Sierra Wireless, Inc.
Q2 2015 Earnings Call Transcript

Published: 7 Aug 2015

[Operator:]

Good afternoon. My name is Phoenix and I will be your conference operator today. At this time, I would like to welcome everyone to the Sierra Wireless Second Quarter Earnings 2015 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to David Climie, Vice President of Investor Relations. You may begin.

[David Climie:]

Thanks Phoenix and good afternoon, everybody. Thank you for joining today’s conference call and webcast. With me today on the call is Jason Cohenour, our President and CEO and Dave McLennan, our Chief Financial Officer. As a reminder, today’s presentation is being webcast and will be available on our website following the call. Today's agenda today will be as follows

[Jason Cohenour:]

Thank you, David and good afternoon everyone. I will begin with some brief highlights of the second quarter of 2015. Revenue was strong in the second quarter at $158 million representing year-over-year growth of 17% and record quarterly revenue for the company. Our year-over-year revenue growth was driven by a combination of strong organic growth of 14% and solid contribution from acquired businesses including a full quarter from Wireless Maingate. Strong revenue in the quarter help to drive continued year-over-year improvements in the company’s operating leverage and profitability. We also completed the acquisition of Accel Networks in the second quarter and integration activities are underway. As a reminder Accel is a provider of secure 4G managed connectivity service for distributed enterprises such as retail outlets with more than 300 customers and 5,000 locations across the U.S. Accel’s connectivity solution can be used as a primary or backup network connection for these distributed enterprises and this is a market we believe represents a secular growth opportunity for the company as 4G speeds and reliability now represent an attractive alternative to more expensive and harder to deploy T1 circuits. We announced the acquisition of MobiquiThings, an innovative mobile virtual network operator in Europe. MobiquiThings is focused on managed connectivity services for the Internet of Things with experience in the payment, transportation, security, utility and healthcare markets. We expect both of these organizations to help us scale our cloud and connectivity services business and to accelerate our overall device to cloud strategy. Let’s take a quick look at the second quarter 2015 results in each of our two business segments. Our OEM solutions business experienced strong growth in the second quarter. OEM revenue increased 18.5% year-over-year to a record $138.2 million. Non-GAAP gross margin in the quarter was a solid 29.8%. Year-over-year revenue growth in the quarter was driven by improved sales in several market segments, automotive, transportation, energy and networking. During the quarter, our component supply situation also improved faster than anticipated enabling us fulfill more customer demand in Q2 than originally expected. During Q2, we secured a record number of design wins as well adding to our robust customer program pipeline which will fuel future growth. Design wins were diverse and well distributed coming from several segments and regions. Also during the quarter, we introduced our next generation smart embedded modules designed to simplify and accelerate the development of IoT applications. The AirPrime WP Series which is available for 3G and 4G LTE technologies is completely footprint and form factor comparable with our HL Series modules which maximizes flexibility and choice for our OEM customers. The WP Series also features an ultra-low power mode for implementations where power management is a high priority such as solar or battery powered applications. The next gen WP also comes pre-integrated with our Linux-based Legato application platform and right connect with our AirVantage Cloud which provides a fast elegant way for developers to create and deploy their applications. And our continuing effect the faster innovation in the Internet of Things and to enable to broader developer community, we also announced the beta version of an open a hardware reference design that we called Project mangOH. The open reference design offers a flexible platform based on industrial grade components, which enables developers to go from prototype to market faster than even before. The reference design also incorporates a new IoT connector that we designed that’s being supported by Texas Instruments, Freescale and Linear Technology as an open interface standard to promote interoperability amongst solution components and further accelerate the development of IoT applications. We expect more industry leaders to adopt our new IoT connector spec in the coming months. Moving to our Enterprise Solutions, revenue grew by 8% year-over-year to $19.8 million in Q2, which includes a full quarter contribution of $4.1 million from the acquired Wireless Maingate business and a small contribution from Accel Networks which we closed on June 18. Second quarter Non-GAAP gross margin in our enterprise business was a solid 50.3%. During the quarter, we secured several customer wins in the transit, public safety, energy and industrial markets. Public safety, we received our first orders for mobile gateways to be deployed on the FirstNet LTE network for first responders in the U.S. positioning the company as an early innovator in a potentially large and growing market opportunity. As I mentioned on the last call, we believe the market opportunity for enterprise gateway solutions for the IoT is vast. We are committed to reinvigorating this line of business. In addition during the first six months of 2015, we have either acquired or announced plans to acquire three providers of managed connectivity services for the IoT. Given the tremendous value creation opportunity in both these areas of the value chain, we have implemented changes to our organization structure and management team to provide the executive focus and investment require to accelerate growth. Those changes are as follows

