Sierra Wireless, Inc.
Q4 2020 Earnings Call Transcript

Published: 23 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Sierra Wireless Incorporated's Fourth Quarter 2020 Conference Call and Webcast. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today David Climie, Vice President of Investor Relations. Thank you. Please go ahead, sir.

[David Climie:]

Thanks and good afternoon, everybody. Thank you for joining today's conference call and webcast. On the call today are Kent Thexton, President and CEO; and Sam Cochrane, our CFO. As a reminder, today's presentation is being webcast and will be available on our website following the call. Today's agenda is as follows. Kent will provide his corporate update and Sam will provide a detailed review of our Q4 and year end 2020 results, followed by Q&A. Before we get started, I will reference the company's cautionary note regarding forward-looking statements. A summary of our cautionary note can be found on Page 2 of the webcast and is now being displayed. Today's presentation contains certain statements and information that are not based on historical facts and constitute forward-looking statements within the meaning of securities laws. These statements include our strategy, goals, objectives, expectations and commentary regarding the outlook for our business. Our forward-looking statements are based on a number of material assumptions, including those listed on Page 2 of the webcast presentation, which could prove to be significantly incorrect. Additionally, forward-looking statements are based on our management's current expectations, and we caution investors of forward-looking statements, particularly those that relate to longer periods of time, are subject to substantial known and unknown material risks and uncertainties that could cause actual events or results to differ significantly from those expressed or implied by our forward-looking statements. I draw your attention to a longer discussion of our risk factors in our AIF and management discussions and analysis, which can be found on SEDAR and EDGAR, as well as other regulatory filings. This presentation should also be viewed in conjunction with our quarterly earnings release. With that, I will now turn the call over to Kent for his corporate update.

[Kent Thexton:]

Thanks David. I'll start my prepared remarks today with some highlights from the fourth quarter, as well as some brief comments on full year 2020. We will be discussing our continuing operations on today's call with the automotive business line under discontinued operations. As you are aware, we completed the sale of the automotive product line in November, and as a result, our balance sheet has been significantly strengthened. Sam will review this in more detail in his summary of the fourth quarter results and balance sheet. So let's turn to some of the highlights in Q4. Total Revenue in the fourth quarter was 120.5 million up sequentially 6.3% from Q3 and ahead of Street consensus. Our business transformation is proceeding well with three quarters of sequential revenue growth. I'm pleased to see this improvement despite the tight component supply situation in the industry and the impact of the COVID-19 pandemic globally. Q4 recurring and other service revenue was 32.6 million, up 25.1% year-over-year, and up 9.4% sequentially, as our continued focus on IoT solutions is showing improving results.

[Sam Cochrane:]

Thank you, Kent. Good afternoon, everyone. As a reminder, our fourth quarter financial results are reported in US dollars and on a US GAAP basis. We also present non-GAAP results to provide a better understanding of our operating performance. A full reconciliation between our GAAP and non-GAAP results is available on the IR page of our website. Before I begin with a review of our quarterly results, I'd like to point out that our fourth quarter 2020 financial statements are based on continuing operations. And we have segregated the automotive business with the sale completing on November 18, as discontinued. We have included in the notes to our Q4 financial statements information on a GAAP basis regarding the automotive business. And we will provide additional information in our MD&A. So now let me turn to our continuing operations and comment on the fourth quarter and full year 2020. Total Revenue in Q4 from continuing operations was 120.5 million, a decrease of 3.7% compared to the same period last year. Non-GAAP gross margin in the fourth quarter was 36.1% up compared to 35.8% in the fourth quarter last year. In Q4 we continued our focus on right sizing the business and reducing OpEx. As a result, our non-GAAP operating expense were 50.1 million in the quarter. We expect this OpEx run rate to continue to decrease into 2021. Non-GAAP adjusted EBITDA in Q4 was negative 2.9 million compared to negative 3.2 million the prior year. For the full year 2020, total revenue from continuing operations was 448.6 million compared to 547.3 million. The lower revenue in 2020 is primarily attributable to the impact of the COVID-19 pandemic, the tight components supply environment, and the decline in mobile computing revenues with the loss of Dell and Lenovo design wins two years ago. Adjusted EBITDA in 2020 was negative 34.9 million compared to 9.8 million in 2019.

