Sierra Wireless, Inc.
Q1 2013 Earnings Call Transcript
Published:
- Operator:
- Good afternoon and welcome to the Sierra Wireless First Quarter Results 2013. At this time all lines are in listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time. I would like to remind everyone that this call is being recorded today, Thursday, May 2, 2013 at 5
- Dave McLennan:
- Thanks, [Ryan], and good afternoon everybody. It's Dave McLennan speaking. Thank you for joining today's conference call and webcast. With me today on the call is Jason Cohenour, the President and CEO. 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. Jason will provide a general business overview. I will then cover the first quarter 2013 financial performance in detail as well as guidance for the second quarter of 2013, and then Jason will follow up with a brief summary, and then we'll have Q&A. Before we get started, I would like to reference the company's Safe Harbor statement. A summary of our Safe Harbor Statement can be found on page two of the webcast and is now being displayed. Today's presentation contains certain statements and information that is not based on historical facts and constitutes forward-looking statements. These statements include our financial guidance for the second quarter of 2013 and commentary regarding the outlook for our continuing business. Our forward-looking statements are based on a number of material assumptions including those listed on page two of the webcast presentation, which could prove to be significantly incorrect. And our forward-looking statements are subject to substantial known and unknown material risks and uncertainties. I draw your attention to a longer discussion of our risk factors in our Annual Information form and Management's Discussion and Analysis which could be found on SEDAR and EDGAR as well as in our other regulatory filings. This presentation webcast should also be viewed in conjunction with our press release and with the supplementary information on our website. With that, over to you, Jason, to provide highlights.
- Jason Cohenour:
- Thank you, Dave, and good afternoon everyone. On April 2 we achieved yet another critical milestone in the transformation of Sierra Wireless, completing the sale of our AirCard assets and operations to NETGEAR for $138 million in cash plus assumed liabilities of approximately $5.5 million. We are now an M2M pure play and the clear global leader in this space with over 33% market share. With this transformation we're now able to focus all of our efforts and resources on pursuing what we believe to be an exciting secular growth opportunity. In the first quarter of 2013 our M2M business posted solid year-over-year growth with revenue up 10% and in line with guidance. We once again had a strong contribution from the acquired Sagemcom business which was the driver of our year-over-year growth. Solid revenue and gross margin led to a non-GAAP loss from operations that was slightly better than expected. During Q1 we also continued to lay the foundation for expected long-term growth and value creation with new design wins, new product launches and key customer deployments. As the M2M leader, we intend to be a key enabler of the internet of things, and we believe that this presents a great opportunity for long-term profitable growth. We believe in the vision of a connected world, a world where every device that can deliver value from being connected will be connected. We believe this because we see it happening today in our business with our solutions connecting everything from cars to lighting systems, to copying machines, to being internet of things. We also see the focus and investment from large ecosystem players such as Cisco, Ericsson and Verizon focused on investment that has clearly helped to enhance global awareness of the value of connected machines. We believe that this enhanced awareness and growing investment will broaden and accelerate the market opportunity. In addition, new growth enablers are emerging. New service pricing models, new business models and new tools and software that make solutions easier to build, deploy and manage. We believe that this combination of factors adds up to a very exciting secular growth opportunity. We believe that we are exceptionally well-positioned to capture this secular growth opportunity. We're the clear market leader with the blue chip customer base, strong global presence, unmatched innovation, and a product line that spans the M2M value chain. We have the industry's broadest embedded wireless module product line, from 2G to leading-edge 4G, covering multiple form factors and a range of embedded intelligence options. This enables us to meet the needs of nearly any global OEM operating in any region on any network around the world. We have a range of intelligent gateways and routers that deliver a highly configurable plug-and-play solution for corporate and government enterprises. And we have our AirVantage cloud that works with our device platforms to enable the rapid development and deployment of M2M solutions. By providing such device to cloud solutions, we make it easier, faster and cheaper for our customers to build, deploy and manage their M2M applications. We believe that this places us in a unique competitive position and enables Sierra Wireless to not only grow our share