[David McLennan:]

Thank you, Jason, and good afternoon, everyone. Please note that we report our financial results on a U.S. GAAP basis. However, we also present non-GAAP results in order to provide a better understanding of our operating performance. As a reminder, the full reconciliation between our GAAP and non-GAAP results is provided in the press release. Non-GAAP results exclude the impact of stock-based compensation expense and related social taxes, acquisition and disposition costs, acquisition amortization, asset impairments, integration costs, restructuring costs, FX gains or losses on the translation of balance sheet accounts and certain tax adjustments. Turning to our second quarter results, Q2 results were strong with a $158 million or revenue and solid profitability on both a GAAP and non-GAAP basis. Adjusted EBITDA was 13.1 million and non-GAAP net earnings were 8.6 million or $0.26 a share. Our Q2 results include contribution from Accel Networks starting June 18th the day we closed the acquisition. From June 18th to quarter-end, Accel contributed $300,000 of revenue and breakeven earnings. Our guidance for Q2 did not include any contribution from Accel. Excluding Accel and comparing our results to guidance, revenue in the second quarter was 157.7 million. This was above the high-end of our guidance range of 153 million to 156 million and was driven by better than expected sales in our OEM segment due to a generally improved supply situation an upside from certain automotive, transportation, networking and energy customers. In the second quarter, the Wireless Maingate business which was acquired on January 16th 2015 contributed $4.1 million of revenue and was in line with our expectations. Non-GAAP gross margin was 32.3% similar to what we realized in Q1. Non-GAAP operating expenses in the quarter were 40.3 million which was lower than expected and flat compared to Q1. The lower than expected OpEx in the quarter was a result of ongoing cost management initiatives and timing of certain R&D expenses. Better than expected revenue combined with flat operating expenses resulted in second quarter profitability that exceeded our guidance expectations with non-GAAP earnings from operations of $10.7 million and non-GAAP net earnings of $8.6 million or $0.26 per share. The noon-GAAP tax rate in Q2 was 19.6% in line with our expectations. Looking at some of the key Q2 financial metrics on a year-over-year basis, total Q2 revenue of $158 million was up 17% year-over-year and up 5% sequentially. Q2 organic revenue excluding Wireless Maingate and Accel Networks was up 13.7% year-over-year compared to Q2 2014. Revenue from OEM solutions was 138.2 million represented an increase of 18.5% year-over-year. The year-over-year growth drivers were broad based including from the automotive, transportation, enterprise networking and energy segments. Revenue from Enterprise Solutions was 19.8 million up 7.6% year-over-year. The year-over-year increase was driven by revenue contribution from Wireless Maingate partially offset by a decline in revenue from our gateway products. However as expected, we saw sequential growth in revenue from gateways during Q2. And as Jason noted in this remarks, we’ve made some organizational changes in the Enterprise Solutions business to bring additional focus on driving growth in gateway revenue. We continue to see improving model leverage in Q2. Strong Q2 revenue growth resulted in a significant year-over-year profitability improvement. Q2 adjusted EBITDA almost doubled to 13.1 million compared to 66.8 million in the same quarter last year. And Q2 earnings from operations almost tripled to 10.7 million compared to 3.7 million a year ago. As is well known there’s been a considerable appreciation in the U.S. dollar relative to other currencies during the past 12 months. On a year-over-year basis, we estimate the changes in FX had the following impact on our Q2 2015 non-GAAP results compared to Q2 2014. Specifically, revenue was negatively impacted by $1.5 million and gross margin was consequently lower by 0.6%. Non-GAAP earnings from operations were positively impacted by $2.6 million mainly due to the positive effect of FX on our operating expenses. We had solid cash flow performance during the quarter and our balance sheet remained strong. During the second quarter, the business generated $12.9 million of cash from operations. CapEx was 4.2 million resulting in free cash flow of $8.7 million. With the purchase of Accel Networks for 9.3 million, our cash balance declined by $3.1 million to end the quarter at 96.5 million, now so the company remains debt free. Moving on to guidance for the third quarter of 2015, the following guidance includes contribution from the acquisition of Accel Networks for the full quarter but this does not include a contribution from MobiquiThings which we expect to close later this quarter. We expect Q3 2015 revenue to be in the range of $157 million to $160 million. This includes an estimated $2 million contribution from Accel Networks. The midpoint of our Q3 revenue guidance is relatively flat compared to Q2. Year-over-year, this represents 10.6% overall growth or 6.2% on an organic basis. I would note that the year-over-year comparison is relative to a very strong Q3 2014, therefore a tough comp. Flat sequential revenue in Q3 partially reflects the timing of sales between Q2 and Q3. This includes some acceleration of demand in Q2 as select customers move to secure supply given the well-known RF component shortages. Improvements in RF component availability during the quarter enabled us to meet more this demand in originally expected. Assuming the midpoint of our Q3 revenue guidance, our expected year-over-year organic growth is 13.1% for the first nine months of 2015 solidly within our previously stated 10% to 15% expected growth range. And we reiterate that we expect to be within this range for the full year of 2015. We expect gross margin percentage in the third quarter to be similar to gross margin in Q2 and we expect Q3 operating expenses to increase modestly Q2 driven by the addition of a full quarter of Accel’s OpEx which is estimated to be approximately $1 million. Based on this, we expect Q3 non-GAAP consolidated earnings from operations to be between $9.5 million and $11 million and non-GAAP net earnings to be between $7.5 million and $9 million, earnings per share of approximately $0.23 to $0.27. I will now turn the call over to Jason, who will provide a brief summary as well as comments on the MobiquiThings acquisition and our cloud connectivity strategy. Jason.