[Operator:]

Certainly. Your first question comes from the line of Josh Nichols from B. Riley. Your line is open.

[Josh Nichols:]

Yeah, thanks for taking my question. And good to see the continued sequential improvement on the top line as well as the bottom-line improvement that we're seeing here. I wanted to ask, you talk a little bit about the first quarter, but looking more at the OpEx and the cost savings initiatives, could you talk about where we stand for the 25 million to 30 million and any kind of outlook you could provide as far as the interest paid turn to kind of sustainable profitability from like a cash burn or EBITDA perspective?

[Kent Thexton:]

Sure, Josh. Thanks for the question. It's Kent Thexton here. I'll ask Sam to talk about the OpEx levels. But yes, we're making - the overall business model progress is good. And both growing the top line and then making sure our cost structures lined up. So Sam, do you want to talk to the $25 million to $30 million cost reductions?

[Sam Cochrane:]

Yes, thank you for your question. So headcount is down to levels around 1,040 - so 1,040. That's down about 20% from where we came into the year, so very good progress is being made there. And we're on track for those targets.

[Josh Nichols:]

Thanks. So then if you could provide a little bit more color - I know getting the timing of the 5G ramp it has been a little bit difficult, but it seems like you're making good progress on there. How are you doing as far as shipments and any type of targets as far as what you could do on that front and kind of margin accretion potential as that ramps up a little bit?

[Kent Thexton:]

Yeah, it's Kent here. So we are very excited about 5G as I said in my comments. We've done very well in securing design wins with customers looking to be early in 5G. We're in that early stage where the demand levels are not fully certain. We will be starting to ship product to many customers. What we've seen in other iterations, 3G and 4G and I'll speak to 4G is the - you start to get deployments. And then as it starts to mature, you really start to see the volumes ramp. And we expect that to happen similarly with 5G. We've been early with the technology. We've got a lot of very positive feedback from the market, both from customers and carriers. And those design slots are highly valuable. When you win a design slot, you're in with those customers for multiple years. So we don't expect that 2021 is going to be a significant volume of 5G. It's going to be early stages of the ramp and will continue to accelerate as we move into 2022, so an important long-term value step for us, but not great clarity on the volume of 5G yet in 2021.

[Josh Nichols:]

Thanks and then last question for me, then I pass the baton here. Clearly, it looks like 1Q demand is coming in materially stronger than what kind of the Street had thought, obviously, there's some near-term component shortage issues. But how long do you think it'll take to resolve those? And if you are able to get those resolved over next quarter or two, fair to assume that that may imply a stronger second half and maybe the Street is anticipating the numbers today?

[Kent Thexton:]

Well, I think the supply challenges you will have seen across the board. And I think that those are going to be with us for most of the year. The silicone shortages are challenging. So I think that's going to be one of the elements that we deal with. We are pleased to see our work is increasing orders, our demand signals are strong, some of our existing customers increasing what they're looking to pertain to get from us. And at the same time, we talked last year about our increasing win rates, and our overall increase in design wins, and some of those starting to flow through. So we're not providing guidance. And so I wouldn't work to change the view at this point in time with those levels of uncertainties. But the 15% above consensus of orders that we presented shows that yes, we're pleased with the demand side that we're seeing, both for hardware and for our recurring revenue business.

[Josh Nichols:]

Great, thanks, guys.

[Kent Thexton:]

Thank you.

[Sam Cochrane:]

Thank you.

[Operator:]

Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Your line is open.

[Thanos Moschopoulos:]

Hi, good afternoon. Kent can we close a bit more on the demand environment? So in terms of the strengthening demand that you're seeing, is it primarily a macro driven recovery or are there any specific verticals or segments that especially standout as you look at the demand recovery?

