司亞樂 (SWIR) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Sierra Wireless third-quarter earnings results conference call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator Instructions). Please note that today's call is being recorded today, Wednesday, November 5, 2014 at 5:30 Eastern time.

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

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

Today's agenda will be as follows. Jason will provide the third-quarter business highlights. Dave will provide a more detailed overview of our Q3 financial results as well as our guidance for the fourth quarter. Following that, Jason will provide a brief summary and then we will finish with 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 constitute forward-looking statements. These statements include our financial guidance for the fourth 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 risks in our annual information form and Management's Discussion and Analysis which can be found on SEDAR and EDGAR as well as Sierra's other regulatory filings. This presentation should also be viewed in conjunction with our press release and with the supplemental information on our website.

With that, I'll turn the call over to Jason Cohenour for his comments and highlights on the third quarter.

Thank you David, and good afternoon everyone. I'll begin with some highlights on our third quarter of 2014. Revenue was strong in the third quarter at $143.3 million, representing year-over-year growth of 28% and another quarterly record for the Company. Our year-over-year revenue growth was driven by a combination of strong contribution from acquired businesses and robust organic growth of nearly 19%.

In addition to driving record revenue, the Company's profitability and operating leverage also continued to show improvement. Adjusted EBITDA doubled year-over-year to $11.8 million in third quarter and our non-GAAP earnings from operations increased 249% year-over-year to $8.4 million. This resulted in third-quarter non-GAAP EPS of $0.24 compared to non-GAAP EPS of $0.11 one year ago. The business also generated very strong cash flow in the third quarter, which Dave will detail in his presentation.

We are very pleased with the strong Q3 operating results and continue to pursue strategic acquisition opportunities to help accelerate our growth and enhance our strategic position in the M2M market.

Now let's take a closer look at our two different business segments. Starting with OEM solutions, our OEM solutions business experienced strong revenue growth in the third quarter. OEM revenue increased 29.7% year-over-year to a record $124.3 million driven by growing sales of our 3G and 4G embedded modules. Growth in the quarter was broad-based as we experienced strong revenue contribution from key market segments, including automotive, transportation, energy, sales and payment, and mobile computing. Non-GAAP gross margin in the quarter improved sequentially to 29.8%, driven primarily by continued product cost reductions.

Q3 was also another quarter of robust design win activity. Our design wins were once again broad-based coming from different regions and several market segments, including energy, automotive, enterprise networking, mobile computing and insurance telematics.

Design wins secured in the quarter represented both important successor programs with existing customers as well as programs with new customers. Recent publicly announced design wins include Itron, a global leader in smart metering, who is integrating our AirPrime embedded modules into its OpenWay smart grid solution for utility customers worldwide. In insurance telematics, we announced a deal with Octo Telematics to provide wireless conductivity for Octo's usage-based insurance solutions in Europe. Additionally, in the important automotive space, we secured new design wins for future connected car launches in North America, Europe and Asia.

The strength of our product position continues to be a key factor in our design wins success. Our clear leadership in 3G and 4G technologies is proving beneficial as the market continues to migrate away from 2G technologies. In addition, our new line -- our new HL line of essential products is capturing excellent traction in the market 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.

Our next generation smart module product line based on our Legato embedded software platform has also been a key driver of design wins. The combination of high-powered multicore 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 module 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 design wins in key markets such as automotive.

Moving to our enterprise solutions business segment, our revenue growth in the quarter was solid, improving by 15.4% year-over-year to $19 million. Growth in the enterprise solutions segment was driven by a strong contribution from the recently acquired In Motion Technologies. Non-GAAP gross margin in the third quarter was 53.8%, representing sequential improvement over Q2, driven primarily by favorable product mix.

During the quarter, the public safety, utility, and transit markets were strong contributors to revenue, as well as to new customer wins. Recently, we announced that the Denver Regional Transportation District selected the In Motion mobile gateway solution to provide mobile access for automatic vehicle location and smart card fare payments on more than 1,100 buses. We also announced that the Westminster Police Department in Colorado selected In Motion mobile gateways for mission-critical sailor conductivity to its police vehicles. Our gateway solution also provides police departments with the flexibility to connect additional devices to their in-vehicle systems for critical applications such as video surveillance, license plate recognition and electronic ticketing.

During the quarter, we also completed important milestones related to the integration of In Motion Technologies. The sales function has now been integrated and the marketing and R&D teams have been relocated to our Richmond headquarters location. With the teams now fully integrated and critical departments co-located, we can begin to focus in earnest on leveraging the power of our significantly larger enterprise solutions team.