[Jason Cohenour:]

Thanks Dave. So heading into our call summary, I’ll speak briefly about the acquisition of MobiquiThings announced on June 23rd as well as strategy for Cloud and Connectivity service for the Internet of Things. MobiquiThings is a highly innovative and VNO based in Southern France providing managed connectivity services specifically for the IoT. MobiquiThings has had success in several market segments where we also participate including security, transportation, utility, healthcare and payment services. The company has approximately 75 customers, 100,000 subscribers and is growing. While the MobiquiThings business is nascent and relatively small. The company brings compelling technology a world-class core network platform and instant Pan-European coverage footprint and a strong team. The company’s unique technology assets include a platform a SIM card implementation that supports multiple mobile network identifiers or IMSI in each SIM card. The ability to provision and change these network identifiers over the air and to enable mobile network switching at the device level based on certain parameters such as quality of cellular coverage. These technology elements provide the ingredients needed to deliver a superior quality of service offering to customers and to dynamically mange cost of service. We are excited about adding such capabilities to our Cloud and Connectivity service offering as we believe they put us in a unique position to create and deliver a highly differentiated service to our customers. We expect MobiquiThings to generate 2015 revenue of approximately EUR3 million and a breakeven on an adjusted EBITDA basis. We’ve agreed to purchase MobiquiThings for EUR14 million in cash at closing with additional consideration tied to a performance based earn our formula. We expect the transaction to close during Q3. After closing, MobiquiThings will become a key element in our Cloud and Connectivity line of business led by Emmanuel Walckenaer as stated earlier. The MobiquiThings, Wireless Maingate, Accel Networks and their advantage cloud platforms and teams will be integrated to create a line of business with annual recurring revenue of approximately $30 with emission to grow this business based on a truly unified differentiated platform for enabling the Internet of Things. Accomplishing this is central to our overall Device to Cloud strategy and vision. We believe the recently acquired companies and teams will help to accelerate this strategy and to enable our customers to build, deploy and operate their IoT applications faster, easier and more cost effectively than ever before. We believe that this strategy makes us unique in the market and will lead to growth, market share gains and value creation. To summarize, we are very pleased with our performance in the second quarter of 2015. Year-over-year revenue growth was strong once again driven by robust organic growth in our OEM business and solid contribution from acquired businesses. Year-over-year profitability metrics also continued to improve significantly highlighting our commitment to profitable growth and improving operating leverage. We’re realigned our team and are making targeted investments and driving accelerated growth in key areas such as gateways and Cloud and Connectivity services for the Internet of Things. We also continued to commit capital on ways that will strengthen our strategic position and create value for shareholders. We close the Wireless Maingate acquisition at January and have already achieved the key goal of integrating the Maingate and AirVantage platforms to provide a unified user experience for customers. Maingate has quickly become a central component of our Device to Cloud solutions for the Internet of Things and we have seen early validation of growth synergies securing additional connectivity wins with new customers and existing Sierra customers such as Veolia. We’ve continued to scale our business and capability in Cloud and Connectivity services with the addition of Accel Networks and soon MobiquiThings. Both companies will continue, will contribute significantly to accelerating our recurring revenue growth and our Device to Cloud strategy. We remain confident that continued profitable growth combined with acquisitions then enhance our strategic position and business model will lead to further value creation for shareholders. And this does concludes our prepared remarks. You can now open the lineup for questions.

