司亞樂 (SWIR) 2013 Q1 法說會逐字稿

Good afternoon, and welcome to the Sierra Wireless First Quarter Results 2013. (Operator Instructions)

I would now like to turn the meeting over to your hosts for today, Mr. Jason Cohenour, President and CEO of Sierra Wireless; and Mr. Dave McLennan, CFO of Sierra Wireless. Please go ahead, gentlemen.

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'd 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 can be found on SEDAR and AGAR 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.

Thank you, Dave, and good afternoon, everyone.

On April 2nd, we achieved yet another critical milestone in the transformation of Sierra Wireless, completing the sale of our AirCard assets and operations to NETGEAR four $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 the 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 own business, with their solutions connecting everything, from cars to lighting systems to coffee machines, to the Internet of Things.

We also see the focus in investment from large ecosystem players, such as Cisco, Ericsson and Verizon -- focus in 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 makes 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 a 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 consists of all AirPrime-embedded wireless modules sold predominantly to OEM customers, including PC and consumer device manufacturers. Enterprise Solutions consists 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.

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 continued 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 the 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 a device-to-cloud offering, including a win with a leading provider of air valves and tire pressure monitoring services for commercial vehicles.

The sale of our AirCard and singular focus on the M2M opportunity is all about driving shareholder 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 that 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 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.

Thank you, Jason.

I'd 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 2nd, 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 referred to continuing operations.

The sale of the AirCard business also resulted in us having only 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 continued operations, at $101.4 million, was at the high end of our guidance range. Our non-GAAP loss from continued operations of $1.4 million was in line with the more favorable end of our guidance range. And our non-GAAP net loss from continued operations of $700,000, or a 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 our 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 [non-issued] 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 continued 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 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 materially 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 in 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 was primarily working capital-driven, specifically accounts receivable increase reflecting a heavier weighting of 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've 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 the sale of AirCard, which occurred on April 2, our pro forma cash balance is in excess of $160 million. During the second quarter, we expect a combination of stronger earnings and improved working capital picture, including a more than year revenue profile and receivable collection pattern to result 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 continued 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.

Thanks, Dave.

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 time, most machines in our lives will be connected to the Internet of things. Furthermore, many market drivers are falling into place -- ecosystem focus, investment, awareness. We believe that this combination of factors will result in strong long-term market growth.

As the clear global leader in M2M, we believe that we're exceptionally well-positioned to capture this growth opportunity. We have significant scale, a blue-chip customer base, strong global presence and solutions that expand the M2M value chain. I believe that this collection of assets will not only enable growth but margin expansion and defensibility as well.

Following the sale of AirCard, our balance sheet is fortified and ready to be put to work. Our goal is to accelerate growth and value creation through a targeted M&A strategy. We have an excellent track record of acquiring great companies, integrating them well and creating value for shareholders. We intend to extend this track record.

Ryan, that concludes our prepared remarks. You can now open the line for questions.

(Operator Instructions) Mike Walkley, Canaccord Genuity.

Good job on the first quarter for the new business.

Jason, just wanted to talk on a high level -- with your good track record and M&A in the area, Telular was just recently bought at a nice premium. Is that changing your valuation as you look at certain companies? Or is it too early to say yet?

I think it is a little bit early to say. I don't -- if you look at Telular -- good combination of recurring services and hardware. I don't think that that valuation is out of line with other comparables. So 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 realistic that a lot of these companies -- especially if they're good companies, like Telular -- they're not going to go cheap.

That's fair.

And then, just on your results for the quarter -- Sagemcom seemed to come in stronger than your expectations. Is that mix going to stay strong for the steady gross margin? Or is just -- you get a little leverage from the higher sales, and Sagemcom will be a little less in the mix?

Yes, I think I would characterize Q1 as quite strong for Sagemcom, and benefitting from a couple of specific customer situations. So I don't 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 a lot of moving pieces, Mike, in the business, including our Enterprise Solutions. That was, I would say, a little bit dampened in Q1. And I think we have certainly opportunities to grow that. So I think we've got a lot of mix factors in the business, not just Sagemcom. And I would certainly consider things like Enterprise Solutions as an opportunity for driving favorable mix.

Great.

And are you going to share any kind of gross margin color for the two divisions, now that you're breaking them out?