but to capture more of the value chain to expand margins and to build competitive barriers. Now to assist the investment community in gaining a deeper knowledge and understanding of our M2M business, we are providing new product segmentation information. Starting today we'll be providing revenue results for two product segments or two product lines, OEM solutions and enterprise solutions. OEM solutions consist of all AirPrime embedded wireless modules sold predominantly to OEM customers, including PC and consumer device manufacturers. Enterprise solutions consist of AirLink gateways and AirVantage cloud services sold predominantly to corporate and government enterprises. If you consider this a refinement of our historical product segmentation approach as opposed to a wholesale change, we've also reclassified our historical product segmentation to reflect these newly-refined categories. Q1 year-over-year comparisons can be found in today's press release and more historical comparisons will be provided in our MD&A which we plan to file next week. So let's take a look at revenue results from both OEM solutions and enterprise solutions. In the first quarter, OEM solutions recorded revenue of $89.2 million, an increase of 11% compared to Q1 of 2012. Contribution from the acquired Sagemcom business was strong in the quarter and the key driver of year-over-year growth. During the quarter OEM revenue was impacted by normalized seasonal weakness as well as product transitions as some customers migrated from older platforms to new 4G products. Innovation is a key driver of our leading market position. In Q1 we continued to demonstrate our commitment to innovation and technology leadership, introducing our next generation of wireless modules. These module platforms are absolutely unique in the market, combining an advanced multicore architecture, new embedded application framework and pre-integrated AirVantage cloud services. The result is an entire M2M ecosystem on a module, enabling OEM customers to develop and run their application directly on the module in a dedicated core and to deploy and manage their devices in the cloud, reducing overall development time and total cost of ownership. During Q1 our design win momentum continued to be solid, particularly with OEM customers in the networking, energy and PC segments. Our design wins included new programs with existing customers as well as programs with new customers. New design wins are important as they give us good visibility to future revenue growth. Moving to enterprise solutions, revenue for enterprise solutions was $12.2 million in Q1, flat compared to the same period of 2012. While we believe overall demand was solid for our enterprise solutions, revenue was dampened as we experienced delays in transitioning some of our customers to our new 4G AirLink platforms. During Q1 we introduced our newest AirLink gateway, the LS300. The LS300 is a small, rugged, highly functional gateway ideal for applications in industrial environments. Given its small size and optimized cost basis, we also expect the LS300 to help us drive growth in our enterprise solutions in Europe. Commercial shipments of the LS300 have recently commenced. We also continue to make progress with fully integrated solutions that include both AirLink gateways and AirVantage cloud services. In Q1 we commenced deployment of a device to cloud solution with Atlas Copco, the world leader in industrial air compressors. In this solution, Atlas Copco is integrating AirLink gateways with their high-end air compressors and collecting machine data from the compressors through our AirVantage cloud and populating customer support systems. Atlas Copco is using this solution to provide a higher level of service to their customers through preventive maintenance, proactive system alerts and reduced downtime. Leveraging our device to cloud solution approach, Atlas Copco was able to build and deploy their application faster and at lower cost than using conventional development methods. We also secured new design wins for our device to cloud offering, including a win with a leading provider of air valves and higher pressure monitoring services for commercial vehicles. The sale of our AirCard and singular focus on the M2M opportunity is all about driving shareholding value. The sale of our AirCard liberates value from that line of business and provides financial capacity to accelerate our growth in M2M. Organically our goal is to continue to drive revenue growth and expanding profitability as we leverage our leadership position, capture share and expand into new segments and geographies such as Brazil. We also plan to put our transaction proceeds to work in acquiring great M2M companies to help us further expand our position in the value chain, strengthen margins and drive growth. I believe our track record of doing this is proven. Since 2008 we've grown our M2M business organically and through acquisition from $158 million to nearly $400 million, a growth rate of nearly 26% -- an annual growth rate, pardon me, of 26%. We've done this while improving our margin profile and defensibility. Our aim is to do more of this, and in so doing, deliver a great return for shareholders. I'll now turn the presentation over to Dave who will provide more detail on our Q1 financial results and Q2 guidance.