[Operator:]

[Operator Instructions] And your first question comes from James Kisner of Jefferies. Your line is now open.

[James Kisner:]

Yes, I was just hoping you could clarify a little bit which you said about the growth rate for the full year, I mean it sound like you think you are going to be in a range of 10% to 15% on organic basis for the full year and you acquired multiple companies here, I just trying to simplify that you are implying for Q4, would we - given that we’re seeing a little bit press revenues I think impart because of the sort of catch up in the supply chain would be expected better than seasonal Q4, can you just kind of walk us through you are implying there a little more specificity so we can model it?

[David McLennan:]

Hi James, its Dave here. You pushed, I don’t our revenues into press it all, I think we had a very, very strong Q2 and yes that’s a little slow down in Q3 partially because of the withstanding results in Q2. Our nine month year-to-date growth year-over-year is around 13% and we fully - we are going to give guidance for Q4, but we fully expect to be firmly within the 10% to 15% range that we’ve been pretty consistent on for the full year of 2015.

[Jason Cohenour:]

That’s an organic growth rate change.

[James Kisner:]

Okay that helps I guess. Can you talk a little bit about mix in pricing, I am just wondering are there been any changes in mix, any update on the mix of 4G, 3G, 2G and also have you seen anything change in the pricing environments to across the board? That’s it.

[Jason Cohenour:]

Thanks James. This is Jason, I’ll take that. So I would characterize the ASPs as stable first of all and part of that can be attributed to the favorable mix shift as mix continues to move to favor 3G and 4G technologies over 2G technologies. During the quarter we saw that continue 2G, 2G represented 17% of overall revenue, 3G 43% and 4G 35%. So, a significant mix shift if you compare that to earlier periods in fact. During Q2, 3G revenue was up year-over-year 16.5%, 4G revenue was up 34.4% year-over-year whereas 2G revenue was down year-over-year. So that mix shift is definitely still happening and I think place to our favor from a competitive position standpoint and also supports ASPs.

[James Kisner:]

Great, thanks a lot.

[Jason Cohenour:]

Okay.

[Operator:]

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

[Thanos Moschopoulos:]

Hi good afternoon. It sounds like the component shortage issues are now under control but just to be clear on that is that fully behind you or is there any sort of residual impact to address there?

[Jason Cohenour:]

So - it’s Jason. So in Q2, year we’re able to manage that RF component supply situation pretty effectively, it improved for us during the quarter. Costs us a little money not so much in COGS but it costs us in OpEx as we transitioned away from some of those components that are in short supply so we had do some redesign and requalification. But the good news is the supply was there, so as we look out into the future, I think we now have a normalized tight component supply situations, there is such a thing whereas in the first quarter I’d say we had a very intense RF component supply situation. So it’s still a daily management exercise to make sure we’ve got the appropriate component supply. But I think we’ve got it under control.

[Thanos Moschopoulos:]

Thanks. You mentioned you had a record number of design wins in the quarter, relative to the prior quarter, any specific themes thus far as verticals or geographies will that stand from or is it short of pretty consistent with what you’ve seen in recent months.