[Kent Thexton:]

Hi, Thanos. Yeah. Good to speak with you. So we've talked about a few things. So we've had a - and I'll talk about our two segments now. So we've had a big focus on what we're doing in the enterprise market. And so we're seeing good progress in our enterprise business, our overall gateway sales inclusive of our software. And so that is something that we will - we have been investing in, we've been growing partnerships. And we expected that part of that market will continue. I think there is elements of that that are not as related to the economy, but we're in areas of public safety and industrial areas that are just requiring this high-end connectivity or ruggedized gateways that are suiting the needs of that market. Secondly, on the IoT solutions side of the market, I think there is a big macro trend of industrial IoT is increasing. The one example I talked about with Microsoft is an example of a very large $19 billion company that's working to digitize their assets out in the marketplace. So as we start to see those, those are sort of long-term growth trends. On the economic recovery side or recovering from impacts of COVID, some of our customers in spaces like smart metering are seeing increased deployments overall. And part of that can be driven by look to be able to automate everything and not have to have as many humans touch products. So that those demand requirements are great in the current environment of parts shortages, it's challenging to ramp up further and as a matter of fact, just even committed products are hard work to hang on to in this environment. But our team has been working exceptionally hard, have been making good progress with our suppliers to continue to get maximum visibility so we can communicate with our customers on what and when we can deliver. But we see a good market as we move forward.

[Thanos Moschopoulos:]

Great, that's helpful. And you provided a revenue outlook for the upcoming quarter, but not an earnings outlook. Is that a function of the fact there's a lot of moving parts with supply constraints and restructuring and so forth? Or what would you say as far as how the Street's thinking about earnings relative to revenues for different quarters?

[Kent Thexton:]

Yeah, I'll ask Sam to comment in a minute. But we basically decided to not provide guidance because of the great uncertainty in the supply chain side. So we wanted to share that we're comfortable, we're in line with the consensus number in there, our demand exceeds, how much product we can get through the factory and ship will then directly affect our profitability levels. As Sam said, we have - we're on track for the OpEx savings that we talked about. And so the profitably side can be pieced together. It's really about the volume that we're going to be able to ship due to the parts constraints. But Sam do you want to comment on that?

[Sam Cochrane:]

Yeah, Kent that's correct. We got great line of sight into the OpEx number. The big uncertainty is in revenue, and then margin on mix. There's still some uncertainty about which parts come in and as you know there's a big gross margin difference between enterprise products and modules. So until we get better visibility into our supply chain, quite honestly, it's hard to give more granular guidance.

[Thanos Moschopoulos:]

Okay, makes sense. And finally, you mentioned the deal went through with a Microsoft channel, which I found interesting. More broadly, can you speak about, I guess, how that's been shaping up as a channel for you and the pipeline that - to bring to the table?

[Kent Thexton:]

Yeah, we announced the Microsoft partnership, some time back, and it takes a while in big organizations, I think, to get engagement. This deal is important because it's a next tier up customer. And a good proof point as we work to drive more strongly. I was recently talking with the Microsoft Head of Partnerships. And we reviewed this as a good catalyst for more business together. So our pipeline with Microsoft has been growing. And as the sales force has become more familiar with the opportunity and the product and the ability to get more edge data into Azure, we'll see continued progress with that. So it was a good step forward and more to come.

[Thanos Moschopoulos:]

Great, I'll pass the line. Thanks.

[Kent Thexton:]

Thanks Thanos.

[Operator:]

Your next question comes from the line of Scott Searle from Roth Capital. Your line is open.

[Scott Searle:]

Hey good afternoon. Thanks for taking my questions. Hey Kent First off, I wanted to wish you best of luck and congratulations on your retirement. I know we're a quarter out from that. But I just wanted to publicly throw that out.

[Kent Thexton:]

Thank you.

[Scott Searle:]

Hey and just to clarify, on the upside demand of 15%, that is for the entire business, is that correct? So in a normalized environment where we're not component constrained. You're looking at 125 million versus a 109 million, 110 million, is that correct? Or is there one segment of the business or two segments of the business that are being excluded from that upside number?

[Kent Thexton:]

No, you have that correct. In terms of the order volume that we have seen, we - in many quarters, we might have small amounts of supply constraints that would fit into there. It's just exceptionally large this quarter. But that is - we wanted to share the demand view so that while we're saying we're in line with consensus, we want to reflect what's going on from the sales side progress with our business.

[Scott Searle:]

Got you and just in terms of the realignment in reporting segments of the businesses, enterprise solutions, it sounds like is everything within that category now tied to an enterprise gateway or router? It wasn't clear to me because I think you mentioned some asset tracking applications as well. But it sounds like some industrial IoT modules are in the IoT solutions business. So I want to kind of clarify in terms of how that's being reported, is this basically going to look more like a cradle point type of segment in terms of the router gateway and recurring component that goes along with it.