- Dave McLennan:
- Thank you, Jason. I would like to note that we report our financial results on a US GAAP basis. However, we also present non-GAAP results in order to provide a better understanding of our operating performance. Additionally, with the sale of our AirCard business which closed on April 2, the assets and liabilities of the AirCard business are presented on our balance sheet as held for sale and, on our income statement, results are presented as discontinued operations. So in this presentation, when we talk about revenue, gross margin, OpEx and earnings from operations, we are only referring to our continuing operations comprised of our M2M business. All references to guidance also only refer to continuing operations. The sale of the AirCard business also resulted in us having one reportable segment, our M2M segment. This one segment is comprised of two product lines, as Jason mentioned, OEM solutions and enterprise solutions. Moving on to the results for Q1, Q1 was a solid quarter for us with results of our continuing operations being in line or in some instances better than our guidance expectations. Revenue from continuing operations at $101.4 million was at the high end of our guidance range. Our non-GAAP loss from continuing operations of $1.4 million was in line with the more favorable end of our guidance range. And our non-GAAP net loss from continuing operations of $700,000 or $0.02 per share -- loss of $0.02 per share was better than our guidance range. In addition, non-GAAP discontinued operations contributed $3.6 million or $0.11 per share of net earnings to our results. As a reminder, the reconciliation between our GAAP and non-GAAP results is provided in the press release as well as in the Investor Relations section of our website. Non-GAAP results exclude the impact of stock-based compensation expense, acquisition and disposition costs, acquisition amortization, asset impairments, integration costs, restructuring costs, foreign exchange gains or losses on the translation of balance sheet accounts, and certain tax adjustments. Moving on to our operating model, on a year-over-year basis the key non-GAAP financial metrics for our continuing business, specifically revenue, gross margin and earnings from operations are showing solid improvement. First quarter revenue of $101.4 million represents 10% growth compared to the same quarter last year. This is driven by a strong contribution from the acquired Sagemcom M2M business. Our products -- our other products in our OEM solutions line were modestly down year over year as a result of more normalized seasonal patterns and product transitions occurring in Q1 of this year compared to a year ago. Revenue from our enterprise solutions line was flat year over year as we worked through certain product transitions to 4G platforms. And as expected, revenue was down from what was an exceptionally strong Q4 2012 for similar reasons to the year-over-year comparisons. Gross margin in Q1 at 33% improved nicely compared to a year ago, reflecting progress on product cost reductions and favorable product mix. At $34.9 million, our non-GAAP operating expenditures were in line with expectations. Following the completion of the AirCard transaction, our OpEx run rate is fully invested for growth and we are managing it closely. However, we believe this level of spending is appropriate as we reset our business model and continue to invest in order to realize on the expected future growth of the M2M business. Going forward we believe we can become nicely profitable by driving reasonable revenue growth without necessarily having to add to OpEx. Our second quarter guidance which we'll talk about in a moment represents a good first step in this direction with a return to profitability driven by top line growth, solid gross margin and flat OpEx. Year-over-year revenue growth combined with higher gross margin resulted in a reduced loss from operations in Q1 and our continuing operations. Turning to our balance sheet, our financial capacity remained strong in the first quarter and subsequent to quarter end has been significantly enhanced with the proceeds of the AirCard sale. During the first quarter we consumed $7.7 million of cash and ended the quarter with $55.9 million in cash. Cash used in operations was $5.5 million. This is primarily working capital driven, specifically accounts receivable increase reflecting a heavier weighting in sales to the latter part of the quarter. And we made additional inventory prepayments to our contract manufacturer. Capital expenditures also consumed $2.9 million of cash during the quarter and we repurchased 124,300 shares for $1.4 million under our buyback program. Partially offsetting these items were proceeds of $2.1 million from the exercise of stock options during the quarter. Taking into consideration the estimated net proceeds from the closing of AirCard which occurred on April 2, our pro forma cash balance is in excess of $160 million. During the second quarter we expect the combination of stronger earnings and improved working capital picture, including a more linear revenue profile and receivable collection pattern to result in a positive -- in positive cash flow from operations in Q2. Moving on to guidance for the second quarter which is provided on a non-GAAP basis for our continuing operations, based on an expectation of growth in both our OEM and enterprise solution product lines, we expect Q2 revenue to be between $107 million and $111 million. This represents year-over-year growth of about 15% and sequential growth of 8%. For Q2 we expect gross margin percentage and operating expenses to be similar to the levels we saw in the first quarter of 2013. This results in a return to profitability with expected earnings from operations of $500,000 to $1.8 million. Assuming a tax rate of approximately 30% in Q2, we expect net earnings to be between $400,000 and $1.2 million or $0.01 to $0.04 per share. With that, I'll turn it back to Jason to summarize.