[Jason Cohenour:]

Yeah, I’d say consistent, so a significant step up in terms of number of design wins compared to last quarter. I think we characterize it as a record number of design wins well over a 100 and continued to be very diverse in terms of segments and regions. We’ve seen in the past few quarters I would say improved design win activity in both Europe and Asia compared to the previous periods.

[Thanos Moschopoulos:]

And anything you can say as far as the level of design wins?

[Jason Cohenour:]

In terms of size you are talking about?

[Thanos Moschopoulos:]

Yeah. Aggregate size, sorry.

[Jason Cohenour:]

Aggregate size, so we just want to going to give a specific number on that but I would characterize the average size of the design wins as normalized. We did have any of the very large automotive design wins in the quarter. So I would it’s more of a normalized grass roots design win size.

[Thanos Moschopoulos:]

Okay, it’s helpful. Thanks guys.

[Operator:]

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

[Mike Walkley:]

Great, thank you. Just following-up a little bit on your Q3 guidance with the OEM solution it sounds like you pulled in a little orders, so with Accel coming into the enterprise business, would we expect enterprise to be a little higher mix of the revenue if it’s flat sequentially?

[Jason Cohenour:]

Yes Mike, I think you can safely assume that. So - and I would say not only as a result of the addition of Accel but we are expecting continued sequential step up in enterprise gateways, so we got that - appear to have that business heading back in the right direction, so within gateways sales go up, we add Accel, so I would say expect a little bit higher mix of enterprise in Q3.

[Mike Walkley:]

Okay, great. And then just building on that question what Jason Krause moving over to the business, what’s the timetable maybe you think you can get back to organic year-over-year growth for your gateway or just overall organic year-over-year for that business?

[Jason Cohenour:]

I am going to be careful Mike not to put that into a specific timeframe, but I think couple of things going on, so we’ve - as we discussed last quarter, we’ve already started to I would say accelerate the new product pipeline, so we’ll start to see a new products - new platforms hit the market actually in Q4 and then we got two or three new products stacked up behind that product. So I would say Q4 in the first half of next year is going to buys, new product launch periods for enterprise gateways. We’ve also made targeted investments in addition to sales capacity both outside and inside. We have made organizational changes to strengthen sales leadership as well. And now we have dedicated executive focus as Jason Krause moves over to run that business. So I think we’re putting a lot of the pieces in place and we are already starting to see some sequential step up. So I am bullish on the opportunity and I am bullish on our chances. But I can’t put a specific timeframe around a return to year-over-year growth.

[Mike Walkley:]

Okay, great, thanks. One last question for me and I’ll pass it on. Just you based on some of the orders you’ve seen in broad strength, if you look at longer term, you think you are creating the pipeline and the backlog into next year or two to continue this 10% to 15% organic growth, is that kind of the right size of your growth opportunity for the industry the next couple of years?

[Jason Cohenour:]

You know, for the next, yes by the way. I do think where you are adequately recharging the program pipeline to keep growth going at that rate. And beyond the year time horizon, is that growth rate going to be the same, higher or lower? I don’t think we are prepared to say at this point in time. But I’ll also say that in the sales funnel not yet in the program pipeline are potentially very, very design wins. We’ve haven’t won those yet but if we win one or two of those, those will be single design wins that equal a very significant recharge to the program pipeline. So grass root stuff, yes, we like it, it’s diverse, it tends to be a little bit higher margin and that’s adequate to keep our current growth rates and if we get some of these big elephants, it could accelerate that in later years.

[Mike Walkley:]

Thanks for taking my question. Good luck.

[Jason Cohenour:]

Thank you.

[Operator:]

Your next question comes from Tim Quillin of Stephens Inc. Your line is now open.

[Tim Quillin:]

Hi. Thank you for talking my question. I guess first of all on the revenue that you might think of is pulled forward a little bit on the OEM side, is that was a pull forward just because your ability to ship as you got the RF components in and could you quantify maybe how much you feel like was pulled out of 3Q into 2Q?

[Jason Cohenour:]

It’s tough to put a specific number on that, but it could 2, it could be 3 million Tim, in terms of pull in. And the other thing that we don’t have clear visibility to is how many of those orders were placed because customers knew about the RF component shortage. There is sometimes a tendency to order ahead if you know there is a shortage. So I’d size that about two plus million.

