司亞樂 (SWIR) 2013 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Sierra Wireless third-quarter 2013 earnings results conference call and webcast. (Operator Instructions)

I would like to remind everyone that this call is being recorded today, Thursday, November 7th, 2013, at 5.30 p.m. Eastern Time.

I would now like to turn the meeting over to your hosts for today's call, Mr. Jason Cohenour, Chief Executive Officer, and Mr. David McLennan, Chief Financial Officer. Please go ahead, gentlemen.

Thanks you, Ian, and good afternoon, everybody. This is Dave McLennan speaking. Thanks for joining today's conference call and webcast. With me today on the call is Jason Cohenour, our 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. Firstly, Jason will provide a general business overview. I will then provide a more detailed overview of our third-quarter 2013 financial results, as well as guidance for the fourth quarter. Following that, Jason will provide a brief summary, and we'll end the call with a Q&A session.

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 2 of the webcast that is now being displayed.

Today's presentation contains certain statements and information that are not based on historical facts and constitutes forward-looking statements. These statements include our financial guidance for the fourth 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 2 of the webcast presentation, which could prove to be significantly incorrect. Additionally, 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, both of which can be found on SEDAR and EDGAR, as well as in our other regulatory filings. This presentation should be viewed in conjunction with our press release and with the supplementary information available on our website.

With that, I'll turn it over to Jason to provide highlights.

Thank you, Dave, and good afternoon, everyone. In Q3, we delivered another quarter of record revenue, growing revenue year over year by 12%, to $112.3 million. Record revenue, solid gross margin of 33.4%, and a stable cost structure resulted in strong adjusted EBITDA of $5.9 million, representing an 81% increase over last year. Growth and profitability once again outpaced revenue growth by a wide margin, demonstrating the leverage in our operating model.

While delivering solid operational results, we also commenced the deployment of our AirCard proceeds in M&A, announcing and completing the acquisition of AnyDATA's M2M assets in October. We view this transaction as a modest, but important start, and expect to continue to accelerate our growth and strengthen our market leadership position through additional M&A.

Now let's take a closer look at the results in our 2 product segments. Our OEM Solutions segment once again delivered steady growth, with revenue of $99.5 million, up 9% year over year, with growth in the Americas particularly strong.

Design activity continues to be robust in a number of segments. During the quarter, we secured new program wins in sales and payment, security, PC OEM, and energy, where we scored an important design win with one of the global leaders in smart metering.

Activity in automotive continues to be very high, and we are competing for a number of new programs expected to launch in 2016, and beyond. This level of activity gives us high confidence that the connected car trend will continue, that penetration rates will grow, and that we will be a direct beneficiary.

During the quarter, we also had our first European launch with Dell, who brought a number of new platforms to market using embedded Sierra Wireless technology and featuring a prepaid service offering in collaboration with Telefonica.

In addition to customer programs, innovation continues to be a key contributor to our leadership position. Underscoring the importance of innovation, we recently announced the launch of a powerful new series of embedded wireless modules. Our new HL series brings the industry's smallest, most scalable, most flexible family of embedded wireless devices to M2M customers channels. The HL Series features a compact common form factor for devices covering 2G, 3G, and 4G technologies, flexible mounting options, and pre-integrated firmware upgradability using our AirVantage cloud. The first products in the HL Series are now sampling with customers.

The addition of AnyDATA's M2M assets has bolstered our scale and leadership position in OEM Solutions. The AnyDATA line of business adds approximately $10 million in annualized revenue to our OEM Solutions product segment. More importantly, the AnyDATA asset brings us s leading position in the Korea market, proven products, a proven sales and R&D team, and established customer relationships. While relatively small, we believe that the AnyDATA M2M asset represents a solid platform upon which we can build a larger, stronger, more profitable business in Korea and other markets.

Moving to Enterprise Solutions, Q3 was an excellent quarter for our Enterprise Solutions segment. Revenue increased by 38% year over year, to $16.4 million. This strong growth was driven primarily by our new AirLink gateway products, including our 4G GX440 and our 3G LS300 devices.

We also experienced record revenue contribution from Europe, as large device-to-cloud customers such as Atlas Copco, continue to deploy.

