司亞樂 (SWIR) 2014 Q2 法說會逐字稿

Good after, ladies and gentlemen, and welcome to the Sierra Wireless second-quarter 2014 earnings conference call and webcast. My name is Lori and I will be your operator today. After today's presentation, we will conduct a question-and-answer session. (Operator Instructions)

Please note that this call is being recorded today, Thursday, July 31, 2014, at 5:30 p.m. Eastern Time. At this time, all lines are in listen-only mode.

I will now turn the conference over to David Climie, Senior Director of Investor Relations at Sierra Wireless. Please go ahead.

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

Today's agenda will be as follows. Jason will provide a high-level business review. Dave will provide a more detailed overview of our second-quarter 2014 financial results as well as our guidance for the third quarter of 2014. And then Jason will provide a brief summary. Following that, we will finish with the Q&A session.

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 being displayed now.

Today's presentation contains certain statements and information that are not based on historical facts and constitute forward-looking statements. These statements include our financial guidance for the third 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, that 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 an analysis, which can be found on SEDAR and EDGAR as well as our other regulatory filings. The presentation should also be viewed in conjunction with our press release and with the supplementary information on our website.

With that, I will now turn the call over to Jason Cohenour for his comments and highlights on the second quarter.

Thank you, David. And good afternoon, everyone. I'll begin with some brief highlights on our second quarter of 2014. Revenue was strong in the second quarter, at $135 million, representing growth of 23% over the same period in 2013. The $135 million in quarterly revenue represents another record for the Company and was above the high end of our guidance range.

Our year-over-year revenue growth was driven by a combination of contribution from recently acquired businesses and robust organic growth of nearly 17%. While revenue growth remains healthy, our profitability and operating leverage also continues to improve.

In the second quarter, our non-GAAP earnings from operations increased 149% year over year to $3.7 million. And non-GAAP EPS grew 167% to $0.08 from $0.03 a year ago.

I am also very pleased to add that ABI Research, a key industry analysis firm, for the third year in a row validated the strength of our leadership position in the Internet of Things. According to ABI, our share of the M2M embedded cellular module market remained a stalwart 34%, declaring us, once again, the clear market leader, a position we intend to leverage to drive continued growth and value creation.

Now let's take a closer look at our two business segments. Our OEM solutions business experienced strong revenue growth in the second quarter. Revenue increased 22.6% year over year to $116.6 million, driven by growing sales of our 3G and 4G embedded modules.

We experienced strong revenue contribution from key market segments during the quarter, including automotive, mobile computing, energy, sales and payment, and networking.

Gross margin in the quarter was 28.9%, roughly flat sequentially and in line with our expectations as we continue to experience significant revenue contribution from large, high-volume customers.

Q2 was another quarter of robust design win activity as well. Our design wins were broad-based, coming from each region and several market segments, including energy, where we secured a key 4G design win with a leader in smart metering.

Automotive, where we secured two important design wins, including our first with a domestic Chinese car OEM. Insurance telematics, a market experiencing significant growth and networking. I will add that activity around the connected car, or what we call automotive, continues to be very high.

In addition to our continued design win success, we are engaging on numerous large new opportunities in RFP responses. We attribute our design win success to some key drivers, including growth in overall market activity, our own targeted investments in adding sales capacity, 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 recently introduced HL line of essential products is capturing excellent market traction and has strengthened our position in important segments and geographies. We believe the flexible, scalable HL product line has enabled us to capture design win market share and will play an important role in our future revenue growth.

Of equal importance to our design win success has been our next-generation smart module product line, based on our new Legato embedded software platform. The combination of new, high-powered, multi-core hardware platforms, together with our Legato embedded software platform, is proving to be very attractive to both small developers and large OEMs.

Both recognize that our smart platforms enable them to accelerate time to revenue, lower program cost and risk, and reduce overall solution cost. Our new smart module Legato combination has already been instrumental in securing recent large design wins and in key markets such as automotive.

Additionally, the broader developer community is embracing Legato and AirVantage and leveraging these embedded and cloud software platforms to create new compelling IoT solutions. We are very encouraged by the early traction we see with our next-generation smart device-to-cloud solutions for OEMs and expect that our clearly differentiated position will help us drive long-term growth and profitability.