[Tim Quillin:]

Right and I know this maybe you get peerlessly close to 4Q guidance but as you think about the OEM solutions business especially the way it’s the contour the revenue does it seem like you’ll be returning to sequential growth in 4Q?

[Jason Cohenour:]

That’s our view at this time.

[Tim Quillin:]

Okay, very good. And then on the gateway business enterprise gateway business, so my understanding of the situation is that maybe you are a little bit late to market with some LTE products and maybe you can confirm that to me and also maybe go through an after action report of why that might have happened and how you might have hold that situation in the future and then how you doing with the new LTE gateways and routers?

[Jason Cohenour:]

Yeah, I am not - by the way, I am not sure I would hang it on quote late to market with LTE, we’ve actually been in the market with some LTE gateways for a couple of years now. And so I would characterize it more as a need, Tim, to create products that satisfied very specific market segment needs in a more precise way. I believe what we are seeing in our gateway business now is a bit of transition from a more general gateway, general purpose gateway oriented business to a more segment driven business and that’s going to drive very specific features, form factor et cetera into our gateway products. That’s what’s loading up in the product, the new product pipeline right now are these much more segment driven product. I think that’s coming closer to the bull’s eye.

[Tim Quillin:]

Right and can you talk about what segments those might be addressing and how that maybe the better way to think about is how you identify the opportunity or identify the whole on your product line that these new products might address?

[Jason Cohenour:]

Sure, so we got, what I would characterize is three groups of - or three larger market segments, first is industrial. Industrial has you’ll find a lot of energy application, smart grid applications, heavy equipment applications and the like solar deployments which need - tend to need a very industrial harden product, power management is very key support for certain protocols is key. The other key market is mobility. And inside mobility a bunch of sub-segments including public safety, emergency services, transit and that’s primarily transit busses and general I would call it the general fleet management. And then third is enterprise. And enterprise is really around the distributed enterprise so you know not replacing Cisco routers but connecting two Cisco routers to provide a backup connectivity or in some cases even primary connectivity to a distributed enterprise. And that is when you hear me say distributed enterprise you think retail outlets and kiosks that kind of thing. So those are three key segments and we’ve got products in the pipeline that are really focused on those key segments.

[Tim Quillin:]

Okay, that’s great run down. And then last question if I may is how much interaction do you foresee between your services components right now, I know Accel was more of a U.S. based or U.S. focused company, but how can you get the Maingate and MobiquiThings and Accel to work together where one plus one plus one is equals more than three? Thank you.

[Jason Cohenour:]

Yeah, great question. We’re - so a couple of things here, we’d need to - first focus is Europe, so our main focus here is to make sure that we’ve got Pan-European coverage EU-28 coverage not only with cellular coverage but also the kind of pricing we need to competitive in the market. We get some of that with Maingate, I think we get whole bunch more with MobiquiThings. Second, we need to - we also need to drive a platform integration that’s not necessary to drive growth but I think it is necessary to be in a truly differentiated position in the market. So we are going to unify these platforms overtime in parallel selling of course, but over time we are going to unify these platforms, deliver a single user interface to customers for both cloud services and connectivity. And of course we are going to leverage the scale that we get in the respective sales teams, because remember when I am not getting platforms in subscribers here, we’re getting sales teams and technical capability, marketing capability as well. So we are - think of it is we are scaling the organization now just in terms of subscribers and revenue but also the people we need to continue to drive growth. And then Accel, think about Accel is really focused on this distributed enterprise that I referred to earlier. In the first 12 months, we are going to be careful about how tightly we integrate Accel. We’re going to be focused on low hanging fruit and driving growth. And in terms of platform integration that’s going to take a little longer.

[Tim Quillin:]

That’s great.

[Jason Cohenour:]

That answer your question with precision or not but that’s how I am thinking about it.

[Tim Quillin:]

That’s a good recap. Thank you.

[Operator:]

Your next question comes from Mike Latimore of Northland Capital. Your line is now open.

[Mike Latimore:]

Alright, thanks a lot. Just Jason you mention the potential of some or some large design wins and some of the pipeline, any specific verticals are they early diverse those opportunities?