Our AirVantage management service cloud offering continues to show solid adoption among our customers. While the revenue contribution at this point is modest, the AirVantage management service creates meaningful competitive barriers and provides tangible value to our customers.

We also secured an important milestone win for our AirVantage cloud services, with a leading global provider of smart metering solutions. This represents another important endorsement of our device-to-cloud strategy, securing an embedded module design win and also providing a seamless, secure connection from the smart meter to the cloud for the collection of metering data.

In September, we launched the M2M solution exchange, which showcases real-world Sierra Wireless-enabled solutions that have been proven and deployed across a variety of segments, including fleet and asset management, digital signage, business continuity, and smart grid. It's a unique program that we believe highlights our leadership position while delivering great value to partners and customers.

I'll now turn the call back over to Dave, who'll provide more detail on Q3 financial results and Q4 guidance. Dave.

Thanks, Jason. Please note that we report our financial results on a US GAAP basis. However, we also present our non-GAAP results in order to provide a better understanding of our operating performance.

We'll give some of the key metrics. Q3 was another solid quarter for the company. I'll start with reported results versus guidance. Revenue was a record $112.3 million and was within our guidance range of $111 million to $115 million. Similarly, our non-GAAP earnings from continuing operations of $2.4 million was within our guidance range and reflects continued solid gross margin and OpEx management.

Our non-GAAP earnings from continuing operations of $3.5 million, or $0.11 per share were above our guidance range. This improvement included the impact of certain reorganization initiatives as we transition our business, which are favorably affecting our effective tax rate.

Net earnings from continuing operations for the current quarter included a year-to-date tax recovery. A portion of that recovery, amounting to $0.5 million, or $0.02 per share, relates to the first half of the year. Adjusting for this impact, normalized Q3 non-GAAP earnings were $3 million, or $0.09 per share.

As a reminder, the reconciliation between our GAAP and non-GAAP result 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.

Taking a more detailed look at revenue, total Q3 revenue of $112.3 million was up 12% year over year and up 2% sequentially from Q2. Revenue from OEM Solutions was solid at $95.9 million, representing 9% year over year and 1% sequential growth. Revenue from the Enterprise Solutions group grew strongly to $16.4 million, representing a 38% year-over-year increase and 13% sequentially. This growth reflects the continued success with our new 3G and 4G AirLink gateway products.

As Jason mentioned, Q3 results showed improving profitability and leverage, building on the trend from the past 2 quarters. Our gross margin remains solid at 33.4%, up from 31.1% in Q3 of 2012. The year-over-year increase was attributable to product cost reduction, as well as advantageous product mix. Sequentially, gross margin was flat and in line with our expectations.

Our key profitability metrics continued to improve in the quarter and reflect the leverage in the business model as we grow the top line, experience solid gross margins, and keep operating expenses stable.

Adjusted EBITDA improved to $5.9 million in Q3. That's an increase of 81% year over year, and 20% sequentially. Non-GAAP earnings from continuing operations of $2.4 million grew substantially on a year-over-year basis and increased [60%] sequentially.

Looking at our balance sheet, our balance sheet remains strong and puts us in an excellent financial position to execute on our growth strategy. Cash generation in Q3 was exceptional. Driven by working capital improvements, we generated $19.1 million of cash from operations. This was partially offset by capital expenditures of $4.4 million and $2.9 million used in financing and other activities. In total during Q3, our cash balance increased by $11.8 million to $188.4 million.

Moving on to guidance, the guidance we are providing for the fourth quarter of 2013, excludes any impact from the acquisition of the M2M assets with AnyDATA. We expect revenue to be in the range of $112 million to $116 million. We expect gross margin percentage and OpEx to be similar to Q3 levels. This results in earnings from operations of between $2.4 million and $3.3 million, net earnings from continued operations of between $2.2 million and $3 million, and earnings per share of approximately $0.07 to $0.10.

We expect our tax rate in Q4 to be approximately 10% of non-GAAP earnings. We will continue to evolve our business structure to line with our M2M pure play operation, which may result in further impacts on our effective tax rate. At this point, we expect our 2014 effective tax rate to be in the low to mid-20% range.

I'll now turn the call back to Jason to sum up.