During the quarter, we also announced the availability of a unique bundled solution called AirLink Enterprise Connect. The AirLink Enterprise Connect solution features our ES440 gateway pre-integrated with 4G LTE service and a special version of our AirVantage management service that provides managed business continuity for distributed enterprise locations such as retail outlets and branch offices. The solution can provide easy to deploy primary 4G connectivity directly to the branch location router, or work as a 4G backup solution should wire broadband services fail. The AirLink Enterprise Connect solution is now available through IT channels in the UK, France and Germany.

New customer acquisition trends for our AirVantage M2M cloud continued to be positive in the quarter. The AirVantage customer base continues to grow and has actually doubled since the start of the year. We anticipate that solutions like AirLink Enterprise Connect will help accelerate adoption of our AirVantage cloud and to enable Sierra to play a broader role in the value chain, including capturing recurring revenue from connectivity and cloud services.

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

Thanks, Jason, and good afternoon everyone. 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.

Focusing on our non-GAAP results compared to our guidance for the quarter, total revenue in the third quarter was $143.3 million. This was above our guidance range of $137 million to $140 million for Q3 and was driven by broad-based stronger-than-expected AirPrime embedded module demand.

Q3 non-GAAP gross margin was 32.9%, which was in line with our expectations and up 70 basis points from Q2, reflecting product cost improvements in the OEMs solutions segment and favorable product mix in the enterprise solutions segment. Non-GAAP operating expenses in the quarter were $38.8 million. That was slightly below our expectations. Lower-than-expected operating expenses were primarily the result of the timing of some product certification costs and R&D that have moved from Q3 into Q4. Our non-GAAP earnings from operations were $8.4 million, well above the high-end range of our guidance range and reflecting the impact of better-than-expected revenue combined with solid gross margins and lower OpEx.

Better-than-expected earnings from operations were further enhanced by a favorable non-GAAP tax rate in Q3 of approximately 12%. This tax rate was lower than expected due to a shift in earnings from higher-tax to lower-tax jurisdictions. The combination of better-than-expected operating results and a lower-than-expected tax rate resulted in non-GAAP net earnings of $7.7 million or $0.24 a share, which was significantly above our guidance range.

I will also note that we had positive GAAP earnings from operations of $2.9 million in Q3, which was offset by a non-cash $8 million foreign exchange loss resulting in a GAAP net loss of $2.9 million. The foreign exchange loss was driven primarily by a non-cash translation adjustment of certain foreign denominated balance sheet accounts. This has been removed from our non-GAAP income. As a reminder, the full 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. The non-GAAP results include 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 also draw your attention to the additional segmented disclosure which can be found on the last page of the press release. This disclosure provides segmented revenue and gross margin for each of our OEM and enterprise segments for the three and nine months ending September 30, 2014.

Taking a more detailed look at Q3, total Q3 revenue of $143.3 million was up 27.6% year-over-year. Organic revenue, excluding contribution from the recently acquired In Motion and AnyDATA businesses was 18.8% compared to Q3 of 2013. Revenue from OEM solutions was $124.3 million, which was ahead of our expectations and represented an increase of 29.7% year-over-year.

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

Revenue from enterprise solutions was $19 million, and in total, this was in line with expectations and up 15.4% year-over-year. During the quarter, In Motion performed very well and was ahead of our expectations while revenue from our AirLink products was below our expectations. Softer AirLink sales was driven by excess inventory in some parts of the channel, which we believe has now been normalized. We expect AirLink sales to resume sequential growth in Q4.

Strong revenue growth in Q3 resulted in a significant year-over-year profitability improvement. Q3 adjusted EBITDA of $11.8 million doubled compared to $5.9 million in the same quarter last year. And Q3 earnings from operations of $8.4 million more than tripled compared to the $2.4 million a year ago. These results illustrate the strong earnings leverage in our business model as we grow the top line while managing our expenses, and therefore resulting in significant improvements in profitability.

In Q3, we continued to strengthen our balance sheet. Cash flow from operations during the quarter was particularly strong at $28.7 million driven by the combination of improved operating results as well as favorable working capital changes. The favorable working capital changes include a $13.9 million reduction in prepaid inventory advances mainly as a result of the improved commercial terms with one of our contract manufacturers. The reduction in prepaid inventory during the quarter is nonrecurring. However, the improved commercial terms result in an ongoing more efficient use of working capital.