Yes --

Also, on the Enterprise side, since it's a higher-margin business, I would guess -- is there any seasonality to their business more than maybe the larger OEM Solutions business?

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 -- yes, 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.

Great. That's helpful as we try to model the two divisions going forward.

Dave, just for me -- is the 30% tax rate the right rate to be using going forward for the standalone business?

Yes, it is, Mike. And you understand that taxes are a tricky subject here as we have around breakeven, and they can be quite volatile. But I would use 30% as a proxy.

That sounds good.

And then, I guess just one last question for me, and I'll pass it on, Jason. As you try to move up the value chain from the overall solutions, you have a big focus on selling more services, and I think you gave us two examples on the call. Can you maybe, just on a high level, talk about the sales team as they go back to accounts, and some of the opportunities you see to sell more services going forward?

Well, I think it's certainly a key focus for us, Mike. We think we have the products we need now in place, including the AirVantage cloud. The newly launched cloud that we released in Q4 is, I think -- 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 built-in channel opportunity there and some real opportunity for, call it, sales synergy. And it's definitely a key part of our offering going forward.

So 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 certainly at a minimum, it adds additional value to our hardware platforms. This device-to-cloud approach gives us 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 in our go-forward business, and it's going to be a factor in our M&A targeting as well.

Great. Good luck with the M&A targeting, and thanks for taking my questions.

You bet. Thanks, Mike.

Thanks, Mike.

Todd Coupland, CIBC.

Couple questions on the outlook -- so OpEx, you're calling out, is roughly $36 million. And if we think about revenues stepping up later in the year after Q2, should you be able to hold OpEx with seasonal strength in the business? Or will it float up with that?

Sure. Todd, it's Dave here. I would peg OpEx more at $35 million than the $36 million that you suggest -- so similar to our non-GAAP Q1 levels. And definitely, as we go through the transition of the Company and shed the AirCard assets, we definitely feel that our current cost structure allows us to -- we're fully invested for growth, and it 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 up OpEx to do that.

Okay.

When you think about the seasonality of this business, what kind of cadence should we expect? I think there are some fairly juicy sequential improvements in the back half of the year, stepping up to the $120 million level per quarter and higher. I mean, if the economy cooperates, do you have that level of business in the pipeline? Or does the street need to refine those numbers for later in the year? Because it's obviously a significant step up from the $100 million to $110 million that we're seeing the first half of the year per quarter.

Right. Actually, on a percentage basis it would be less. So I'd be careful not to get ahead of ourselves on this. We 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 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.

Okay.

Just to give that a little bit of color, too, we have -- it's an organic plus 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 we have been growing the business both organically and inorganically, and notwithstanding Q1 year-over-year in the legacy business. If you look at a 12-month rolling revenue performance, we've grown the business without Sagemcom as well.

But in Q1, to that point -- if I read your comments correctly, Sagemcom was the 11% improvement. [So] organically, you were about flat year-on-year, is that --

It absolutely was. That's why I gave you the 12-month rolling figure. So it's not constructive to focus on a single quarter, if you focus on a -- 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.

Okay.

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?

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 Asia is okay. Asia is not fantastic, Asia is okay. So I think if there's a tough spot in the world -- and 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.

Okay.

One last question, if I could -- [off] 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 if that's an opportunity that you guys would be pursuing.

Definitely pursuing. But sadly, I can't report a design win there.

And are you going to split out the business by sector?

No, we won't. 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've defined, giving revenue results on the two new product lines.

That's great.

Thanks a lot, Jason. Appreciate it.

You bet.

Daniel Kim, Paradigm Capital.

Just a quick question, just follow up on the operating cost model -- Dave, wondering if you can help us get a better sense of how much more synergies you believe can be extracted from Sagemcom? Believe you're still relatively early in the stages of realizing some synergies. Can you lay out a plan for us in terms of perhaps so much more and how much longer it might take, please?

Yes. I think it's been a couple quarters since Sagemcom 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.

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?

Yes, I think certainly just a comment on the Q4-to-Q1 increase -- Q4 we had a contribution for a specific program from a partner that served to reduce R&D expenses. So that sort of artificially brought Q4 in 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 Richard, that kind of level, that $35 million area, feels like the right level for the time being.

Terrific. Thank you very much.

Richard Tse, Cormark.

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, just so we can get a gauge of the progress on that front?

Sure. I mean, it's kind of tough to 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 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 Iskraemeco.