Thank you, Dave. Our singular focus on the M2M opportunity is all about driving shareholder value. Organically, our goal is to continue to drive revenue growth and expanding profitability as we secure new customer programs, launch new products and expand into new segments and geographies such as Brazil and now Korea.

We also plan to put our strong balance sheet 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 $433 million. And 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.

So to summarize, Q3 was another solid quarter for the company. We delivered record revenue and strong growth in our profitability metrics, once again demonstrating the leverage in our operating model.

As the clear global leader in M2M, we believe we are exceptionally well-positioned to capture the M2M growth opportunity. We have significant scale, a Blue Chip customer base, a growing customer program pipeline, new differentiated products, and solutions that span the M2M value chain. We believe this collection of assets will not only enable long-term growth, but margin expansion and defensibility as well.

Our balance sheet is very strong with nearly $190 million in cash and no debt. We have put some of our capital to work in acquiring the AnyDATA M2M assets, bolstering our OEM Solutions business and global positioning.

Our goal is to further leverage our balance sheet and continue to accelerate growth and value creation through targeted M&A. As I said earlier, we've got a successful track record of doing this and our M&A pipeline is active.

I look forward to reporting on our progress at year-end.

Ian, that concludes our prepared remarks for today, and I'll now hand the call back over to you, so you can open the line for questions.

(Operator Instructions) Mike Walkley, Canaccord Genuity.

Jason, you haven't talked about the embedded laptop market, but that's kind of a tough market in PCs. Was that market opportunity, is that still growing for you guys or is that a shrinking part of your business now? I know you don't break that out separately. Just trying to get a feel for how that business might be affecting your overall business trends.

Yes, it's actually positively contributing, Mike. It was a very solid contribution during the quarter and it continues to grow. So the expected positive impact of our share gains are playing out as we expected.

Okay, great. So with Novatone, Ericsson exiting, you're still seeing good share gains to offset a secular PC declining trend?

Yes, we are. Dell's a great example of that, right. We were not a supplier to Dell until very recently, and now we've got a pretty interesting launch with them in Europe, which used to be the domain of Ericsson or Novatone.

And just on the overall M2M OEM Solutions market, with some big growth trends in different verticals, but some of your competitors trying to gain share, are you seeing any changing dynamics in terms of pricing pressure in any verticals or any more intense pricing pressure from Utellit or u-blox or other players in the industry?

I'd say pricing continues to be definitely a factor. So I don't think it's new. I don't think it's become more intense than it has been in the last 2 years, Mike. But it's a competitive market and price is always a factor, particularly in the OEM Solutions space. And therein lies a key reason why we're very focused on creating differentiated solutions for OEM, including embedded application frameworks and the like and focusing a lot of time and attention and investment in building our cloud services offering. We think that puts us in a differentiated position. It gives us more levers and dials to protect hardware gross margin and, of course, build a recurring revenue stream over time.

Okay. And I think your strategy's pretty clear, so appreciate that. And just wanted to touch base on the auto opportunity that you called out some active design activity you're involved in now. But is it still my understanding, based on some previous wins, you expect that business maybe to ramp in the second half of 2014 for some 2015 car models? Particularly you're talking about calendar 2016 car models, I think on your prepared script.

Yes. Yes, no, we do. We do expect to get some lift from existing customers and rollouts as they expand into different models, as an example, and into different -- and do new geographical launches of existing programs.

So I think with our current base of customers, we're inclined to believe that automotive is a growth market for us in 2014, and particularly in the second half.

And moving beyond that, my comments in the prepared remarks were really intended to highlight the level of activity. I would say it's -- I would characterize it as extremely high. So lots of RFQs, lots of discussions with Tier 1s and directly with automotive OEM. So I think that that level of activity really results in significantly increased penetration in the coming years.

That's great. Well, good luck on some of those RFPs. And nice to see some of that leverage start flowing through the model. And based on that, Dave, just OpEx, good job controlling that, so we still can see that basically flattish for the foreseeable future? And any help you can give us on next year's tax rate? Now that we're getting near your end, that would be great.

Sure. As I mentioned, where we sit with our activities now, we see it being in the low to mid-20s range. But we're still working on that.