After capital expenditures of $2.3 million, free cash flow in Q3 was $26.4 million. Net cash generated from other activities was $1.3 million, resulting in a total increase in cash during the quarter of $27.7 million and an ending cash balance of $196.1 million. The Company also remains debt-free. Our $196 million of cash provides us a strong financial position to execute on our organic growth plans and to pursue strategic acquisitions.

Moving onto guidance for the third quarter of 2014, which is provided on a non-GAAP basis, during Q4, we expect revenue to grow sequentially on a year-over-year basis to between $145 million and $148 million. This represents 23.5% year-over-year growth at the midpoint of our range. And we expect our organic growth rate to be approximately the same as we experienced in Q3.

We expect gross margin percentage to improve compared to the third quarter of 2014 and we expect operating expenses to increase slightly compared to the third quarter of 2014. Based on these expectations, this results in the following estimates: non-GAAP consolidated earnings from operations of between $9 million and $10 million, and at the midpoint of this range this represents a 265% increase compared to earnings from operations in the same quarter last year. We expect non-GAAP net earnings of between $7.9 million and $8.8 million or earnings per share of approximately $0.25 to $0.28 compared to EPS of $0.10 in Q4 last year. We expect our non-GAAP tax rate in the fourth quarter of this year to be approximately the same as Q3 at 12%, and looking forward, we expect our non-GAAP tax rate in 2015 to be in the range of 15% to 20%.

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

Thank you Dave. So, to summarize, we are very pleased with our Q3 results. We delivered strong revenue growth, record quarterly revenue, and record quarterly shipments. Our business continued to demonstrate strong operating leverage as well as our key profitability metrics improved at a much faster rate than our revenue growth. Our results also drove improved cash generation, further bolstering our balance sheet.

As we look forward, we continue to believe in the long-term growth prospects of the M2M market. As the clear market leader, we believe we are very well positioned to capture a large share of this compelling growth opportunity. Furthermore, with strong assets and capabilities across the value chain, we are committed to capturing more of the M2M solution, including recurring revenue from high-margin cloud and connectivity services. We remain focused on delivering profitable growth while also investing in our operations and in our strategy. We also plan to put our strong balance sheet to work in acquiring great M2M companies that help us accelerate growth, support our strategy, and enhance our market position. We believe this combination of profitable organic growth and smart acquisitions represents a path to continued shareholder value creation.

With that, operator, this concludes our prepared remarks and you can open the line for questions.

(Operator Instructions). Scott Penner, TD Securities.

Thanks. Just maybe first of all to talk about the organic growth and obviously much stronger this quarter and year-to-date, just in the context of, again, going back to that 10% to 15% guidance range that you guys have been using or commentary going forward. Is it time to revisit that into when we are starting to look into next year as to keeping it about the same range as it is right now? And then maybe more importantly, what are the factors involved in either getting from 10% to 15% up to 15% to 20%?

I think maybe the second question might be a harder one to answer. But we certainly have -- we have been very consistent on our growth rate expectations of between 10% and 15%. More recently, as you know, we've kind of moved up to the higher end of that range in terms of a comfort zone and actual results have actually exceeded that range. So, I think this has been a very strong year and our Q4 guidance contemplates continued strong growth.

Looking forward to 2015, we are not ready to lift the growth expectation beyond the 10% to 15%, we are comfortable with that range as we look forward to 2015. We think that's a reasonable target in line with market growth, and certainly our goal is to grow at least as fast as the markets, and if it plays out like it did in 2014, maybe a little bit faster than the market. But for now, looking forward, kind of midterm, I would still use the 10% to 15% growth rate.

And just to kind of confirm, David, on the enterprise business, is it -- just running through the numbers, is it fair to say that, year-over-year, the organic growth in the AirLink at least for Q3 was slightly negative?

Yes, that's right, Scott. A couple of comments there. One is a tough comp. In the 2013 quarter, we were coming off the heels of a new LTE product launch and satisfying a lot of product demand in Q3 of 2013, so it was a strong quarter. And then in the current-year quarter Q3 2014, we did see some inventory in the channel, and we think that has now worked itself out, but that did have a dampening effect on Q3 sales of some of the AirLink products. I will say, though, that we are seeing a good start to Q4 with those AirLink products. So that gives us the confidence to say we expect some sequential increase in specifically the AirLink products in Q4 over Q3.

I would say long-term we are very bullish on the enterprise space in general, and expect it to, longer-term, to grow quite nicely.