[Kent Thexton:]

Yeah, good question Scott. So the majority of our enterprise segment is our gateways, and the recurring revenue, software, support and maintenance that goes along with them. We've also included in our enterprise segment, what we call our IoT applications business. And those were businesses that we originally acquired from Numerex. It includes asset tracking, prisoner monitoring and home security. And so those businesses have many similar dimensions to our enterprise business, similar strong gross margin profile and strong recurring revenue dimensions to them. So it's majority gateways and attach software plus our IoT applications business. That's our enterprise.

[Scott Searle:]

Okay, very helpful. I don't suppose there's any additional color that you could put with that in terms of the number of units that are under management? I think you said overall, there were 4 million units. But now that's spread across the two business segments. How many of those are tied to enterprise solutions? And is there a larger recurring revenue component that goes along with it because of what you're talking about enterprise class gateways and routers.

[Kent Thexton:]

We are not providing a breakout of our attachment rates by segment at this point in time. However, majority of our connectivity business is in IoT solutions and more of the enterprise side is the attachment of our cloud, software, device management support and maintenance for our gateways.

[Scott Searle:]

Got you and going forward. Are you going to continue to report your total recurring revenue then that's spread across those two segments or does that kind of go away now we're just strictly with those two segments?

[Kent Thexton:]

No, we'll be right reporting the total services and other recurring revenues as a total of the whole business on a continued basis. I think that's an important metric.

[Scott Searle:]

Okay. And lastly, if I could, just wondering if you're seeing any sort of uptick in business as we get to the 3G end of life across a couple of networks in North America. Have you seen any sort of pick up on that front? And maybe as well, any sort of commentary or thoughts that you're seeing related to CBRS that couples, I think, probably pretty well, what's going on in enterprise solutions, but it's still early on that front. Wondering if you get any color and thoughts on that front? Thanks.

[Kent Thexton:]

So let me answer the 3G question for so I think there's been a few false dawns on that there's been delayed - deadlines in delays. So I think a lot of 3G upgrade activity has happened. We still have some devices that will continue to upgrade going forward. And that's just in the American market. In Europe, they haven't announced sunset dates and there's quite a bit of 2G going on in Europe. And that migration path will happen later. So I think that it's more about as customers will start to be - the predominant technology now is 4G and customers are going to look to future proof themselves by upgrading to 5G and that will be the trend that we're looking to start happening through the year. And I'm sorry Scott, what was your second question?

[Scott Searle:]

Related to CBRS, if you're seeing a sort of early interest in demand from that particularly on the Enterprise Solutions front? Thanks.

[Kent Thexton:]

Yeah, private networks CBRS. Yeah, we're very keen on CBRS. We have seen increased demand for that. Our gateways operate on public network frequencies and CBRS frequencies. And so we've seen utilities, municipalities, other customers are interested in CBRS. We've talked about our partnership with Motorola, they're very active in CBRS and we provide gateways to help them with those product areas. And so we think that we're still in the early innings of CBRS rollouts. A lot of frequencies have been acquired and lots of interest in adding private network capability in addition to public. Our devices have the benefit of a single management platform to allow the user to track that device, whether it's in a public or private domain. And so we're well positioned and it's a trend that we're well positioned to take advantage of.

[Scott Searle:]

Great, thanks so much.

[Kent Thexton:]

Thanks Scott.

[Operator:]

Your next question comes from the line of Mike Walkley from Canaccord Genuity. Your line is open.

[Mike Walkley:]

Great, thanks and my best wishes to you also Kent in the next step of your journey.

[Kent Thexton:]

Thank you.

[Mike Walkley:]

Questions just for me back to the 50% higher revenue and we know it's a tight supply across the whole industry. But of that call it 50 million, you're not going to be able to ship this quarter, you think most of that is just pushed out to future quarters? Or do you think those are potential lost sales as customers maybe find alternate supply?

[Kent Thexton:]

Good question Mike and good to speak with you. So I think that we expect most of that to roll forward. There's very few instances where it's perishable demand. But we're working very hard for our customers. It's never good when you can't supply to the timelines that they need. So we're just active with a wide range of suppliers to work and have had great success with them prioritizing some of our especially public safety market products to be able to get us components for that. So we're expecting that to roll forward is the short answer to your question, but working hard at it every day.