Moving to our enterprise solutions business segment, revenue growth in the quarter was strong, improving by 27% year over year to $18.4 million. Year-over-year growth in our enterprise solutions segment was driven by a solid contribution from the In Motion Technologies acquisition that we closed in Q1 of this year. Gross margin in this segment was 52.4% and in line with our expectations.

Deployments of public safety agencies and utilities in the US were strong contributors to our enterprise solutions business in Q2. In these markets, 4G enabled In Motion mobile gateways and AirLink GX440s are very well positioned in helping us to secure new customer wins.

We also saw continued expansion of rollouts with key device-to-cloud customers in Europe, such as Nespresso and Atlas Copco, who are actively growing their deployments of connected machines.

Our recently announced ES440 enterprise gateway has also been well received by the market and we expect it to bring meaningful revenue contribution later in 2014 and into next year. The ES440 is designed specifically for branch office and retail business continuity applications and also enables us to capture more of the solution value chain.

Overall, we see a growing opportunity for 4G-enabled rugged gateways, a product space where we are particularly well positioned. As customers continue a secular transition to next-generation technologies such as 4G, we expect our enterprise solutions business to be a direct beneficiary.

We are also making steady progress in building our AirVantage M2M cloud subscriber and customer base. Current customers continue to expand their AirVantage subscriber base during the quarter and we successfully secured new customers as well. AirVantage wins in the quarter included a large US gas and electric utility and a large digital billboard operator, also based in the US.

Finally, our integration of In Motion Technologies is on track and going well. The In Motion products and team made a solid contribution in Q2 and we expect more of the same in the second half.

And while operating the business, we are busy co-locating the In Motion and AirLink teams here in our Richmond headquarters and pursuing growth synergies, leveraging our significantly expanded R&D and sales and marketing scale.

I will now turn the call back over to Dave, who will provide more detail on the Q2 financial results and Q3 guidance.

Thank you, Jason, and good afternoon, everyone. 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.

Included in our Q2 GAAP operating expenses is an unusual item, the impact of which has been removed in our non-GAAP results. Specifically, the Company decided to reduce the scope of its 2G chipset development activities, resulting in restructuring costs of $1 million associated with staff reductions and an impairment of $3.8 million in related assets.

These amounts are reflected in our Q2 GAAP operating expenses. The staff reductions associated with this action will be fully implemented by the end of the third quarter of 2014 and the Company expects an annualized reduction in operating expenses of approximately $1.2 million, commencing in Q4.

Focusing on our non-GAAP results compared with our guidance for the quarter, total revenue in the second quarter was $135 million. This revenue includes the first full quarter of contribution from In Motion Technology, which was acquired on March 1.

$135 million of revenue was above our $128 million to $131 million guidance range for the second quarter. Q2 gross margin was 32.2%, up slightly from Q1 and reflects a stable mix of sales between our lower margin OEM segment and our higher margin enterprise segment.

Non-GAAP operating expenses in the quarter were $39.8 million, up sequentially from Q1 as expected. The sequential increase is due to a full quarter of operating expenses from In Motion as well as an increase in our bad debt provision related to an uncollectible receivable.

Our non-GAAP earnings from operations were $3.7 million, slightly above the high end of our guidance range, and non-GAAP net earnings were $2.6 million, or $0.08 per share, which is at the high end of 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, FX gains or losses on the translation of balance sheet accounts, and certain tax adjustments.

I would also like to draw your attention to the additional 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 three and six months ending June 30, 2014, compared to the same period in 2013.

Taking a more detailed look at Q2, total Q2 revenue of $135 million was up 23.2% year over year. Organic growth, excluding contribution from the recently acquired In Motion and AnyDATA businesses, was 16.8% compared to Q2 2013. Revenue from OEM solutions was $116.6 million, representing 22.6% year-over-year growth.

During the quarter, we had solid contributions from energy, automotive, mobile computing, sales and payment, and networking segments and continued to see a steady transition from 2G to more advanced 3G and 4G technologies.

