司亞樂 (SWIR) 2014 Q1 法說會逐字稿

Good afternoon. And welcome to the Sierra Wireless Q1 2014 earnings release conference call and webcast. (Operator Instructions)

I would like to remind everyone that this call is being recorded today, Thursday, May 1st, 2014 at 5:30 Eastern Time.

I would now like to turn the meeting over to Mr. Jason Cohenour, Sierra Wireless Chief Executive Officer; and Mr. Dave McLennan, Sierra Wireless Chief Financial Officer. Please go ahead, gentlemen.

Thanks, Jessie, and good afternoon, everybody. This is Dave McLennan talking.

Thank you for joining today's conference call and webcast. With me today on the call is Jason Cohenour, our President and CEO; as well as David Climie, who recently joined us as Senior Director, Investor Relations.

As a reminder, today's presentation is being webcast and will be available on the website following the call.

Today's agenda is as follows -- firstly, Jason will provide a high-level business view. I will then provide a more detailed overview of our first quarter financial results as well as guidance for the second quarter. And then, following that, Jason will provide a brief summary. And then we will go to Q&A.

Before we get started, I will reference the Company's Safe Harbor statement. A summary of our Safe Harbor statement can be found on page 2 of the webcast and is now being displayed. Today's presentation contains certain statements and information that are not based on historical facts and constitutes forward-looking statements. These statements include our financial guidance for the second quarter of 2014 and commentary regarding the longer-term outlook for our business.

Our forward-looking statements are based on a number of material assumptions, including those listed on page 2 of the webcast presentation, which could prove to be significantly incorrect. Additionally, 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 EDGAR, as well as in our other regulatory filings. This presentation 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. I'll begin today's call with some brief highlights on our first quarter of 2014.

Revenue was strong in the first quarter, at $121.2 million, representing growth of 19.5% over the same period in 2013. While we had a modest revenue contribution from the recently acquired AnyDATA and In Motion business operations during the quarter, most of our revenue increase was organic, posting year-over-year growth of 17%.

Year-over-year profitability also continued to improve. Our strong revenue in the quarter drove adjusted EBITDA to $4.1 million, representing growth of over 100% compared with the first quarter of 2013.

And while driving strong operational results, we also closed the previously announced acquisition of In Motion Technology in March, bolstering our enterprise solutions business with high-margin revenue from complementary products and segments. The integration of both In Motion and AnyDATA is now well underway.

Let's take a look at our two business segments. In our OEM solutions segment, we saw strong revenue growth and a record number of new design wins. In Q1, 2014, revenue grew by 19% year over year to $106.2 million, driven by improving sales of our 3G and 4G embedded modules.

Consistent with previous quarters, we experienced strong revenue contribution from our key market segments, including automotive, energy, networking, and mobile computing. Revenue contribution from AnyDATA during the quarter was modest, with supply capacity somewhat constrained by factory transition issues related to the integration. Gross margin in the quarter was 28.8%, roughly flat to Q4 of 2013 and in line with our expectations.

A significant highlight in the quarter was our design win activity. During Q1, we secured a record number of new design wins, with more than half of these representing new programs, which we expect to ultimately drive truly incremental revenue in the future.

Our record number of design wins also provide strong evidence of an overall increase in OEM customer activity, as more companies contemplate connecting their machines. Our design win activity was also broad-based, with solid contribution from each of our regions and several market segments, including automotive, networking, security and energy, including a very interesting win with a global leader in municipal lighting, a key element in many smart city deployments.

We attribute our design win surge to some key drivers, including growth in overall market activity, our own targeted investments in adding sales capacity in key markets, and the increasing strength of our overall product position. Our clear leadership position in 3G and 4G is proving very beneficial, as the market continues to evolve away from 2G technologies.

In addition, our legacy smart products, and in particular the SL family, have done very well of late. And our recently introduced HL line of essential products is capturing strong early market traction.

Our recent success with the smart SL products gives us confidence that the market is ready for and in need of powerful embedded application capability. It's our firm belief that such capability enables our customers to lower development costs, accelerate time to market, and to optimize overall system costs.

Hundreds of customers agree. Our successful SL family runs our legacy embedded application framework called Open AT, which is now deployed in the market on many millions of our smart devices, with millions more in the customer design win pipeline.

Based on this demonstrated success, the availability of new and more powerful semiconductor platforms and the power of the open source community of developers, we have invested significantly in the development of our next-generation embedded platform, called Legato, which we introduced at the Mobile World Congress in February of this year.