[Mike Walkley:]

Great that's helpful. Thanks. And then Sam, a follow up question for you. You're one with the tight supply. What are the impacts maybe to shorter term gross margins, and you have to pay more for components in this tight environment on a relative basis? Or can you pass those on to customers? And then second, I think you said you had good line of sight into pro forma operating expenses for the March quarter, can you help us just think about a run rate for modeling given it's the first full quarter without any automotive running through it?

[Sam Cochrane:]

Yeah, good question. So first one, there'll be a margin impact. You can think about it as around a percent. We're having to go out and buy parts and raw materials in the grey market, open market, paying higher prices. But as Kent said we are very focused on servicing our customers demand. The products they use are used in critical applications. And so we're doing what we can to get those parts and get those products to our customers. But there'll be a small impact to our gross margin in the short-term. And to your first question to Kent, most of that will roll over. But since we expect the tight supply environment to continue in 2021, there'll be new ones that come up in the next quarter and so forth. So while there'll be recovery in Q2, there'll be new constraints as we sort of catch up on that backlog, if that makes sense. In terms of OpEx, I don't want to give any direct guidance there. But I believe in the prepared remarks, I said it would be down again, from the 50.1 level and 2 million, 3 million in that area would make sense.

[Mike Walkley:]

Okay, great. That's helpful. And last question for me, and I'll pass it on. Thanks for the historical data on the new divisions. Yeah, as we think about IoT solutions longer term, is this gross margin level, a good place to be thinking about or as LTARR grows you get more and more recurring revenue? Where could maybe gross margins trend in that business?

[Kent Thexton:]

Yeah, Mike thanks for that question. And so I'll just recap a little bit. So I think that enterprise is a gateway business it's higher gross margin, hardware and then high gross margin, recurring software in that part of the business. In our IoT solutions, modules and the global competitive dynamics, that would make it a lower gross margin product line, but then we're attaching the higher gross margin recurring revenues. So as that mix continues to grow, as our recurring revenue to hardware revenue ratio continues to move in the direction of recurring revenue, that will drag along - increase our overall gross margins in that business. The second thing that we've talked about previously is as we continue to scale our connectivity business, we expect to see the gross margins in that business improve. So we'll have improvement in mix and then improvement on the hardware side. On the module side with the strong global move towards LPWA and lower ASPs that will continue to have that product area as lower revenue and continue to be relatively low gross margins. But that's good for the overall market. That elasticity of demand is those lower cost units look for afford more connection points for IoT data and then out of that we're in a good position to enjoy good profitability on providing the full device cloud solution for our customers.

[Mike Walkley:]

Got you. Well, thanks for taking my questions.

[Kent Thexton:]

Okay. Thanks Mike.

[Operator:]

Your next question comes from the line of Derek Soderberg from ‎Colliers Securities. Your line is open.

[Derek Soderberg:]

Hi, everyone. Thanks for taking my questions. I want to start with LTARR. I guess I'm wondering if there was any impact there from the supply issues. I think you said this could be sort of an issue throughout the year. But some of these will sort of roll forward. So would these supply issues impact the LTARR deals may be signed in the past at all? I guess I'm just curious as to how these supply issues impacted any of your assumptions that you guys make for getting to that cumulative LTARR bookings number this quarter and then I have a follow up.

[Kent Thexton:]

Okay. All right. Thanks for the question Derek and good to have you on the call. So I think in terms of the supply issues effect instead of answering for LTARR, I'll say our recurring revenue. So I think that what we saw in this year was that Q2 with COVID and people working remote, it impacts their ability to get contracts signed for future business of recurring revenue. So our LTARR wins in Q2 were lower. They rebounded in Q3. And then we had a very strong Q4, as we just highlighted here. The next step with those design wins is to get those into production. And the COVID environment has been some slowing of getting projects into production. I think that globally, we're all getting better at the remote working, but a number of hands-on elements of implementations. I mean, there's been some challenges in that regard. But we're making a lot of progress on bringing those on. Where we have customers that we have won and like gave three new examples today, where we're getting both the hardware revenue and the service revenue. If there is supply shortages that delay being able to get our modules or gateways to those customers, it's going to delay marginally that recurring revenue side, but I look at as the - this building base of customers that are going to be consuming our ongoing connectivity services along with the hardware that will continue to drive that growth in our recurring revenue part of the business. So if you're a month or a quarter late on the hardware in the trend, it's not going to make a difference.