- Jason Cohenour:
- Thanks, Dave. So in summary, Q1 was a solid quarter. We delivered revenue growth in line with expectations, strong gross margin, and a narrower loss than expected. Looking forward we expect to return to stronger revenue growth and non-GAAP profitability in Q2. For the midterm, our expectations are for steady revenue growth and expanding profitability. Longer term we believe that M2M represents a great secular growth opportunity. We believe that in the fullness of times, most machines in our lives will be connected to the internet of things. Furthermore, many market drivers are falling into place
- Operator:
- [Operator Instructions]. Your first question comes from the line of Mike Walkley from Canaccord Genuity. Your line is open.
- Mike Walkley:
- Great. Thanks. And good job on the first quarter for the new business. Jason, just wanted to talk on a high level, you know, to get track record in M&A in the area, Telular was just recently bought at a nice premium. Is that changing valuation as you look at certain companies or is it too early to say yet?
- Jason Cohenour:
- I think it is a little bit early to say. You know, I don’t -- you know, if you look at Telular, you know, good combination of recurring services and hardware. I don’t think that -- I don’t think that that valuation is out of line with other comparables. So, you know, we need to be, obviously, we need to be careful and we need to be careful with our target selection and we need to negotiate good deals. We also have to be, you know, realistic that a lot of these companies, especially if they're good companies like Telular, that, you know, they're not going to -- they're not going to go cheap.
- Mike Walkley:
- That's fair. And then just on your results for the quarter, Sagemcom has come in stronger than your expectations. Is that mix going to stay strong for the steady gross margin or is it just you get a little leverage from the higher sales and Sagemcom will be a little less of the mix?
- Jason Cohenour:
- Yeah, I think -- I would characterize -- I would characterize Q1 as quite strong for Sagemcom. So I don’t -- and benefiting from a couple of, you know, specific customer situations. So I don’t know, you know, how long that lasts at that level. We do expect it's going to continue to be a solid contributor of course, but again I would consider Q1 exceptionally strong. I'd also point out that there's, you know, a lot of moving pieces, Mike, in the business, you know, including our enterprise solutions that was I would say a little bit dampened in Q1. I think we have certainly opportunities to grow that. So I think, you know, we've got a lot of mix factors in the business, not just Sagemcom. And I would, you know, I would certainly consider things like enterprise solutions as an opportunity for driving favorable mix.
- Mike Walkley:
- Okay, great. And are you going to share any kind of gross margin color for the two divisions as you're breaking them out? And also on the enterprise side, since it's a higher margin business I would guess, is there any seasonality to that business more than maybe the larger OEM solutions business?
- Jason Cohenour:
- You know, I -- so first of all on seasonality, I'd say normalized seasonality is approximately the same for both of those businesses, although again there's always special circumstances that can cover that up. But I'd say normalized seasonality is the same for both. And then from a gross margin standpoint, yeah, we, you know, happy to provide some directional commentary on that. And think about OEM solutions as a roughly 30% gross margin business and enterprise solutions as a roughly 50% gross margin business.
- Mike Walkley:
- Okay, great. That's helpful to model these two divisions going forward. And Dave, just -- is the 30% tax rate the right way to be using going forward for the standalone business?
- Dave McLennan:
- Yeah, it is, Mike. And just you'll understand that taxes are tricky subject here as we, you know, hobble around breakeven, and they can be quite volatile. But I would use 30% as a proxy.
- Mike Walkley:
- Okay. That sounds good. And then I guess just one last question for me and I'll pass on, Jason, just as you try to move up the value chain from the overall solutions, you have a big focus on selling more services. I think you gave a few examples on the call. Can you maybe just on a high level talk about the sales team as they go back to count some of the opportunities you see to sell more services going forward?