Musicians will know that "legato" is a musical term meaning smooth and connected, which describes perfectly the experience we want to deliver to developers of connected solutions. Legato leverages all of our experience and success with Open AT and takes our embedded application capability to a new level.

Legato is based on Linux, is truly open, leverages established open source tools, and is highly portable to different hardware platforms. Legato will enable developers to get their applications up and running fast, get to market more quickly, and to leverage the power of multi-core platforms to run their entire application directly on our module, thus leading to overall reduction in solution costs.

Legato is currently being tested with a number of select Sierra Wireless customers and developers. Going forward, Legato will be pre-integrated on all new smart modules from Sierra Wireless, starting with the AirPrime WP and AirPrime AR series modules shipping later this year. For us, we believe that Legato adds compelling differentiation to our smart products, which will enable us to capture share, protect margin, and to drive AirVantage subscription growth.

Moving to our enterprise solutions business segment -- revenue growth was solid, improving by 23% year over year to $15 million, including a partial-quarter contribution from the acquired In Motion Technology. Excluding In Motion, organic enterprise solutions growth was 13% year over year. Gross margin in this segment was a robust 53.8% in the quarter, consistent with Q4 of 2013 and in line with our expectations.

During the quarter, we saw continued strength from our recently launched AirLink LS300 and GX440 gateway products, including another significant year-over-year increase in revenue from Europe. We also commenced initial commercial shipments of our recently announced ES440, a gateway product designed specifically for branch office business continuity applications. And this is a space that we view as having very interesting profitable growth prospects, as well as opportunities to capture more of the solution value chain.

We also continue to make solid progress with our AirVantage cloud services. In Q1, we added a record number of new AirVantage management services customers in connection with sales of AirLink gateways. Our larger OEM solutions sales team also received extensive AirVantage training at the start of the year and is now rapidly building a large funnel of AirVantage opportunities with the support of experts from our enterprise solutions team. Over the long term, we expect a growing number of our AirVantage customers and subscribers to come through our OEM solutions channel.

We've also been busy cultivating new partners to help drive growth in our device-to-cloud solutions. During Q1, we executed a collaboration agreement with Tech Mahindra, a large global IT solutions integrator, to work together in developing and deploying M2M solutions for customers worldwide.

With that, I'll now turn the call back over to Dave, who will provide more detail on Q1 financial results and Q2 guidance.

Thanks, Jason.

Please 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.

We have presented our non-GAAP results with and without the impact of the acquisition of In Motion technologies, which closed partway through the quarter on March 3rd and was not included in our guidance for the first quarter.

Total revenue for the quarter was $121.2 million. The acquired In Motion business contributed $1.3 million of revenue in the quarter and was breakeven at the operating income level during the partial quarter that we owned the business.

Q1 was a very solid quarter for the Company from a revenue perspective. Looking at non-GAAP results excluding the contribution from In Motion and comparing to guidance, revenue was $119.9 million, which was in the upper half of our guidance range of $117 million to $121 million.

Gross margin for the quarter was 31.8%, down slightly as expected from Q4, reflecting sales mix between our two business segments. And specifically, in what is typically a seasonably low quarter, revenue in our higher-margin enterprise solutions was down compared to Q4 as expected. Within each of the business segments, gross margin was stable compared to Q4.

Non-GAAP operating expenses for the quarter were $37.4 million, up sequentially from Q4. This is mainly related to higher sales and marketing costs, reflecting the continued selective investments and go-to-market capabilities, as well as typically higher conference expenditures in Q1 compared to the other quarters.

Our non-GAAP earnings from continuing operations were $700,000, within our guidance range; and our non-GAAP net earnings from continued operations were $500,000, or $0.02 a share, again within our guidance range.

As a reminder, the reconciliation between our GAAP and non-GAAP results is provided in the press release as well as in the Investor Relations section of our website. Non-GAAP results exclude the impact of stock-based compensation expense and related social taxes, 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.

I would also like to draw your attention to the segmented disclosure, which can be found on the last page of the press release. This provides segmented revenue and gross margin for each of our OEM and enterprise segments for the first quarter of 2014 compared to 2013.

Taking a more detailed look at [Q1], including the impact of the acquired In Motion business, total revenue of $121.2 million was up 19.5% year over year. Revenue from OEM solutions was $106.2 million, representing 19% year-over-year growth, driven by increasing sales of 3G and 4G modules.