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 -- we had a good 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 when, 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 of existing customers and new customer wins.

Just to clarify my understanding -- these are coming direct through your own sales force? You guys don't really use partners that often, do you?

We do. These are all direct. Roughly speaking, on the embedded module business, Richard, about 70%-plus of that is sold direct to the OEMs. The balance, 30%, goes through distribution. And they tend to be -- the distributors tend to sell to smaller customers.

Okay.

And then, just going back to the cash and 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 a game-changer, a meaningful upgrade or platform, or whatever it may be?

I'm sorry, I'm not sure if I understood the question.

Yes, if you look at the core business of embedded, are there kind of new products or services that potentially could be working in the background that add to that?

Organically, you mean?

Yes.

Yes, I think there are. 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 own ASICs. So it's an ASIC of our own design. So we 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 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 a -- 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 drives, I would say, some pretty critical differentiation for us in our next-generation products. By the way, the product aren't launched yet; we just introduced them, right? So it's going to take several months before those products get into the market.

And then, on the AirVantage side -- yes, we've got a roadmap to continue to layer on key elements of value, so to provide more services. So I'm not going to disclose exactly what they roadmap is. But I think we are, on an organic basis, fully committed to continuing to add layers of value to our cloud offering.

Okay.

Just one final question -- in regards to share repurchases, obviously you've got a lot of cash there. How are you going to view the continuing [program to] repurchase stock? It's obviously below $11 here these days. How do you think about that?

It's Dave here, Richard. Certainly, we've got the NCIB program in place. And we executed a little bit of that when the window was open in Q1, after we got approval. And I think we'll continue to execute on that program in the coming quarters as well.

Candidly, though, the immediate priority is to really deploy their capital through M&A and augment our organic growth with moving up the value chain in a couple different segments, or a couple different areas.

Great. Thank you very much.

Thank you.

Paul Driver, RBC Capital Markets.

Just wanted focus on year revenue guidance for Q2. And could you perhaps provide some high-level comments on how much of this sequential growth is coming from just seasonality versus some pickup from some of the delayed product transitions, versus incremental revenue from new design wins?

It's Dave. It's hard to be precise on those metrics. I will say, thinking in the two product lines 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've stepped through in Q1 some product transitions to 4G platform, we have visibility on growth there. So those are some of the pieces that are driving some sequential improvement in Q2.

Maybe asked another way -- the delayed product transitions on the Enterprise Solutions side -- how much of an impact does that have in Q1? Is it just a couple million or so?

Yes, something like that. I mean, it wouldn't have dramatically changed the result. But it's, call it, $1 million to $2 million.

Okay.

And then, NETGEAR is a customer right now. Over what time period will that roll off? And how large of a customer are they?

Again, we're not going to be precise on exactly how large they are. We have no 10% customers -- there's one. So we've got -- we're very active, actually, right now with NETGEAR, getting a couple of key products launched with them, specifically through the Verizon channel.

And 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 can see that going away before the end of the year. So 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.

But interesting, Paul -- around that space, and 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 their business.

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 partner, or is there some investment, OpEx investment, that may be associated with that?

The OpEx investment is already in our -- think about that as already in the business. With our acquisition of Sagemcom, we've picked up 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 online already in Brazil.

By the way, from a cost structure standpoint it's quite small. But we have our presence set up in Brazil, including sales and operations. And we've got a pretty good revenue flow, and we'll leverage that, basically. But 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.

Thanks. That's good to understand.

Yes, and by the way, if there's a theme there beyond Ingenico in payment, it would most likely be automotive.

Okay.

Speaking of automotive, I think you guys have a couple of new design wins that are supposed to be ramping up through the summer. How does the magnitude of those compare against your existing automotive wins?

Well, I'd say they're significant. One of our larger customers, we expect, will be Harman, who's shipping to Chrysler. So I think they'll be significant contributors.

Is there any impact in Q2, like revenue impact?

We do expect to make shipments to Harman in Q2.

That's helpful.

Thanks very much. I'll leave it at that.

Okay.

Thanks, Paul.

We have no further questions on the line at this time.

Okay, great.

Well, with that, Ryan and company, I'll thank everybody for joining the call. And as usual, management will be available here in Richmond if you have follow-up questions.

Ryan, you can disconnect the line.

This concludes today's Conference Call. You may now disconnect.