- Jason Cohenour:
- Well, I think, you know, it's certainly a key focus for us, Mike. We think we have the products we need now in place, including the AirVantage cloud, you know, the newly-launched cloud that we released in Q4 is I think a -- I think it's an excellent product. I think it's ahead of the market. Every sales guy has a quota for selling services, including the OEM sales guys. So I think we've got a, you know, built-in channel opportunity there and some real opportunity for, you know, call it sales synergy. And it's definitely a key part of our offering going forward. So, you know, it's going to take time. It has taken time and it's going to continue to take time, but I'm very bullish. And I think that, you know, certainly at a minimum it adds additional value to our hardware platforms. You know, this device to cloud approach gives us call it margin protection, if you will, on our hardware platforms, and gives us the opportunity to build a recurring revenue stream over time. So it's going to factor significantly on our go-forward business. And it's going to be a factor in our M&A targeting as well.
- Mike Walkley:
- Okay. Good luck with the M&A targeting and thanks for taking my questions.
- Jason Cohenour:
- You bet. Thank you, Mike.
- Dave McLennan:
- Thanks, Mike.
- Operator:
- Your next question comes from the line of Todd Coupland from CIBC. Your line is open.
- Todd Coupland:
- Yes. Good afternoon, everyone. A couple of questions on the outlook. So, OpEx you're calling out is roughly $36 million. And if we think about revenue stepping up later in the year after Q2, should you be able to hold OpEx with seasonal strength in the business or will it flow it up with that?
- Dave McLennan:
- Sure. Todd, it's Dave here. Just, you know, I would take OpEx more at $35 million in the $36 that you suggest, so, similar to our non-GAAP Q1 levels.
- Todd Coupland:
- Yeah.
- Dave McLennan:
- And definitely, you know, as we go through the transition of the company and shed the AirCard assets, we, you know, we definitely feel that our current cost structure allows us to, you know, we're fully invested for growth and allows us to continue to invest in the product line and can lead to grow revenue within reason above where it is today. We feel that we don't have to significantly drive our OpEx to do that.
- Todd Coupland:
- Okay. So -- okay. And when you think about the seasonality of this business, what kind of cadence should we expect? Like I think there are some fairly juicy sequential improvements in the back half of the year, you know, stepping up to the 120 million level per quarter and higher. I mean, do you have, you know, if the economy cooperates, do you have that level of business in the pipeline or is the Street -- does the Street need to refine those numbers for later in the year? Because it's obviously a significant step-up from, you know, the one to one-ten that we're seeing, you know, the first half of the year per quarter.
- Jason Cohenour:
- Right, right. Actually on a percentage basis it would be less, but I mean it's -- so I'd be careful not to get ahead of ourselves on this. You know, we're giving guidance one quarter at a time. And we are focused on continued steady growth on the top line. And our belief is we can achieve steady growth, and I'm not going to get more precise than that for the second half. And as Dave said, we think we can maintain OpEx where it is. We're certainly going to be focused on maintaining gross margin where it is or hopefully enhancing that over time. And the results should be expanding profitability. So, you know, I'm going to stop short of giving you precision on the second half, Todd, but steady growth is our focus -- steady organic growth is our focus.
- Todd Coupland:
- Okay.
- Jason Cohenour:
- Just to give that a little bit of color too, I mean, you know, we have, and this is both -- it's an organic and inorganic comment, but we've got a four-year track record of driving a 26% CAGR, and I'm not suggesting that should be in your model for the second half, but, you know, we have been growing the business both organically and inorganically and notwithstanding year over year in the legacy business. If you look at a 12-year -- pardon me, a 12-month rolling revenue performance, we've grown the business without Sagemcom as well.
- Todd Coupland:
- But in Q1, to that point, if I read your comments correctly, Sagemcom was the 11% improvement, organically you were about flat year on year, is that --
- Jason Cohenour:
- It absolutely was. That's why I gave you the 12-month rolling figure. So, you know, I don’t -- it's not constructive to focus on a single quarter. If you're focused on, you know, because things happen, right, up down, sideways, in a given period. But if you look at a 12-month rolling revenue performance, there's significant organic growth there.