And do you -- just to kind of finish on that point, Jason, in the past, you've sort of set of 15% to 20% organic side for the enterprise business overall. Is that still a pretty good proxy?

I think it is. We are not going to see that this year, unfortunately, but I think that we should be able to grow that business a bit faster than the overall business. And that would certainly be our expectation as we look forward to 2015.

Okay. One last question, David, and that is on the tax rate. Just maybe the easiest way to ask this is what has sort of surprised you about where the income is coming from? It seems the tax rate is always being revised downward as far as your guidance.

Just maybe I'll start with some overall context first, Scott. We continue to evolve our operational model, which does impact the jurisdictional mix of our income, and this is having or has had a favorable impact on our taxes. So think of things like the sale of AirCard really reduced our profitability in the United States, and the US is a very high-tax jurisdiction. We've done other things. We've moved some product ownership into Canada with some of the AirLink products as well, and Canada is -- we've got shelter in Canada. So those are some operational model things, examples that positively affect the tax rate. And then specifically in Q3, just the vagaries of the business, we did see the mix of the income favor lower tax jurisdictions versus some higher tax ones, and that really is what drove the rate at 12%. And I think we're going to see a similar pattern this quarter in Q4, 12% for Q4 as well. And so overall for 2014, we think we will be at about 15% for the full year on the tax rate. So that's the view for this year. And then looking at 2015, I think it would be reasonable to assume our non-GAAP tax rate will be between 15% and 20%. And yes, that's lower than the previous indications we gave of between 20% and 25% for the reasons I spoke about earlier.

Great, thank you. Appreciate it.

Sid Sinha, Canaccord Genuity.

Thanks for taking my question. Jason, a quick one on the insurance telematics space and your recent agreement with Octo Telematics, who by far are the leaders in this space. Looking at this portion of your business, how do you see the insurance telematics sizing up with Sierra over the next couple of years? Could it become probably as important piece of your business as your automotive wins?

That's a great question. We've had some recent design win success in insurance telematics. It's clearly a segment that has grown very rapidly in the US, beginning to take off now in Europe, and Octo, as you mentioned, is right in the middle of this. In fact, last quarter, we had another design win with an insurance telematics player. And I'll add that Hughes Telematics, or Verizon Telematics, pardon me, is a significant player in the UBI market and we've got significant exposure to them as well. So it certainly has grown over the last year, and I think the macro picture is favorable. Now, whether or not it will become as big or as important as automotive remains to be seen, but it is certainly an important market and it's growing nicely.

Great, thanks. And then just quickly on your PC OEM embedded module business, do you expect this business to be flat, up or down in 2015 perhaps on an absolute dollar level or maybe as a percentage of sales?

We don't guide by segment, so I want to be careful there. I will say it was a contributor to growth. It has been a contributor to growth this year. And overall we are pretty positive on the segment. I don't think it's going to be -- it's not going to change the Company in a material way next year, but it's still a pretty important segment. And our growth drivers there continue to be share gain is one thing, and slightly improving penetration rates of 4G inside notebook and laptop computers. And that's been good for us for 2014, and we expect to benefit perhaps not quite as much in 2015, but we expect a benefit from that in 2015 as well.

Thanks for taking my questions.

Richard Tse, Cormark.

Thanks. Jason, you guys had a great quarter here. I want to get a bit more color in terms of the beat here. Are you seeing sort of an acceleration in the timing of some of these design wins, or was it sort of coming from the acquisitions? I'm trying to get a feel for what's kind of really pushing this?

You know, I wish I could point to one or two things, Richard. It's really quite broad-based. From a segment standpoint, the themes remain the same. If you look at our year-over-year growth, the segment contributors are all the ones we've been talking about for several quarters -- automotive transportation, mobile computing, sales and payment. They've all been key drivers of the overall growth. So it's no one's segment; it's no one product line.

Now, I will say, from a business unit standpoint, clearly a key driver for us this year in 2014 has been OEM solutions. But within OEM solutions, the drivers have been pretty broad-based.

Okay.

Actually, maybe one thing I will point to, Richard, is a bit of a technology transition which probably favors us. So as the market migrates from 2G, 3G and 4G, we feel like we are in a pretty strong position. Given our history in 3G and 4G technologies, we tend to be a little ahead there. And I think we've benefited from being in the market early and just being able to out-execute our competition. I think that's helped as the market transitions to 3G and 4G.

Okay. And then I guess probably a related question, if you look at your design wins, the value of those design wins this quarter versus Q3 of last year, would they be growing at the same pace as your revenue currently, or above, below that?