[Derek Soderberg:]

Got it and then just quickly on your 170 million cash balance, now that you have that automotive piece divested. I guess how comfortable would you guys feel going on acquiring something? I mean is the environment good for that? And then just generally anything on your focus on use of cash this year would be great? Thanks.

[Kent Thexton:]

Sure. Yeah. Good question. So when we announced the sale of our auto business, and I've said, and I sort of wish to have the same position is that we're just happy to have a strong balance sheet at this point. Selling automotive both strengthened our balance sheet, but allowed us to really focus on these two segments that we're now reporting against. And so that's been a big part of the driver for that. The opportunities that are afforded to us with a strong balance sheet enables us to be opportunistic. We don't feel we have any big missing parts that we need to go out from an M&A perspective to acquire. But we'll stay tight to what's going on in the marketplace. But no present plans to deploy that capital. We'll just - we'll keep our balance sheet strength at this time.

[Derek Soderberg:]

Great, thank you so much.

[Operator:]

Your next question comes from the line of Paul Treiber from RBC Capital Markets. Your line is open.

[Paul Treiber:]

Thanks very much, and good afternoon. Just want to focus on the - the growth in the services business, obviously, is quite strong this quarter. I imagine the bulk of that growth is IoT connectivity. Is that the case? And could you speak about the relative growth rates of IoT connectivity versus maybe enterprise connectivity? And I guess this is also managed IoT services or I guess the enterprise - sorry, the industrial applications?

[Kent Thexton:]

Yeah. Thanks Paul. Thanks for the question. So we saw growth in services across both of our new segments here. We saw a good growth in conductivity, continued growth in number of connected devices. And so that was driving our services forward. And then as we can - had a - driving more gateways into the market and driving the software connect to those devices driving the enterprise side. So as I said the majority of our connectivity is in IoT solutions and that's really where a lot of our LTARR in connected device wins occur. And as we continue to progress and drive sales of our gateways, which is a very strong focus for us, we'll continue to be able to attach more of our solutions. So both are growing and that's a forward focus for us.

[Paul Treiber:]

And how do you - I appreciate you're not giving me an outlook like the 2021 outlook, but the 25% growth in services, should we expect that growth to be sustained, accelerate? You reiterate the outlook, the long-term outlook on services, but how do we think about the snowball on your LTAAR and how that would translate into revenue growth?

[Kent Thexton:]

Yeah, I mean, generally, as we've talked about our models, it is something that will continue to accelerate and its accumulation model of as customers that we have won and as they deploy into more of their devices, we get the recurring revenue and so that continues to be additive. When we talk about new design wins, as those come into production, and they start selling more devices, those continue to add on. So I reiterated that we're on track for hitting our 200 million recurring revenue run rate by the middle of 2022, and 400 million by the middle of 2024. So you can see the acceleration there is more of those customers continue to deploy. And we continue to win new customers with the deployment side. So we will see faster growth on the connectivity side just because of the math of that. Whereas the enterprise recurring revenue off of deployed gateways is more of a linear attach to the gateway with our device-to-cloud module plus attach, as those continue to get sold into the marketplace, we get an additive effect of the conductivity, revenue.

[Paul Treiber:]

Then, just one last one for me, how do we think about the mobile computing segment here? You called out the design win losses in the past. Are you actively competing for design wins in that segment? Is it a segment that you want to pursue going forward or is it something that you just see is not strategic?