- Todd Coupland:
- Okay. And would you -- how would you characterize the state of your economies right now in terms of take-up of the products? Is it muted? Is it consistent with a rolling 12-month? How do you look at it?
- Jason Cohenour:
- I'd say we're kind of living through the same thing we've been living through for the past 12-plus months. I would characterize the Americas as growing but tenuous and I would characterize Europe as tough. And, you know, Asia is okay. Asia is not fantastic, Asia is okay. So I think, you know, if there's tough spot in the world, you're not going to be surprised to hear this, it's Europe. And it kind of continues to be tough just like it was a year ago.
- Todd Coupland:
- Okay. One last question if I could -- pass the line. I don’t know if you're going to be giving the industry splits in terms of OEM demand or overall M2M exposure, but I was interested to hear that GM is calling out they're going to connect all their cars starting next year on an LTE basis. And just wondering is that's an opportunity that you guys would be pursuing.
- Jason Cohenour:
- Well, definitely pursuing, but sadly I can't report a design win there.
- Todd Coupland:
- Okay. And are you going to split out the business by sector?
- Jason Cohenour:
- No, we won't. You know, I think from time to time we'll give directional commentary around that, Todd, but we're not going to be reporting on a per industry segment basis. So what will be consistent quarter by quarter is we'll provide the two new product lines that we defined, giving revenue results on the two new product lines.
- Todd Coupland:
- Okay. That's great. Okay, thanks a lot, Jason. Appreciate it.
- Jason Cohenour:
- You bet.
- Operator:
- Your next question comes from the line of Daniel Kim from Paradigm Capital. Your line is open.
- Daniel Kim:
- Afternoon. Thank you, gentlemen. Just a quick question just to follow up on the operating cost model. Dave, I wondered if you can help us get a better sense of how much more synergies you believe can be extracted from Sagemcom. I believe you're still relatively early in the pages of realizing some synergies. Can you lay out a plan for us in terms of perhaps how much more and how much longer it might take please?
- Dave McLennan:
- Yeah, I mean it's a, you know, it's been a couple of quarters since Sagem has been in the fold. I think probably the most obvious area where we can benefit from the two teams from a synergy perspective is in the sales area, and we are benefiting from that today. So I think that's probably the scope of that at this time.
- Daniel Kim:
- Do you see any opportunities for instance in the R&D area? If we look at the numbers from Q4 to Q1 and now guidance for Q2, sequentially it's up roughly $2 million. Any sense of how that number is going to continue to go going forward?
- Dave McLennan:
- Yeah, I think certainly just a comment on the Q4 to Q1 increase. Q4 we had a contribution for a program from a partner that served to reduce R&D expenses. So that sort of artificially brought Q4 lower by about $1.5 million. So if you normalize that, Q4 was more like $34 million and we're up a little bit from that in Q1. And reaching that kind of level, that $35 million, it feels like the right level for the time being.
- Daniel Kim:
- Okay. Perfect. Thank you very much.
- Operator:
- Your next question comes from the line of Richard Tse from Cormark. Your line is open.
- Richard Tse:
- Yeah, thanks. Just a follow-up question on Todd's question there. Could you maybe give us an order of magnitude of your recent design wins relative to what it may have been 12 months ago and just so we can get a gauge of the progress on that front?
- Jason Cohenour:
- Sure. I mean it's kind of tough to, you know, mark that with precision. So I'll give you some color commentary on it, Richard. I'd say design win activity continues to be good, solid, strong. So I don’t know that it was up significantly from a year ago, but I will say during the quarter, and design wins -- design win activity will fluctuate of course quarter to quarter. But in Q1 in particular, it was quite good around winning new programs with existing customers, so, big existing customers like Cisco as an example, like [Flamenco], we've, you know, we've been awarded next-generation programs, if you will. So with those customers we've got secured continuity. And the extent to which they expand their businesses will be a direct beneficiary. Similarly with Fujitsu on the PC side, we've been awarded next-generation design wins. And then on new customers, I would say the activity continued to be pretty good. I don’t know a good, I don’t know, half a dozen of new customer design wins during the quarter. Networking was definitely a bit of a theme. A couple of names there are Aruba, Technicolor. On the PC side, maybe not so much a new design win but a recent design win with Dell and we'll be shipping product to them starting in the second half. And in the energy space, new customers including names like [Grid Net]. So I'd say it was a pretty strong quarter in terms of both new programs with existing customers and new customer wins.