Well, I'd say this has been a pretty robust year in terms of design win count per quarter. I would say Q3 in particular was also quite strong from a design win lifetime value standpoint. So, while I don't have Q3 of 2013 in front of me, I can with high confidence say that Q3 of this year was significantly higher than Q3 of 2013.

Okay. And just one last question on acquisitions, maybe you can give us a bit of color on maybe the status to the extent you could talk about it on where you stand there, and that's it. Thanks.

I'm sorry, was it acquisitions, Richard?

Yes, it was, yes.

So, yes, we wish we could have brought a transaction to announce today, but we didn't. But we have been busy. And I don't want the lack of any deal announcement to indicate that we are not busy on the M&A front. So we continue to be very busy meeting with management teams, evaluating different targets, spending a lot of time in the services space and in the high-margin hardware space in and around enterprise solutions. There's lots of good targets, and we just have to continue to work the funnel, and I'm pretty confident that you'll be hearing of transactions from us in the coming periods.

That's great. Thank you.

Todd Coupland, CIBC.

Yes, good evening everyone. Let me offer my congratulations. Great see the operating leverage come through for the Company.

I want to ask you about OpEx. You guided slightly higher, but still seems to be lower than what people would have been modeling for the Company. And I'm just wondering if the slight uptick in OpEx looking forward into 2015, is that a reasonable number to model around?

It's Dave. Yes, you're right. We do expect actually Q4 OpEx to be slightly higher than the $38.8 million we saw in Q3, and I would say a very modest increment beyond that for 2015 would be a reasonable assumption as well.

Okay. And when you look at the mix of your book or your backlog or design win list, however you want to measure it, is gross margin in and around the 32%, 33% range what that book will generate?

You saw some good progress this year with respect to sequential gross margin increases on the backs of product cost reductions and some mix across the business. We expect to see more of that in Q4, an improvement over Q3. And I think those improvements in a measured way are sustainable in the near future, given the visibility we have in the business.

So what would be an optimal target for the business once you achieve all of those? Is it 35 points? Is that an achievable number over a few years?

Yes, I think that's right. We've had a long-term business model of 35% gross margin, and we get there by growing our high-value business faster than the rest of the business. And Jason mentioned the enterprise solution business expectation of growth being higher on the OEM side. Those products bring 50-plus% gross margin. And we also -- just the regular intense focus on getting product costs out in cost of goods sold. So I think the combination of those activities and product mix within the two business units sees us having a path to 35%. Now, that's not something that's going to happen in the near future, but we are certainly making some progress with our sequential increases.

Okay. My last question is on revenue. So is there anything that's been happening the last couple of quarters that is piling up in anyone's channel, or are they actually drawing what they are using so it is actually reflective of demand? So if you could just talk about sort of quarter-to-quarter puts and takes and any kind of volatility that is reasonable to expect.

I think -- other than the channel situation we talked about with respect to enterprise, we feel pretty good that the OEM channels, the actual take rate from OEMs is reflective of actual end-user demand. So, nobody, as far as we can see or tell, is with loading up on inventory too far ahead of demand.

I will say, from time to time, and it happens every period, from time to time, there are certain products that we need to send to end-of-life, and that may cause some customers to trigger last-time buys and take a little more product ahead of their actual demand. But that to us is kind of a normal course of events. So, we don't see anything systemic in our channels that bothers us at this point.

Okay. Sorry, one last follow-up. From a seasonal point of view, will Q1 be lower than Q4, or given the growth in the business, should you continue to post sequential growth?

So, we are not going to provide guidance for Q1, but I will say our general seasonal pattern is Q1 is flat to down.

Okay, great.

I would probably expect that to happen again, but it's really too early to tell with precision.

Great. Okay, thanks a lot. Appreciate your comments.

Mike Latimore, Northland Capital Markets.

Great, thanks a lot. Very nice quarter. Maybe just a little bit of a regional perspective, can you talk about some of the trends you are seeing out of Europe at this point?

This is Jason. Europe was up a little, so it was up a little bit year-over-year. It was up sequentially. But I'll say a little; I'll emphasize a little. So, you know, I'm cautiously optimistic that Europe has kind of found bottom, and we've got a recovering business there. Design win activity has been really good in Europe. So, I'd say we are cautiously optimistic. The macro backdrop still has us concerned, but it looks like we are off the map. We are up year-over-year, we are up sequentially, and design wins are backing the business activity here. So, we feel pretty good, but we don't expect it to change in a dramatic way in 2015.