Revenue from enterprise solutions was $18.4 million. In total, this was in line with expectations and up 27% year over year. This revenue includes a full quarter from In Motion.

During the quarter, In Motion performed well and was a little ahead of our expectations, while revenue from our AirLink products was slightly below our expectations.

During the quarter, profitability also improved. Second-quarter EBITDA increased to $6.8 million, up from $4.9 million in the same quarter last year and earnings from operations grew to $3.7 million in Q2 compared to $1.5 million a year ago.

Good topline growth combined with solid gross margin and balanced OpEx management as we invest for growth and integrate new businesses is delivering business model leverage and resulting in improvements and profitability.

We continue to strengthen our balance sheet. During Q2, we added $17.1 million to our cash balance, ending the quarter with $168.4 million and no debt. Cash flow from operations during the second quarter was a healthy $11.7 million, driven by earnings growth and improved working capital metrics.

We utilized $2.8 million of cash during Q2 for capital expenditures, mainly related to the purchase of development tools and factory test equipment. Also during the quarter, we received a full $13.8 million balance of the AirCard proceeds, which are being held in escrow.

We used some of these proceeds to purchase $6 million of shares for our restricted share unit trust. Upon investing in the future, these shares will be distributed to eligible employees as part of the Company's long-term incentive compensation program.

Our $168.4 million cash balance puts us in a strong financial position to execute on our organic growth plans and pursue our M&A strategy.

Moving on to guidance for the third quarter of 2014, which is provided on a non-GAAP basis, during Q3, we expect to realize continued solid revenue growth, with revenue in the range of $137 million to $140 million. This represents 23% year-over-year growth at the midpoint of our range and we expect organic growth to be similar to what we experienced in Q2.

In Q3, we are expecting a sequential improvement in gross margin, driven primarily by reductions in cost of goods. Operating expenses in the third quarter are expected to be similar to the $39.8 million reported in Q2. We expect G&A to decline in Q3 relative to Q2 and we expect R&D OpEx to increase relative to Q2 as a result of increased product certification costs in the quarter.

Based on these expectations, this results in non-GAAP consolidated earnings from operations of between $4.9 million and $6.2 million. At the midpoint, this would represent 131% increase compared to earnings from operations in the same quarter last year and net earnings of between $3.8 million and $4.7 million with earnings per share of approximately $0.12 to $0.15.

At the midpoint, this would represent a 50% increase compared to the normalized EPS of $0.09 in the third quarter last year. We expect our tax rate in Q3 to be approximately 26% of non-GAAP earnings, down from the 34% in the second quarter.

With that, I will now turn the call over to Jason, who will provide a summary.

Thank you, Dave. So to summarize, our Q2 results were strong. We delivered record quarterly revenue and strong year-over-year growth. Our revenue performance drove significant growth in year-over-year profitability metrics as well, highlighting our improving business model leverage.

ABI Research once again validated the strength of our market leadership position in the Internet of Things, a market that offers compelling growth and value creation opportunities. We are successfully leveraging the strength of our position to capture a significant share of this great opportunity.

OEM design wins continue to be robust and new products, like our HL Series and Legato-enabled smart modules, are receiving great traction in the market and already contributing to our success.

We also continue to make progress in expanding our position in the value chain, adding new capabilities to our AirVantage cloud offering while also adding new customers and subscribers. I believe our progress provides offers 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 also drove a solid cash generation in Q2, further strengthening our balance sheet. We remain focused on putting our balance sheet to work in acquiring 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.

In Q2, both In Motion and AnyDATA made significant contributions to our strong results. And since 2008, we have grown our M2M business organically and through acquisition from $158 million to LTM revenue of $487 million. And we have done this while improving our business model and defensibility.

Our aim is to extend this track record of creating value through a combination of organic growth and acquisitions and to deliver a great return for our shareholders.

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

(Operator Instructions) Scott Penner, TD Securities.

Jason, when we see a result like this, it is reasonably materially higher than the guidance. Is this just higher activity, higher adoption of some of your in-market products by customers? Or is there any new starts, perhaps, of any design wins that were expected later in the year?

Well, first of all, I would say we have a highly fragmented business, Scott. So there's lots of moving pieces in any given quarter. So it is hard to point to any one of those things and say, this is what is driving our, call it, overperformance against expectations.