During the quarter, we had solid contributions from the automotive, energy, networking and mobile computing segments. Revenue from enterprise solutions was $15 million, up 23% year over year. This includes a $1.3 million contribution from the acquired In Motion business. And on an organic basis, enterprise solutions revenue was up 13% year over year.

EBITDA during the quarter more than doubled to $4.1 million from $1.8 million a year earlier. And we were modestly profitable at the operating level with $700,000 of earnings from operations compared to a loss of $1.4 million a year ago. These results demonstrate solid growth on our business and improving profitability metrics, while at the same time we are integrating two recent transactions.

Our balance sheet remains very strong, with a cash balance of $151.3 million at the end of Q1, and puts us in an excellent financial position to execute on our organic growth and M&A strategy. We put some of our cash to work during the quarter. In total, we used $28.6 million of cash during the quarter, which includes $22.6 million for the purchase of In Motion. We also utilized $3.9 million in working capital and $2 million for capital expenditures.

We ended the quarter with $151.3 million in cash. And subsequent to quarter end, in early April, we received $13.8 million representing the full amount held in ESCROW from the sale of AirCard a year ago. This amount is not included in the quarter-end balance of $151.3 million.

Moving on to guidance for the second quarter of 2014, which is provided on a non-GAAP basis -- Q2 will be the first full quarter of contribution from In Motion following the acquisition in March. Accordingly, we are including In Motion in our financial guidance for the second quarter.

During Q2, we expect to realize continued solid revenue growth, with revenue in the range of $128 million to $131 million. At the midpoint of this range, this represents 18% growth on a year-over-year basis. This includes expected revenue of $3.5 million to $4 million from In Motion products.

On an organic basis, excluding acquired revenue from In Motion and AnyDATA, we expect year-over-year revenue growth of approximately 13% in Q2. We expect a slight improvement in gross margin relative to Q1, reflecting a change in sales mix among our two business segments -- specifically proportionally more sales from our higher-margin enterprise solutions segment, including the contribution from In Motion.

Operating expenses are expected to increase sequentially in Q2 to between $39 million and $40 million, primarily as a result of the addition of In Motion expenses for a full quarter. During Q2, we expect In Motion to be breakeven at the operating income level.

Based on these expectations, this results in consolidated earnings from operations of between $2.7 million and $3.5 million and net earnings from continuing operations of between $1.9 million and $2.5 million, or earnings per share of approximately $0.06 to $0.08.

We expect our tax rate in Q2 to be approximately 30% of non-GAAP earnings and then drop to the 20% to 25% range in the second half of the year.

With that, I'll hand it back to Jason to sum up.

Thank you, Dave.

To summarize -- our Q1 results and achievements represented an excellent start to 2014. We delivered record quarterly revenue and strong year-over-year growth. Our revenue performance drove a significant improvement in year-over-year profitability metrics, highlighting our focus on profitable growth.

OEM design wins and new AirVantage customer adds both achieved record levels in Q1. I believe this offers important validation that our strategy and product offering is sound and gives us confidence that we will achieve our growth and profitability aspirations in 2014 and beyond.

We've also successfully completed two acquisitions in the past two quarters. And both AnyDATA and In Motion have already started to contribute to the business in a meaningful way. We fully expect that both organizations will help us to drive growth and to create value in the very near future.

We also ended the quarter in a strong cash position and have an expectation that we will bolster our cash balance during Q2. We remain focused on putting our balance sheet to work in acquiring great M2M companies that will 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 LTM revenue of $462 million. We've done this while improving our margin profile and defensibility.

Our aim is to extend this track record with the addition of more companies like AnyDATA and In Motion and, in so doing, to deliver a great return for our shareholders.

Operator, this concludes our prepared remarks. You can now open the line for questions.

(Operator Instructions) Peter Misek, Jefferies.

I guess, a two-part question. Firstly, your cash balance -- congrats on that, and the extra amount. Is it possible, though, that we could get some cash return as well, given that I think you've commented in the past you view your shares undervalued?

And then, maybe we can get into a little bit of discussion on gross margin. As we look out beyond next quarter, how should we think about gross margin puts and takes, and mix? Is it that if you have big design wins, we should see gross margins initially [detract] as you invest in those new platforms, and then they scale after that? Or should we think of gross margins as more of a linear move?

Thank you.

Sure.

I'll take the first part of the question. By the way, I'm not sure, Peter, that we've ever said that our shares were undervalued. But with respect to the cash balance -- like I said, it's strong at the end of the quarter. We've gotten 100% of the ESCROW that was held following the AirCard transaction of $13.8 million. So that is following the end of the quarter now on the balance sheet. And safe to say we're predisposed to positive cash flow also from the business during the quarter.