And then OpEx should be pretty stable into next year?

Yes. You know we're very focused on maintaining our OpEx level. So I think we've got some decent runway ahead of us in terms of top-line growth, where we don't have to dramatically change our OpEx profile.

Richard Tse, Cormark Securities.

Just wondering if you guys have sort of established any timelines for acquisitions. I know they're all obviously tough to tell in terms of when these things are going to happen. But have you given yourself like a 6-month or 12-month window before you potentially make a decision to return some of that money to shareholders? I just kind of want to get a sense of what you're thinking on that right now.

Well, we did one in October, I'll point out. I'll repeat, we did one in October.

Yes. I mean a bigger one.

I know it's small. I know it's a small. So, yes, timeline in M&A is kind of the -- as soon as possible, I guess, is the way to characterize it. We've got a very active funnel. We've got active discussions underway, and M&A's not always easy. So it will take some time.

So when do we re-think capital allocation strategy? It's hard to put a timeline on that, Richard. I will point out that we've got a bit of balance in the capital allocation strategy. We have returned some by way of the NCIB. Not a whole lot, admittedly, but we have returned some. And we're going to remain certainly open-minded on returning capital if the M&A picture doesn't work out the way we believe it will.

But again, I want to reiterate our primary track for deployment of the proceeds is to accelerate growth through M&A.

And then your guidance for the upcoming quarters seems a little bit light, relative to Street expectations, including our numbers here. And maybe our numbers were a bit too exuberant. But maybe just sort of helping put that in context. You said that their bid activity is pretty big. Would it be twice as the size of last year? Just to give us some context that you are very active, is that 1.5 times, 2 times? Can you comment on that?

I'm sorry I'm not sure if I understood the question, Richard. 1.5 to 2 times --

Yes, like --

Just the design win activity.

Yes, your design win activity, yes.

Oh, the design -- the level of activity?

Yes. Yes.

And activity measure. I would say it's definitely up. I think Europe seems to be waking up, which is good. Now, we haven't seen that in revenue yet, quite candidly. Europe continues to struggle from a revenue standpoint with most of the growth we're seeing coming from the Americas.

But the activity level is up in Europe definitely. So it's gone from in a deep slumber to some significant activity. Of course, that's going to take a little while to turn into revenue.

I will point out that we had, while it's a small contributor in our Enterprise Solutions, we actually had record revenue in Europe. So I think that's hopefully a good sign of increased business activity. And we need a healthy Europe, frankly, to drive a stronger organic growth rate.

And with respect to activity around automotive, I would say it's, without putting a number on it, I would say the activity level is up significantly compared to a year ago.

And one final question here for Dave. I think you sort of talked about the tax impact. So did you say that without -- excluding that pick-up in terms of the tax recovery, would have been $0.09 a share.

That's right, Richard. We booked a tax recovery in Q3 on a year-to-date basis, of which $0.5 million, or $0.02 of that pertained to the first half.

(Operator Instructions) Paul Treiber, RBC Capital Markets.

Thinking about the Q4 guidance, it looks like it applies about 2% to 6% year-over-year growth. I think in the past you said that you feel like the market growth is around 10%. Is there anything unusual about this Q4, why it might be a little lower? Does that, perhaps, relate to Europe is still in a bit of a funk?

I would say there's a bit of that, Paul, for sure. So if you take the midpoint of guidance, you're right, it's about a 4% year-over-year growth. And Europe continues to be a factor. It's underperforming, no doubt.

And the other is customer programs always have a little bit of, call it volatility. We might have strength from a certain networking customer one quarter and we may not have it the next, and then it returns the quarter after that. So I think I'd characterize that as kind of the natural ebb and flow of customer program rollout.

And we're probably not seeing the full impact of all customer programs going in the right direction in Q4. And that doesn't mean customer programs go away. It means that a customer program may be having a soft period.

So I would chalk it up to kind of normal ebbs and flows of customer program volatility and continuing softness in Europe.

In regards to the ebbs and flows, is it safe to say that last year, last year's Q4, you saw a lot of the customer programs fall into that period and that's what drove the strength last year?