So I would say -- I would look at it and say that it is sort of broad-based. Europe does continue to be a little bit of a drag. So from a geographical standpoint, we are not really benefiting from a revenue standpoint yet there, with respect to a recovery.

So I would say, broad-based across a lot of segments and in particular in the US and in Asia, that is driving our overperformance against expectations right now.

Any notable increase in, I guess you would say, the attach rate of -- for the AirVantage services with some of your OEM design wins, given some of the investments in education of the sales force earlier in the year?

I would say we are more -- I would say we are earlier in the phase there. We have had success from large OEMs and I would say that we have good forward indicators with respect to the growth in the funnel of opportunities. And the job on those now is to pull them through the funnel and close them.

So while we have had some interesting large OEM design win success, I would say I am much more encouraged about the funnel of opportunities than the actual number of deals we have closed.

And then on the enterprise side, I would say, for the metrics -- what we would call our hit rate metrics that we track internally -- we don't externally disclose these -- we see a definitive step up with respect to hit rate. So whenever a new AirLink box is sold and soon whenever a new In Motion on-board mobile gateway is sold, our hit rate for attaching services to that is definitely moving in the right direction -- moving up.

Good to hear. Just on the Legato, too, was this the first quarter now -- did I hear you say that you have secured design wins? And is this the first quarter where you were able to say that on Legato?

It's the first quarter, I believe, we were able to say that. And just being transparent, we had a, even by the end of Q1 -- we had, obviously, as you would expect, a very good indication that we would get one. And now we have got at least two or three large OEMs who have embraced Legato and are designing their solutions based on that platform.

And just one last one, David. And that is, the $1.2 million in savings that is to come from the 2G wind down, is that -- do you expect or should we expect that is the kind of thing that will be rolled back into operations in Q4?

Yes. I mean, there is lots of moving pieces there, Scott. But you know, that reflects a reduction of staff in both engineering and G&A. And so, yes, those costs will come out in Q4 and there will be other moving pieces around that. But those costs will come out beginning in Q4.

Mike Walkley, Canaccord Genuity.

Congratulations on the strong results and execution on integration already. Jason, can you just discuss maybe a longer-term business model with the OEM solutions growing so strong and it sounds like you have a good design activity?

To hit longer term, maybe 35% gross margin targets, is that still possible, given the strong growth in the OEM solutions business or do you need to make some acquisitions to help the enterprise solution grow faster in that mix?

I certainly think it is possible and as Dave indicated, I think that we expect to see improvement in gross margin in the third quarter. And you are right. If the mix of our business stays heavily weighted to the OEM side, it is going to be harder for us to get that. But nonetheless, we are committed, even on an organic basis, to get there.

And our levers and dials are driving higher growth from enterprise solutions and making sure that not only within our enterprise solutions customer base, but also in our OEM customer base, we get higher attach rates with respect to connecting AirVantage services to those sales.

So it would be harder without further acquisitions and, as you know, we have said repeatedly in the past that we are committed to scaling enterprise solutions, not just organically, but through acquisitions. But my view is, we have got the levers and dials and pieces in the house now to get there long term as well.

Great. Thanks. And just following up with -- you mentioned the ABI report and then you also talked about you are gaining, you think, design share activity. So just putting those together, do you think that your back half of the year and then going maybe even to 2015, that you should stay at the high end of the range for industry growth or maybe even above industry growth for the next two years?

And if so, is it maybe Legato and some auto customers or what verticals are giving you kind of that design win share of growth comments?

So -- well, there's a few different questions there. I think -- and maybe I will just address the growth question. And I am going to put brackets around this -- kind of the short-term -- our short-term growth of view.

And we said this on our last call. We have been talking a lot about 10% to 15% organic growth -- year-over-year organic growth. First half is, as you are seeing, we are running a little bit above that range and our Q3 guidance implies that we will certainly be at the high end of that range, maybe a little bit above.

So I think, short term, we continue to be comfortable in short term, I would say, within 2014, kind of comfortable at the high end of that range. And then as we head into 2015, I am going to be careful not to over commit, candidly.