But our strategy remains to put our -- call it our surplus cash to work in acquisitions. We think that's the stronger path to value creation at this point in time. However, we're very open-minded to a return of capital by way of a buyback, should the M&A funnel not reap the value creation rewards we're currently expecting.

So job one is to go acquire great companies. And if that doesn't work out, then of course a return of capital to shareholders is another strong alternative.

With respect to gross margin -- as Dave commented, we expect gross margin to trend up from Q1 to Q2. The biggest driver there is a mix shift between our two business segments, so we expect proportionally higher revenue coming from enterprise or our higher-margin enterprise business than from OEM. And that's pretty much it.

For us, there is kind of this story of a mix within mix, if you look in particular at OEM. And in OEM, if there is a higher contribution from high-volume customers, that will tend to depress gross margin percentage. And if it's more broad-base, that will tend to bring gross margin percentage up a bit.

I think it's safe to say that in Q4-Q1, and in Q2, we expect our OEM mix to continue to favor high-volume customers for the foreseeable future. But over time, as our new programs come online, we'll have a lot of diversification in the OEM business. And certainly, we are focused on driving gross margin back to a 30% mark.

In enterprise, we're pretty happy with the gross margin where it is. If we can work that to the mid-50s, I think that's a big win for us and a big win for shareholders.

Perfect. Thank you.

Mike Walkley, Canaccord Genuity.

Hey, Jason, I just wanted to follow up on your comments about record design activity. I remember last quarter you were talking about some very large deals in the pipeline. Can you comment if some of these large deals were closed in that record deal activity? And could you also comment maybe on the pricing environment for those large deals?

Yes, maybe I'll comment on large deals and pricing environment first. It's always intense. When deals get into the millions of unit kinds of scale, the pricing environment gets pretty intense.

Now, with respect to deals that we won in the first quarter, I would characterize at least some of those as high-volume deals. Had a pretty good mix. We did have wins in automotive, we did have wins in energy.

But I would think about it as broad-based, Mike. I wouldn't think about it as dramatically changing our mix one way or the other in terms of expected volume from each of those programs.

So there are a couple of bigs, a couple of small ones, and a lot in the middle, is the way to think about it.

Great.

And just building on, Jason -- with the strong organic growth to start the year, how do you see kind of the industry growing this year? And do you think you're gaining share and growing faster than the industry, given your current run rate?

I'm going to hesitate to say that we think we're gaining share. We're going to stand by we think we're growing in line with the market at this point in time. I will say, though, that some of our new products that are in the market seem to be getting some really good traction, and perhaps tapping into certain areas of the market where we weren't doing quite as well in the last two years.

And when I say that, I refer specifically to our new HL product line, which seems to be very well received by the market. And if there is a share gain opportunity, I would say that the HL product line probably has the highest probability of share gain possibilities.

Great, thanks.

One question for me -- and I'll pass it on -- I guess, for Dave and Jason. I understand the strategy with ramping your sales force for the new opportunities, some of the interesting things you have going on. But with the $39 million to $40 million in OpEx for Q2, with In Motion, should we think OpEx should [we] model that continue to grow in the back half of the year as you expand your sales opportunities, or do you think it'd be maybe stable at these levels absent any acquisitions?

Mike, it's Dave. With respect to the selected investment, it's certainly focused on things like backfilling regionally where we want to build some more capability from a geographic diversification perspective, and then, also ensuing in some of the other regions. So that's primarily the focus. Also a lot of focus on training for having the sales team sell services, AirVantage services, for instance. So that's really the focus there.

With respect to the yield, the run rate of OpEx, where I've indicated $39 million to $40 million for Q2, you'll recognize that we're integrating a couple of acquisitions within those numbers. And I think we're going to be very focused on managing our OpEx in the back half around that range.

Thank you.

Tim Quillin, Stephens, Inc.

Just on In Motion, what is the gross margin structure? And have you figured out what levels of intangibles amortization is going to be associated with the acquisition?

Take that one, Dave?

Yes. The GM is in the low 50s. So it's a similar business model to our existing AirLink devices. And it is in that part of the segmented results.

And we're just working through the purchase price allocation right now. So I don't have any specific amortization figure in mind. We're just working through that right now.

Okay.

And then, if I might sneak in a couple on my follow-up -- I was wondering if you could give a little bit more details around your lighting customer win, which sound kind of intriguing.