Yes. By the way, it's an excellent point, which I should have reiterated. Q4 of last year, as you may recall, we characterized as exceptional. And so it's a tough comp, for share. And Q4 of last year, where a lot of things went right with respect to customer programs and certain things in the cost structure, et cetera.

So it does present us with a tough comp, nonetheless, we're eking out some single-digit growth against a tough comp.

And then around that, Q1, is Q1 normally essentially down, or is it more related again to the ebbs and flows of these programs and when they start?

It's a little of both. But I would say we are normally inclined to look at Q1 as flat to down.

Okay. And moving on to M&A, it seems like valuations in the space, the M2M space, have increased in the public markets. Are you seeing, is that a factor when you're looking at potential targets? And how are you approaching that?

Well, I'd say each situation is different, I'd start there. And if you look at the small AnyDATA acquisition as an example, that was done at a very fair, maybe favorable valuation to Sierra Wireless. And I'll also say, as you look at targets that are a bit further up the value chain, they tend to be more expensive. And if you layer growth and profitability on top, then the expectations go higher from there.

The way we think about it is, if a target fits our key criteria, strategic fits, financial impact, opportunity for growth synergies, and they've got all those other good characteristics, we're going to have to pay market for it, that's the way we think about it.

Tim Quillin, Stephens, Incorporated.

Did you talk about what the organic growth rate was in the quarter? I think you still had about a month of Sagemcom in there.

Yes, we didn't talk about the organic growth rate. And Sagemcom has now been part of the company for close to a full year. So it's frankly tough to, I would say strip that out.

But if you look at contribution from legacy Sagemcom, customers and products as a measure, we had organic growth in Q3. And then, of course, going into Q4, it's all organic growth.

And just, it looks like not only for the fourth quarter, but I think on an organic basis, it's going to be a relatively slow growth year. Is there a level of confidence that trends would change in 2014, or do you go into 2014, thinking that maybe you have some back half strength in automotive, but Europe is still weak, and maybe the type of organic growth we saw in 2013, is the right way to think about it in 2014, as well?

Yes, I think I do -- I'm encouraged by the level of activity I'm starting to see in Europe. Although, that, as I said earlier, it does -- that does take time to turn into revenue. We still believe that mid- to long-term, our expectations of ourselves are at 10% to 15%, year-over-year growth. I think in the midterm, though, we're much more comfortable at the low end of that range.

And I do, like I said, I'm -- so that's our expectation. And I think that given the level of business activity and signs like the strength of our growth in Enterprise Solutions, I think that's a very reasonable expectation. And our expectation is longer-term that that growth rate ticks up, given the number of new customer programs that we've won and given the level of activity in places like automotive.

Okay. And then on AnyDATA, I think your guidance does not include AnyDATA for the fourth quarter. But you do expect, I think you expect some kind of contribution this quarter. How should we think about that?

We do. So yes, guidance does not include any contribution from AnyDATA. And the way to think about AnyDATA in the quarter is about a -- that's missing about 2 weeks of the quarter. I think we closed the AnyDATA transaction on October 17, and annualized revenue run rate is, is $10 million.

Okay, that's fair. And just last question is around the AirVantage. And it sounds like you had another interesting win on the smart metering sign. But as you're getting these module design wins, how often are you getting a shot at pitching AirVantage? And are your win rates of adding AirVantage to module wins going up? Thank you.

So maybe I'll start first with AirLink gateways and routers. And I would say that our hit rate in selling AirVantage management services is definitely going up significantly. Now, these are lower volume deals, but higher ARPU deals. And so I'm very encouraged what we see there. And I would characterize our win with the smart metering company, an OEM win, as another important milestone. We reported on another one last quarter.

So I'd say it's a start of a trend is the way to think about it. The hit rate of selling AirVantage services, along with getting an embedded module win, is still low, and we still have, I would say, quite a ways to go. But we're very focused on that. And I do believe that AirVantage is already creating differentiation for us in the sale process and in every sales situation, we're getting increasing interest. So my expectation is increase in hit rate will follow, but it'll also take time.

Todd Coupland, CIBC.