So as we look at 2015, we are going to stick to the 10% to 15%. You see how we are performing in 2014 and certainly, we would hope that we can carry that growth rate into 2015 as well, but it is still too early to comment on that at this point in time.

Now with respect to new design wins, design wins are the stuff of future revenue and in a lot of the design wins we are earning now, Mike, don't turn into revenue until 2016 -- even 2017. So I think -- particularly in automotive.

So automotive has indeed been a theme. We have secured some, I would say, automotive design wins of scale and we are competing for more. And those design wins are really the stuff of 2017, 2018 revenue growth.

The design wins on the HL product series can be, I would say, shorter term. Maybe 2015 impact, but this is really kind of loading the funnel for future revenue. The new products are really loading the funnel for future revenue.

Okay. Great. Thanks. And, Dave, just one question from me and I will pass it on. Just to clarify the earlier comments on the $1.2 million OpEx coming out. I know there's a lot of moving parts, but are you still hiring salespeople to drive growth or is that behind you, so we should expect maybe a down sequential December quarter for OpEx?

And then can you just help us with the tax rate for the second half of the year? Thank you.

Sure. So yes, Mike, we continue to make selected investments in the channel, so that is ongoing. And going the other way, you see us tweaking our business otherwise to, candidly, fund those investments.

So you will see -- I expect some cost to come out as a result of that, but there will be some things going the other way in Q4 as well. So it feels like where we are right now is not a bad place in terms of a range.

With respect to the tax for the second half, our assumption in Q3 -- and it would be similar in Q4 -- would be approximately 26% of non-GAAP pre-tax earnings.

Richard Tse, Cormark Securities.

Just following up on Mike's question, if you sort of look at the OpEx base, how much more revenue do you think could support off that current run rate here before you have to actually kind of move on spending more?

I don't want to get out of our guidance box, Richard. Clearly, we think there is decent leverage in the model. You have heard us focus on managing our OpEx in a tight range here.

So I think there is pretty good headroom above current rates without having to dramatically increase the OpEx above where we are. I am hesitant to put a dollar figure on that, though.

Yes. Okay.

But I guess, going the other way, you have seen the leverage in the model. It is working. We are growing the topline without having to grow OpEx in the same relative way. So there is decent leverage there.

Okay. And just, I guess, a broader question for Jason. If you look at the applications in the market today, SmartMedia, there's cars, what are sort of the applications that are coming on the horizon that you are seeing in your base of prospective customers?

Well, as you know, the Internet of Things is positively mesmerizing in terms of segments and applications. But I would point to a few potentially interesting trends that we are seeing now.

One is municipal lighting and that is under the umbrella of smart cities. And we had a very interesting design win with Phillips, as you know. We talked a bit about that on the last conference call.

And I think that could be a very interesting secular opportunity. And I would say that connected machines will come closer and closer to the individual over time.

In our current business, you see things like Nespresso. And I think that, as solutions get easier to build and deploy and as service pricing becomes more competitive and more tailored to certain applications, everything opens up. I think right down to things like wearables.

So I think, in general, we have got a lot of runway in the enterprise, not just in the segments we talk about today, but in things like smart cities and things like smart grid. And when I say that, that is beyond smart metering. That goes deeper into the grid. That is kind of real time business today that has good secular opportunity.

And as we look through the enterprise, I think that applications get much closer to the individual. Like I said, right down to things like wearables.

Would you guys have solutions on the wearables side right now? Or is that something you are looking at getting into?

We are a horizontal solution provider, so I would say we are unlikely to make a smartwatch. Now having said that, do we have devices inside personal tracking devices, some of which are worn as watches? Yes. We do that today.

And I think, as technology gets more miniaturized and sexier, I think that opens some interesting potential opportunities. My comment was really more abstract than we have got four design wins in it, right?

Right. Right.

And I will also say that public safety is an interesting thing. We play in public safety today. But LTE is, we believe, going to become a potentially a de facto standard in Europe, believe it or not, for emergency services connectivity.

And I think most of you on the line have heard about the activities around Band 14 and FirstNet in the US. Eventually, that will happen and I think that opens up another very interesting secular growth opportunity for us.