[Kent Thexton:]

Yeah, and good question, Paul. So previously, there was some large volume deals recall before with Lenovo and Dell and those are as Sam said not - won't be a reporting element going forward because we're not comparing to other years comps with those in the numbers. And that's not a segment that we're focused on moving forward with the large-scale PC OEM business, it's quite a rapid RFP cycle and with wins and losses and I don't think do we have differentiation in it. We have some smaller PC customers that have been longtime customers that we continue to support. But where we continue to excel at is in overall connectivity into other high speed enterprise rugged type application companies. So we've done very well, historically there. The company had some areas where they didn't have all of the design slots because of some product elements. As we brought 5G in, we really one significant design slot, one box slots that we - the company had forgone in previous cycles. And so we're - we'll continue to be highly engaged. What we do in our modules for embedded broadband is the same work, the same R&D work we're doing in modules for other businesses. So it's very synergistic. Most of those enterprise embedded broadband type of applications are less likely to be able to drive connectivity, because the nature it's sold by a provider like say, Cisco and then Cisco sells on to an enterprise. The enterprise makes their own connectivity decisions. So that's why we're less able to bundle or attach into those sort of distribution arrangements. But we're very glad to support our customers in that space. And as I said, we've done very well with 5G design wins in that area and we'll continue to work and focus on it.

[Paul Treiber:]

Thanks to my questions.

[Kent Thexton:]

Thank you.

[Operator:]

Your next question comes from the line of Todd Coupland from CIBC. Your line is open.

[Todd Coupland:]

Yeah. Good evening, everyone. I had a couple of questions. And I'll just run through them here. If we think about the cash requirement in Q1, 20 million more or less is what you called out. How much of that would be roughly one time in nature?

[Kent Thexton:]

Sam, do you want to - yeah, do you want to talk to that?

[Sam Cochrane:]

Yeah, good question. So roughly about half of that would be one time in nature, going forward, as we work our way through the supply constraint issues, we've invested in increasing our capacity in the manufacturing site. However, we still may need to add some buffer stock as we sort of get later in the year and as parts become available. But the restructuring costs and the adjustments related to the auto sale are for sure behind us. At least the vast majority of that are behind us, so happy to report that.

[Todd Coupland:]

Perfect and just like I'm clear on your statement, did you say that 50 million OpEx number would go down 3 million or 4 million in Q1 or over the course of 2021.

[Sam Cochrane:]

I said 2 to 3 and the 50.1 would go down 2 million to 3 million heading into Q1. The only offset on that one is a little bit of engineering rework that we're having to do related to - again, the supply chain tightness is causing us to rework new parts into products and solve problems on the go. That's leading to some additional costs. But again, we do expect it to come down, like I mentioned.

[Todd Coupland:]

Okay. And is then - is that more or less than absorb the restructuring and then it'll be the regular rhythm of the business for OpEx after Q1?

[Sam Cochrane:]

After Q1, we should still see some smaller decreases. There's still a little bit of restructuring work happening in the quarter. But the vast majority is done as we work towards that run rate. But going forward, we're going to be very diligent with our OpEx and ensure we're investing those dollars in the right areas. So I hope that answers your question.

[Todd Coupland:]

Yeah, it does. Thank you very much. And then on the recurring revenue piece, 32.9 million up 25% I think is what you called out. What is the 12-month trailing number for that? I think you said it, I might - I must have missed it. I was looking for it in the deck and I didn't see it.

[Kent Thexton:]

Sam, do you have that to hand?

[Sam Cochrane:]

Sorry. Can you repeat that question the trailing 12 months?

[Todd Coupland:]

I was just curious what the 2020 recurring revenue number was?

[Sam Cochrane:]

Over the - for the whole year?

[Todd Coupland:]

Yeah, for the full year.

[Sam Cochrane:]

Give me a second. Above 118 Todd, I don't have it. Yeah, it's 116. So the 118 number, sorry for the small delay there, the 118 number includes about 2 million related to the auto business. So from continuing Ops, it's 116.

[Todd Coupland:]

It's 116, so when you guys make the statement, you're tracking nicely. And with that growth rate, it suggests that the 116 compares to the 200 and the 400 that's the stated goals, right?

[Sam Cochrane:]

Well, the stated goals are run rate basis. So I wouldn't say necessarily that the 116 relates directly to that. But yeah, that's their trailing 12 month.

[Todd Coupland:]

Yeah, right. Yeah. So the way - okay, I accept that. So the way to think about it is more to run rate of the fourth quarter, and then how that progresses towards those two goals.

[Sam Cochrane:]

Correct.