- Richard Tse:
- And just to clarify my understanding, these are coming through direct through your -- on sales force? You guys don't really use partners that often, do you?
- Jason Cohenour:
- We do. These are all direct. Roughly speaking on the embedded module business, Richard, about 70-plus percent of that is sold direct to the OEMs. The balance 30% goes through distribution, and they tend to be, you know, distributors tend to sell to smaller customers.
- Richard Tse:
- Great. And then just going back to the, you know, the cash in the bank. Obviously you're looking for acquisitions. Do you guys have any opportunities for organic initiatives outside some of your core products that would sort of be like kind of a game changer, meaningful upgrade or platform or whatever it may be?
- Jason Cohenour:
- I'm sorry, I'm not sure if I understood the question --
- Richard Tse:
- Yeah. You know, if you leave us with the core business of, you know, embedded, are there kind of new products or services that you're potentially going to be working in the background that add to that?
- Jason Cohenour:
- Organically you mean?
- Richard Tse:
- Yeah.
- Jason Cohenour:
- Yeah. I think -- well, I think there are. I mean, you know, we launched what I think is a pretty exciting next-generation product line in February with our new multicore architecture. And actually the 2G, just to give that some context, the 2G version of that new product line was actually based on our ASICs. So that's an ASIC of our own design. So we, you know, not only own the full software stack including the protocol stack, including the real-time OS, we also own the silicon. So we've been able to create, you know, what we believe to be quite a lot of differentiation in that platform, including a dedicated core for customer application, another core for a low-power application, and a third to run the protocol stack. So quite unique. It's almost like -- it's kind of like an automotive system on a chip is the way to think about it. And we've also introduced our next-generation embedded application framework. So that'll be a Linux-based embedded application framework that will run on that platform, as well as platforms from players like Qualcomm. So I consider that pretty heavy organic lifting that, you know, that drives I would say some pretty critical differentiation for us in our next-generation products. By the way, the products aren't launched yet; we just introduced them. Right? So it's going to take -- it's going to take months before those products -- several months before those products get into the market. And then on the AirVantage side, yeah, I mean we've got a roadmap to continue to layer on, you know, key elements of value, so to provide more services. I'm not going to disclose exactly what that roadmap is, but, you know, I think we are, on an organic basis, fully committed to continuing to add layers of value to our cloud offering.
- Richard Tse:
- Okay. And just one final question, in regards to share repurchases. Obviously you've got a lot of cash there. But how are you going to -- I guess the continuing program of repurchase stock, you know, it's obviously below [inaudible] these days, how do you think about that?
- Dave McLennan:
- It's Dave here, Richard. You know, certainly we've got the NCIB program in place and we execute a little bit of that when the window was opened in Q1 after we got an approval. And I think we'll continue to execute on that program in the coming quarters as well. Currently though, the immediate priority is to really deploy that capital through M&A and, you know, augment our organic growth with moving up the value chain in a couple of different segments or a couple of different areas.
- Richard Tse:
- Okay, great. Thank you very much.
- Dave McLennan:
- Thank you.
- Operator:
- Next question comes from the line of Paul Treiber from RBC Capital Markets. Your line is open.
- Paul Treiber:
- Thanks very much. I just wanted to focus on your revenue guidance for Q2. And could you perhaps provide some high-level comments on how much of the sequential growth is coming from just on seasonality versus some pickup from some of the delayed [product] transitions versus incremental revenue from new design wins?
- Jason Cohenour:
- It's hard to be -- hard to be precise on those metrics. I will say, you know, thinking in the two product lines, you know, we've got visibility on and embedded growth fairly broadly based. We've got visibility, and that includes visibility on increasing sales to PC OEM customers. And similarly on the enterprise side where as we step through in Q1, some product transitions to 4G platform, we have visibility on growth there. So those are kind of -- some of the pieces that are driving some sequential improvement in Q2.
