So, everyone of these plays into sort of the opportunity for longer term deals and multiyear visibility beyond what we just would have done, maybe historically around maintenance and support.

Okay. That’s great.

Thank you, Eric. Very helpful.

Yes. Thanks, Kai.

Alright, thanks, Jay. Well, I just want to thank everyone again for joining and we look forward to talking to you all again soon, certainly in the coming days I guess.

So, thanks very much.