I just wanted to come back to the organic growth potential in the overall market, and you in particular. So if the market is kind of 5, 6 points now, and you still have Europe as a drag in auto second half of the year, can the business pop back up to 15% growth with the turnaround in the second half for 2014? I think 10% to 15% up is where consensus revenue is for 2014, which is kind of double the rate that you're currently experiencing. And I was wondering if you could just highlight what you think are the key drivers in 2014, not design wins, but actually revenue that you think can contribute in the year. Don't have to give an exact percentage of growth, obviously. But just what are the key drivers to get that revenue in for next year? Thanks.

Sure. Thanks. So I'll, hey, I'll give it a number. I think we have been talking about 10% to 15% organic growth, I think in the midterm, and, candidly, that's code for 2014. In the midterm, we're more comfortable at the low-end of that range is the way to think about it, Todd. And what's driving that is, we've got a strong pipeline of customer programs. These roll out over time, so we expect that's going to be a driver of revenue.

We expect further growth in our Enterprise Solutions, which has experienced, I would say very strong growth in the last year. We expect strong growth to continue there, of course, off a smaller base. And those are the key drivers.

All I've heard is another -- an important third is the launch of new products, new embedded products like our HL series. So pretty enthusiastic about that. Again, it's going to take a little time to roll out. We expect to have our first commercial product in market in Q3, and successor products to follow over the course of the year. And we view that as a very important product for, I would say bolstering our position in small, medium-sized accounts and through distribution.

So a combination of customer programs, growth in Enterprise, plus new products, are what we see as the key drivers for 2014.

Ian, are there more questions?

Sorry, I'm here. Hello?

Yes, okay.

Sorry about that. Just a couple quick other questions. You talked about in Q4 customer volatility. What end market is causing that volatility in the fourth quarter?

Yes, I think actually I talked about it in a more abstract terms. I said Q4 of 2012, was a quarter that was particularly strong, because a lot of customer programs went right and a lot of things went right in the cost structure, and that created a tough comp for us as we look at Q4 of 2013.

And then I went on to further say that even while we target closer to a 10% organic growth rate, that's not going to happen every quarter because of this volatility where you've got customer programs that do great one quarter and not as great the next quarter.

That's helpful clarification. Lastly, on your balance sheet, so AnyDATA was what I would, I guess, consider a tuck-in acquisition to position yourself geographically. When you look at your M&A pipeline, is that the kind of deal you're looking at? Or are you actually considering transformational deals as well? Maybe just give us some color on that, because you have a very large cash position, and AnyDATA type deals will take you awhile to work your way through that. Thanks a lot.

Yes. Yes, no. Sure. The AnyDATA deal, I would view as opportunistic. And that was a sale process and an interesting opportunity to strengthen a beachhead in Korea. And I would say it is not characteristic of the typical targets in our funnel. Most targets are a bit bigger to significantly bigger, and I would say, at this point, there are no targets in our funnel that I would consider to be transformational. Or no active targets in our funnel that I would consider to be transformational.

So I'm going to set your expectation at something north of AnyDATA, in terms of size and impact, but short of transformational is the most likely short-term outcome.

John Bright, Avondale Partners.

Jason, that's a wide range.

Yes. We'll see. Let me look at my funnel, I'll give you some specific names.

Yes, that's a wide range. Couple of cleanup questions. First, Dave, AnyDATA to main revenue, should we be thinking about $2.5 million in revenue next quarter that's not included in guidance? Did I understand that correctly?

There is a -- that is the annualized rate. There is a bit of flux in the quarter, but that's not a bad number. And remember, though, that it's not in for the full quarter.

Got it. Okay. Jason, the key to the story is the Enterprise piece of the business. It just performed stellar in this quarter, I think up 38% or so. Talk about the verticals driving Enterprise, number one. And also, what are the competitive differentiations that's helping you win that business?

So some of the key verticals or many of the -- are of the same verticals that we sell into with OEM Solutions. Think of it as just another layer up the value chain. So energy, we've always had a strong position with energy companies, utilities, for our Enterprise products, field service is another key area. Public safety, so police, fire, EMS, always significant drivers.

And generally what I would call business continuity, and that usually aligns well with retail establishments where our Enterprise Solutions are used mainly for business continuity. So disaster recovery, if you're wired, broadband goes down, as an example.