And then, on Legato, I know you're in testing with customers right now, or they're looking at it and evaluating it. Are there specific projects that are tied to that process? In other words, when they finish the testing process that they might start some kind of major initiatives using Legato?

Thank you.

This is Jason. Thanks, Tim.

Yes. On the lighting customer, we can't provide -- we can't disclose a lot of detail. But I think you'll notice probably on the slide that the name Philips does show up. So that might give you a hint as to who the customer is.

And without disclosing too much around architecture, I think it's a very exciting win for us. We think that they have -- they're number one in the world in municipal lighting. And I believe that's a great market opportunity, as do they. And I think they've got a very interesting end-to-end solution offering that now incorporates Sierra Wireless devices.

And in terms of opportunities, I think they're certainly looking globally. But we would expect Europe and North America to represent the bulk of the activity in the short term, anyway.

With respect to Legato, we've got about 35-plus customers/developers trialing Legato now. A large mix of them are developers, from the open source developer community. So perhaps no specific large volume tied to that activity. But we do have some customers, large customers, who have projects tied to their trialing of Legato. And assuming success on that trial, we would fully expect those customers to go commercial with Legato as their embedded platform.

(Inaudible) thank you.

You bet.

John Bright, Avondale Partners.

Jason, you made a big point of talking about the design wins. Talk about that as an indicator, and also from a visibility standpoint, what that provides to you.

Well, it's vital. It really -- the way we think about it -- first of all, there's different kinds of design wins. Of course, every design win's not created equally, so maybe we'll start there. I mean, there are large design wins, small ones, and medium-sized ones. So there's quite a blend.

And then, with respect to impact on the business, we think about them a few ways. One is wins with new customers for new programs, wins with existing customers for new programs; and those two buckets we view as incremental revenue to what we're driving now. And then, the third bucket we would call successor program. So that's working with an existing customer on their next-generation deployment. So I would view that as more -- call it revenue continuity.

So the thing that got, I would say, us most enthusiastic about the design win activity was not only the scale of the design win activity, but that more than half of that was focused on new programs. So those new programs we would fully expect to represent incremental revenue when those programs come to market.

Would it be useful to characterize the design wins in terms of OEM versus enterprise?

Those are all OEM design wins.

Thank you.

Yes. Enterprise, we tend not to use the phraseology "design win." "Design win" is very much an OEM sales concept.

What's the phraseology you use for enterprise?

Customer win.

Thank you. Any customer wins in the quarter that are notable?

Lots of them, yes. We had good customer wins on the enterprise side as well. And on the enterprise side, again, I think a key highlight was a significant success selling AirVantage management services as part of an AirLink gateway sale. And in that area, we put up a record number of AirVantage customer wins.

Let me squeeze one more in, just to make sure we're clear. I know you don't like to give guidance throughout the year, Dave. But you're saying that you're going to see a better mix in Q2 that's going to help the gross margin. And I think you're implying -- look, the gross margins were where you expected them. There wasn't any pricing issue in place. Are you thinking that mix improves throughout the year? Or, can you help us with that thought?

Yes, I want to be careful not to go outside the guidance box, John. But we're constantly focused on improving gross margin, whether it's product costs or mix, as you suggest. So I think of things in many little incremental steps.

Thank you.

Todd Coupland, CIBC.

I just wanted to ask you a little bit more on the design wins, if I could. The visibility -- would that actually be giving you visibility for the second half of this year in terms of those design wins starting to roll out? Or is that a several-year process for it to start to contribute?

Yes, I think that would be -- there may be some small impact, is the way I would characterize it, Todd. The growth that we expect in the back half of the year is really driven from design wins that happened before Q1. Cycle time from design win to revenue can be anywhere from -- fast is nine months. And in the case of automotive, it can be a two-year cycle. Right? So this is the stuff of building a pipeline for later periods.

And just on auto -- technology changes so quickly, but yet the automotive sector seems to implement very slowly. Do you see that shortening at all? Or is it still going to be a multiyear process?

I don't think the cycle time will shorten. But certainly, it's our view that automotive OEMs are much more focused, active and aggressive in getting connectivity into their cars. Several we've seen go from start contemplating a 2G implementation and have, with help, worked their way up to 3G and sometimes 4G implementation. So I think they're more aggressive on the technology front, I would say, than perhaps in past years.

But cycle time is really -- it's really driven by their planned launches of different car models. And that's not something you can really accelerate that much.

Fair enough. That makes sense.