[Todd Coupland:]

Yeah. And to the earlier question, 25% plus or minus depending on close rates and because of COVID and sort of getting through all of this, is there any other dynamics that are sort of worth noteworthy here beyond COVID? I mean, you cited a few examples at the beginning of the call. So I guess that's the point. But the takeaway is like, if we were to think - if you were to think about this versus your expectations, I don't know if you can strip away COVID, hard to do, I suppose. But how is it progressing versus your expectations? If you can get some qualitative commentary let's say around that 32.6 million 25% increase in the third quarter?

[Kent Thexton:]

Yeah, I mean, I think at a high level the strategy is playing out as we were expecting and focused on doing. We started talking about LTAAR in 2019 and reported 93 million of LTAAR and then now this year 140 million of LTAAR and those are the design wins that we've been driving into give a more complete solution to our customers. Many of the new customers coming in the industrial IoT side, shipping their products to multiple countries, we simplify the whole time to market and deliver that connectivity aspect and simplify the solution for them, so faster time to market and good return, so that part of our strategy has been playing out. There's been impacts of COVID on how quickly some of those projects get approved or implemented. But the general trend is there. And I think if anything COVIDs actually helped the general trend. The industrial companies that we're working with are looking to digitize their assets. They want to be able to get preventative maintenance and other benefits from that. One of the large customers another industrial IoT company, not the one mentioned here, was sharing with us that they see a 25% increase in follow on sales and a 20% reduction in cost to serve as they get their machines hooked up via IoT, so that they're getting all the sensor data from the devices they deploy. So the business case is strong for industrial companies. And that's going to be a big macro trend we're going to see over the years to come. And I think that all industrial companies will have to have an IoT strategy to be able to compete. So we're very well positioned. We're highly differentiated to serve that need as that industrial IoT market grows. And I think with the impacts of COVID, and people wanting to have things automated and not required to have as much of a human touch that that's going to accelerate things as we move forward. So we're expecting this market to be significant. It's playing out that way. And, and COVID is just increasing the aptitude for industrial companies to want to connect their assets.

[Todd Coupland:]

Yeah, okay. No, that's helpful. I don't know if you're going to provide this, but is there any color you can comment on qualitatively around retention, gross retention, churn, net retention, how that's sort of an expansion into the base once you actually land a project.

[Kent Thexton:]

Yeah, once we deploy a project we are, we are generally there for the life of the asset. And so the churn is very low. Once a customer is getting the IoT from that device, the only churn is if they no longer want that IoT data, we're not seeing that or that asset goes end of life. And then we're well positioned for the design win in the next generation of assets that they'll be shipping out there to replace it. So it is that once we are deployed with customers and providing that device-to-cloud. So we have the edge connectivity we're managing it through our device management. Our SIM management interfaces to the customer. We have our global mock that's managing and making sure that those devices are always on the air and reporting data. It's very sticky.

[Todd Coupland:]

Last question for me I know - we're obviously aware of the CEO, planned to transition. Is there any sort of commentary or comments that can be made relative to existing strategy? And what sort of adjustments might we anticipate with the CEO transition? Any comments that can be made on that would be helpful. I appreciate it. Thanks very much.

[Kent Thexton:]

Yeah. Sure. Glad to talk to that. I mean, our Board's really lined up with the overall strategy. And so we're looking for the company to continue on this path and build further success as we move forward. The ability to offer a complete device-to-cloud solution is proving very important for winning business in the marketplace. We are well differentiated and we look to scale both sides of our business, IoT solutions and enterprise solutions. So it's really about continued focus on the execution. It's been a pretty big transformation over the last two years from our products through to rebuilding what we do in our go-to-market side. And so that heavy lifting has been mostly complete. And focus on continued execution into this large and growing market.

[Todd Coupland:]

Thanks a lot Kent. I can appreciate the color.

[Kent Thexton:]

Yeah, thanks Todd.

[Operator:]

There are no further questions. I'll turn the call back to management for closing remarks.

[Kent Thexton:]

Well, thank you very much, great set of questions today. Glad to share our annual results with you and look forward to continued engagement. We wish everyone the best of health in these challenging times. I think there is some good light at the end of the tunnel with what's happening with vaccinations and declining rates. We look forward to more things getting back to normal and especially having product supply getting back to normal. But we'll continue to work that hard for our customers and for our results. So thank you very much everybody. Have a good rest of your day. Cheers.

[Operator:]

That concludes today's conference call. You may now disconnect.