So key drivers for us in that business or key differentiators, no doubt it's a huge part of it is AirVantage. And I don't mean to overstate that at all, it is truly a huge part of our differentiation as we go into every AirLink sales situation. We are actively positioning and selling AirVantage as well.

And that leads to significant differentiation, particularly when you hook it up with the embedded intelligence that are in the AirLink devices. So if you put the cloud together with these intelligent devices, you can do things like create new applications in the cloud and push them down to all your devices or create new policies in the cloud and push it down to all your devices.

So I think, again, device-to-cloud is a significant, continues to be a significant differentiator in that space for us.

This is a difficult question to ask properly, so let's see if I can do it. How much of the revenue is not necessarily recurring? But given the shorter -- or shall we say longer product cycles that you're morphing into as a company, how much of that revenue is associated now with longer product cycles? Does that make sense?

Yes. Maybe I'll spin it a little bit differently, John. I would say, as you look to 2014, nearly all of our OEM Solutions revenue is going to come from existing customers and existing programs. We'll have maybe a couple of new programs launch throughout the year. Well, we'll have several launch throughout the year.

But for the most part, we look at 2014, probably 90% of our OEM Solutions revenue driven by existing customer program wins.

So I know that's not exactly what you asked, but that's the way we think about it. And in Enterprise, it's a little different than that. I would say that there is more of a book-ship characteristic to Enterprise. So while we're not necessarily launching a lot of new products to drive Enterprise, we'll be launching some, but while we won't be launching a lot, like in the AirCard days, that business is more of a book-ship characteristic, active sales funnel, but, in any given period or any given six month period, you're booking that business and shipping that business. Very unlike OEM, where you get a design win 12 months earlier, you hit market, and then roll those programs out with customers. Does that make sense?

It does, and it's a good way to spin it. Dave, on the Enterprise side, should we think, and this is a guidance question, should we think sequentially that that will be up?

I don't want to get into segmented guidance. I will note that we had a very, very strong quarter in Q3 in Enterprise.

All right. Jason, I'll move to an M&A question to close it. Do you want to share anything as far as a geographic focus or a vertical focus?

Well, I would say, I know we just did a deal in Asia. But the geographical focus actually is mainly North America and Europe, that's -- and, of course, we have names in the funnel from Asia, too. But the focus has really been North America and Europe.

The kinds of targets, without putting market segments on it, the kinds of targets are -- tend to be clustered around our Enterprise Solutions line of business. So they are a services company that help us scale our advantage. They're hardware companies that help us scale our high-margin, rugged gateway, and router business, and serving either the same or very similar segments that we currently serve.

Tim Quillin, Stephens, Incorporated.

Thank you for taking my follow-up. Jason, could you just give us a little bit of a sense of ASP trends that you've seen in the module business in 2013, and any kind of early read on expectations for 2014?

Sure. I will say that if you look at the entire OEM Solutions product lineup, ASPs have been remarkably consistent. Now, that's, of course, driven by mix. When you launch a new 3G product and you sell more 3G and 2G goes down, that helps to prop up overall ASP. But think about OEM module ASPs as basically flat.

Now, if you look at individual products within that the product lineup, if you have a 2G product at the start of the year, what's the price going to be, that same product price is going to be at the end of the year? It's probably going to be down 5% to 10%. But again, overall ASP is consistent.

And in 2014, you believe that mix improvement can offset that kind of natural decline as well?

Yes, I think so. I think so. I think we'll see the same phenomenon in 2014.

And then just last question. I know it's a small acquisition. But what kind of margin profile would AnyDATA have? Thank you.

Well, on the operating margin, it's -- just above zero is the way to think about it. So operating margin, modestly profitable is the way to think about it. Gross margins today in the AnyDATA business, a bit below ours is the way I'd characterize it. But we're also in an expensive factory. So we've got to transition those products into our own factories and transition the component purchases through our own procurement channels, and that so effectively drive the cost of the products down. And with that, I think over time we'll get those margins consistent with our OEM module margins.

Ian, I think that, if I'm not mistaken, that was our last question?

That's correct; there are no further questions.

So I'll thank everybody for joining today's call. And as usual, management is available here in Vancouver should you have any follow up questions.

Thank you. This concludes today's conference call. You may now disconnect.