Could I ask the contribution question from design wins a little bit differently? If the business is growing organically, sort of 13% or so, the design wins that you have -- is that enough over the next two or three years to step up that growth rate to 15% or 20%? Does it give you enough visibility to make that kind of comment about Sierra Wireless over a few years?

Well, I'm going to be careful not to get too far ahead of ourselves, Todd. But what I will say is, in the first half -- and there's a couple of things, of course, that drive revenue. Not just the design wins, but also the rate of success our customers have selling their solutions. And that is often directly related to how effective they are and macroeconomic factors and the like.

I mean, automotive is a perfect example. As the automotive industry stabilizes and more cars get sold in Europe, as an example, we benefit from that, even though it's not a new design win. That could be a design win that's two years old. And we would benefit from a macroeconomic recovery, as our customers do, and we do indirectly.

So that said, looking at our first half, we've driven -- implied in our Q2 guidance plus our Q1, plus our Q1 results -- we've driven organic growth at kind of the high end of the range we've been talking about. You been talking about 10% to 15% organic growth. And certainly in the first half, we've been at the higher end of that range, even though we had previously told investors to expect something closer to the lower end of the range.

So I sense activity picking up, I guess, is what I'm trying to say. And as we look just to the back half of the year, I think we're pretty comfortable that we should be comfortably in that 10% to 15% range.

Now, beyond that, do we have enough in the design win pipeline to drive higher growth rates? I would say absolutely, as long as our customers have success in their markets and with their solutions. Because that's a huge variable, frankly, that we don't control. So what we do control is getting the design win. That's a great indicator of future revenue possibility. And it's really other factors that dictate the size of those design wins in the market.

That's helpful. Thanks very much, Jason.

You're welcome.

(Operator Instructions) Paul Treiber, RBC Capital Markets.

Thanks very much.

When you look at the In Motion business, could you just elaborate on the near-term -- and near-term being probably 12 months or so -- potential synergies? And then, any cost synergies that you see as part of your integration plan?

Paul, it's Dave. I think your initial thoughts on synergies with In Motion are really focused at the product cost level. As we bring In Motion onto the supply chain and manufacturing platform, we're focused on that.

And then, OpEx -- always looking for opportunities, synergies there. But I think it's going to be more focused on product cost.

And I would add sales synergies as well --

Right.

-- where we've added considerable scale, Paul, to the enterprise solutions sales team. Particularly in North America, the products are complementary. And I think that equals a great opportunity to drive growth synergies.

When you think about the timeline, is that sort of a six-month, nine-month timeline in terms of the sales synergies?

I think we'll be stepping into it certainly over the balance of this year, Paul. And my gut feel is we may begin to nibble at that by the end of the year. But I would expect a stronger contribution from growth synergies starting in 2015 and beyond.

Okay.

Just wanted to move to AnyDATA. Could you just clarify what the impact was Q1? And then, if you're seeing any catch-up, Q2?

Maybe I'll comment on that, yes.

So impact in Q1 was modest and, I would say, constrained. We had -- I'm speaking from a revenue standpoint -- we are currently moving production of many of the products, AnyDATA products, from an AnyDATA-owned manufacturing facility to our own -- to our Flextronics manufacturing facility. So that's caused, I would say, some constraints in supply. So we had -- I would say we had stronger demand in Q1 than we were able to deliver on.

And so I think that does correct here in Q2. And while it's small numbers, we certainly expect that revenue contribution from AnyDATA will be higher in Q2 than it was in Q1.

Okay.

And then, just lastly, on the competitive environments -- with the pickup in the market, have you seen any changes in the competitive dynamics?

I would say no material changes, Paul. I mean, it looks pretty much the same to us. It's Sierra, Gemalto and Telit, as the primary competitors; and a group of smaller players, including a couple of Chinese players. But I don't -- nothing's changed. We haven't seen any new names come on the scene, or anything like that. As I mentioned earlier, large-volume deals. The price competition is aggressive. That's nothing new.

And I think, to your point -- what is perhaps not so much new but seems to be gaining strength is the number of opportunities. And so far, that hasn't attracted any new names. So we believe we stand to benefit significantly from the level of activity around new opportunities.

Okay, thanks. I'll pass the line.

And I'm currently showing no further questions at this time. I turn the call back over to the presenters.

Great.

Well, with that, I'll thank everybody for joining today's call and for the questions. As usual, management is available here in our Richmond office should you have any follow-up questions.

And with that, Stephanie, I think we can terminate the call.

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