[Jason Cohenour:]

They are automotive. They are automotive, that’s usually where that really big ones are. I shouldn’t limit it there but I mean that’s - there is quite a bit of activity in automotive and some of deals were potentially very large. Having said that last quarter we had some really good success in smart metering which were also very nice size, nice size design wins. But as I look at that funnel of opportunities right now, the real big elephants tend to be automotive heavy.

[Mike Latimore:]

Got it. And I guess, I the meantime obviously you listed I think autos category in the quarter, would you characterize auto as accelerating, same kind of toward basis in past moving, just fairly speaking, how does the auto segment progressing?

[Jason Cohenour:]

It’s accelerating. I would characterize it as a - you know it’s growing faster than the overall corporate growth rate.

[Mike Latimore:]

Got it. And then on the enterprise side, you talked a lot of new products coming to markets, did you feel like the channels are right - in the right place or it’s more of products topic that get enterprise accelerating here or is some channel development that could occur?

[Jason Cohenour:]

You know I think we’re in - I think we’ve got to do a lot of things frankly but I do think - I think our core set of channels are good adequate. I think they are a little bit product starts, so we are going to feed that. We could probably holster our channel position in Europe, were not as broad and in deep in Europe as I think we need to be. And then third I would say direct sales. So we do, do a certain amount of direct sales. We are focused in particular on major enterprise customers, major enterprise accounts providing better, deeper direct sales coverage. And that can get generated.

[Mike Latimore:]

Got it. The last question, as I think most of your contracts are in U.S. dollars and maybe you had to adjust pricing a little bit account for the strengthening of the U.S. dollar?

[Jason Cohenour:]

No, it has been a theme.

[David McLennan:]

No, it has a better theme.

[Jason Cohenour:]

Pricing is always a theme, but and always comes up. But I don’t think the currency fluctuation that has been a key driver of that. Most of our OEM customers have the rest of their COGS in U.S. dollars as well. So it’s - I don’t think that’s not a big factor.

[Mike Latimore:]

Yeah, okay, thanks a lot.

[Jason Cohenour:]

You bet. Thanks.

[Operator:]

Your last question comes from Richard Tse of Cormark Securities. Your line is now open.

[Unidentified Analyst:]

Hi there, it’s actually Andrew in place of Richard. I just wanted to quickly touch on your M&A opportunities and if we can expect the same kind of theme coming out relating to your adding your recurring revenue and just general services over a number of geographies?

[Jason Cohenour:]

Sure, so I think as we’ve demonstrated in the last six months, we’ve been very focused and busy in M&A in particular around services targets and I would say principally around managed connectivity services offerings that we can put through both around direct services channels but as well as our OEM and enterprise channels. We’ve been I’d say very transparent that that was a - that’s been our goal and I think we’re - our goal and strategy we’ve been executing on that strategy. So as we look forward on additional M&A transactions, I’d say I characterize the funnel is still active, we’ve got a lot of integration ahead of us by the way with three new targets coming in. So there is going to be a big focus on integrating those assets extraordinarily well. Having said that funnel is still active and no big change in terms of the composition of the funnel. There are gateways names in the funnel, there are services names in the funnel. And that’s been our stated focus and continues to be where most of our activity is.

[Unidentified Analyst:]

Thank you. And my last question was just related to the valuations and how they trended over the six months of the service names, held or is it moving either way up or down?

[David McLennan:]

It’s Dave here Andrew. You know valuations have certainly resin over the past 12 to 18 months on the services side and you know the multiple that we paid for Maingate for incidence our representative of transactions that are happening in the marketplace but they have certainly increased over the past 12, 18 months.

[Unidentified Analyst:]

That’s great. Thanks for taking my questions.

[Jason Cohenour:]

You bet.

[Operator:]

There are no further questions at this time. I will turn the call back over to the presenters.

[Jason Cohenour:]

That’s great. Thanks Phoenix. Yeah so just quickly we can ramp up the call but I thank everybody for taking time to join the call. And as usual management is available here should you have additional follow-up questions. Phoenix, you can now terminate the line.

[Operator:]

This concludes today’s conference call. You may now disconnect.