Great. And then just one last question. Obviously, M&A is a big part of your plan here going forward. Can you maybe sort of comment on what the environment is like for that right now and maybe some color around some of the possibilities that you are looking at, without naming names, like areas of interest?

Well, yes. I probably am going to sound just like I am repeating what I have said in the past, but I will say that we are busy. We are very busy. We have got an active funnel of M&A opportunities. We have a lot of management meetings.

We -- as you would expect, some conversations are more advanced than others. And we are focused on -- primarily on adding scale and capability to our enterprise solutions business unit, so that brings us into targets like In Motion, as an example.

So high-margin, differentiated terminals and gateways that attack certain targeted segments. And services. Services is a pretty important part of our device-to-cloud vision and we are spending a lot of time there.

And services, for us, range from straight wireless services as an extension of our AirVantage cloud services and right into vertical applications. We are looking at targets in both those areas.

(Operator Instructions) Paul Treiber, RBC Capital Markets.

I just wanted to follow up on your comment about the smart grid and smart metering and wearables. And it sounded like a comment that came out at your, I think it was, investor -- not investor -- analyst day in Paris about a month ago on LTE-M.

And could you just elaborate on your work on LTE-M? And then how you see LTE-M increasing the addressable market for licensed wireless versus maybe some unlicensed wireless like Wi-Fi?

Yes, I will. We are doing, I would say, lots of early work with LTE-M. We are very deeply engaged with the standards bodies, working on the LTE-M standard. We are, I would say, a meaningful contributor to the standard.

And we are forming our own vision around LTE-M and that includes products and markets. It is going to be a long-term effort, Paul, so as we look at LTE-M, it is -- for us, it is a 2017, 2018 event, probably, with respect to commercially available product and networks to support them.

But we think very, very important. And the promise of LTE-M is ultralow energy. So enabling devices that can stay on a network for five years, running on a AA battery, as an example. That is a big breakthrough for licensed cellular. And much wider area coverage as well.

So lower power, simpler devices as well. So simpler devices equals less expensive devices and much wider area coverage, which equals, I would say, a real competitive threat to establish local area technology such as Wi-Fi.

So LTE-M, for us, vitally important, because we think it opens up the opportunity to really take market share -- IoT market share from the traditionally local area wireless technologies.

That is good to understand. The business model, like, in addition to just opening up the addressable market for everyone in the M2M space, is there also the royalty revenue potential because you are a contributor to the standard?

Well, I wouldn't get too far ahead of us on that. I mean, I think it is certainly -- if, in fact, we are successful having a significant contribution and when the standard is established, we owned some essential intellectual property, certainly that is our goal, by the way.

But we don't have a business model today or even a plan to think about a business model today where we go offensive on intellectual property. But it certainly gives us, I would say, flexibility and protection.

Okay. And then just thinking a little bit -- it's still closer to reality at this point. Your design win is giving you visibility into 2018. Should we take that as the competitive environment in the technology landscape, what these OEMs are looking at is pretty much the existing environment and there is probably not going to be disruptive change in the next two to three, four years, whatever it may be?

Yes, I think that is accurate. Based on the design wins we are competing for now, yes, they are making decisions on technology that is very clearly visible, even if the product may not be commercially available today. A product that is clearly visibly on a roadmap and deliverable in the coming year or so.

And it is those products that are getting designed in two long-term solutions. And when I say 2018, I mean on the part -- speaking of automotive, 2018, that is start of production.

So from 2018, then you have a whole lifecycle of a solution within a vehicle. So these are pretty long-term things, I would say, particularly in automotive.

Now with respect to disruption, I wouldn't consider this a disruption. I would consider it another step along the LTE chain. We are already talking to a number of OEMs about LTE Advanced, as you might expect -- carrier aggregation.

And certain segments that we are engaged in now are very interested in those new higher-speed services. And of course, the carriers are very interested as well, because it gives them spectrum flexibility.

You have no further questions at this time. I will turn the call back over to you.

That is great. Well, I want to thank everybody for participating in today's call and, as usual, management is available here in our Richmond headquarters should you have any follow-up questions. Lori, we can conclude the call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.