- Paul Treiber:
- Maybe asked another way, the delayed product transitions on the enterprise solutions side, how much of an impact does that have in Q1? Did you just say $12 million or so?
- Jason Cohenour:
- Yeah, something like that. I mean it's not, you know, wouldn't have dramatically changed the result. But it's, you know, call it $1 million to $2 million.
- Paul Treiber:
- Okay. And then NETGEAR is a customer right now, how -- what time period will that roll off and how large I mean of a customer are they?
- Jason Cohenour:
- Well, again we're not going to be precise on, you know, exactly how large they are. We have no 10% customers or one-tenth, but yeah. So we've got, you know, we're very active actually right now with NETGEAR getting a couple of key products launched with them through -- specifically through the Verizon channel. And, you know, it's tough to say exactly when that starts to roll off, but given how tough it is to go through these integrations and go through product launch and get the things channelized, I couldn't -- I can't see that going away before the end of the year. So I think, you know, I think we're in business selling to NETGEAR probably through the end of this year. And then that will have a bit of a tail on it. And then it will go away over time as they become completely self-sufficient on their own module capability.
- Dave McLennan:
- But interesting, Paul, you know, around that space, in the networking area, we're seeing a lot of activity. So I don’t think there's any shortage of opportunities to replace NETGEAR opportunities over time and grow that business.
- Paul Treiber:
- Okay. And could you elaborate on your comment about entering Brazil? In what capacity would you enter the market? And would you do that through a partner or is there some investment, OpEx investment, that may be associated with that?
- Jason Cohenour:
- Well, the OpEx investment is already in our -- think about that as already in the business. We've, you know, with our acquisition of Sagemcom, we picked up a, you know, a very small team, but a team dedicated to Brazil nonetheless. Quite a bit of our shipments to Ingenico go through our Brazil subsidiary. We've got manufacturing in place and in line already in Brazil. So we've got, you know, from a -- by the way, from a cost structure standpoint, it's quite small, but we have our presence set up in Brazil including, you know, sales and sales and operations. And we've got a pretty good revenue flow. And we'll leverage that basically. So the nice thing is we've got a business infrastructure, we've got manufacturing, we've got products and people infrastructure we can leverage now to expand that business beyond Ingenico. And Ingenico Brazil is already a pretty nice contributor. So it's a business flow we can work off of and leverage.
- Paul Treiber:
- Okay, thanks. Just so I understand.
- Jason Cohenour:
- Yeah. And by the way, if there's a theme there beyond Ingenico and payment, it would most likely be automotive.
- Paul Treiber:
- Okay. Okay. Speaking of automotive, I think you guys have a couple of new design wins that you're ramping up through the summer. How does the magnitude of those compare against your existing automotive ones?
- Jason Cohenour:
- Well, they are, you know, I'd say they're significant. You know, one of our larger customers we expect will be Harman who's shipping to Chrysler. So I think, you know, they'll be significant contributors.
- Paul Treiber:
- Is there any impact in Q2 on that, like revenue impact?
- Jason Cohenour:
- We do expect to make shipments to Harman in Q2.
- Paul Treiber:
- Okay, that's helpful. Thanks so much. I'll leave it at that.
- Jason Cohenour:
- Okay.
- Dave McLennan:
- Thanks, Paul.
- Operator:
- We have no further questions on the line at this time.
- Jason Cohenour:
- Okay, great. Well, with that, [Ryan] and company, I'll thank everybody for joining the call. And as usual, management will be available if you're Richmond if you have follow-up questions. [Ryan], you can disconnect the line.
- Operator:
- This concludes today's conference call. You may now disconnect.
Other Sierra Wireless, Inc. earnings call transcripts:
- Q4 (2023) SWIR earnings call transcript
- Q1 (2022) SWIR earnings call transcript
- Q4 (2021) SWIR earnings call transcript
- Q3 (2021) SWIR earnings call transcript
- Q2 (2021) SWIR earnings call transcript
- Q1 (2021) SWIR earnings call transcript
- Q4 (2020) SWIR earnings call transcript
- Q3 (2020) SWIR earnings call transcript
- Q2 (2020) SWIR earnings call transcript
- Q1 (2020) SWIR earnings call transcript