Got it. And then in the payments vertical, I guess would you characterize that vertical as consistent, steady growth, or is it accelerating? And then, separately, is the growth coming mainly out of the US or kind of globally?

Well, payment is -- we have a significant exposure to the largest payment terminal provider in the market, and that represents a big chunk of our payment business. Highly diversified from a geographical standpoint, but I will say that Brazil has been quite an important driver of the growth and continues to be for us in payment. And then, beyond Brazil, I would say Europe is a steady contributor to that business.

And just the last one, I think you've talked about sort of new variants of kind of your LTE products coming out. So any update on timing for kind of latest versions of LTE for you guys?

Yes. There are two kind of key LTE technology areas, and they kind of go in opposite directions. So the first one is carrier aggregation which the carriers -- a lot of the carriers like because it gives them flexibility on how to use their spectrum and also of course has the potential for increasing data rates. We see carrier aggregation as pretty important to some of our key segments, so we are active in that area on the R&D side, so segments like networking, networking equipment, mobile computing, even automotive has significant interest in carrier aggregation.

And then the second area that is a bit longer-term but an area we are very focused on strategically is LTE, LTE-M or LTE Cat0 which kind of goes the other way. It's a dummied-down cost-optimized LTE specifically for M2M. That is kind of a longer-term play, probably has legs in 2017, 2018, but that has the promise for very low power consumption, very low cost, and still very low latency. So it has a broad appeal for many, many applications that would traditionally have been 2G applications. So, we are very focused on that space and actually doing a lot of early R&D and even contributions to the standards body. So that's I guess a longer-term play, but significant focus and R&D investment in that area.

Great, thanks a lot. Great results.

Paul Treiber, RBC Capital.

Thanks for taking my question. Just in regard to the transition from 2G to 3G and 4G, did that drive any change in ASPs in the quarter? Or maybe another way to ask it is is the growth in shipments similar to the organic revenue growth in the quarter?

I'll answer your second question first. And yes, growth in shipments are roughly equal to the growth in revenue, which of course leads you to constant ASPs, which is what we have been experiencing. So, yes, as the market transitions from 2G to 3G and 4G, we are able to hold ASPs stable is the way to think about it. And the volume growth is driving the revenue growth.

And then on the ASPs, within each segment like automotive, etc., are the ASPs roughly similar within each segment as well? Sorry, the change in ASPs?

The change in ASPs?

In each segment.

I would say the change in ASPs is really kind of product specific. I would say the price sensitivity and price competition is most intense in high-volume deals. I guess that's no surprise for you to hear. So what we do see is large automotive deals, they are price competitive, and ASPs are going to be a bit lower than lower volume deals. And smart metering would be another area where those tend to be -- when you get into the 1 million-plus units opportunities, that's where pricing tends to be its most competitive, and that of course has an impact on ASPs.

Okay. And bigger picture than that, you've been commenting about a record or a large number of design wins for the last year or 18 months. Are we getting into the sweet spot of realizing the revenue in those design wins, or is it more sort of back-end loaded than what we have seen to date?

It's kind of a constant thing, Paul. I would say with respect to some of our bigger automotive wins, we have not seen the contribution yet from some of our newer automotive wins I should say, we haven't seen the benefit of significant revenue contribution from those yet, and that's more of an even late 2015 into 2016 event for us. But we constantly are -- we have to constantly refresh the design win pipeline, what we call the customer program pipeline. So clearly new customer programs have been one of the drivers in the revenue growth.

And then just on the design wins, you mentioned there is a refresh of the existing ones plus new ones. On the refreshes, has your win rate remained constant, improved, or changed in any way?

You know, I would characterize it as constant. So, for the most part, the new program wins are additive for the most part. We are not 100% successful in winning successor programs, but for the most part, certainly new program wins significantly exceed successor program losses in terms of volume.

Okay. That's good to understand. That's it for me. Thank you.

Howard Smith, First Analysis.

Yes, good afternoon. I will join the chorus echoing great to see the operating leverage, so congratulations on that.

My question -- and it's been asked kind of a couple of different ways but I'm going to take a crack at it -- has to do with the strength in the quarter, kind of reconciling that to some extent vis-a-vis your long-term revenue guidance. Obviously, there was some strength you didn't expect when you gave the guidance at the end of Q2. If you look, it's broad-based, you said, and it's not really stocking things. So, is there anything in it that makes you believe it's transitory or temporary as you kind of go through the source of the upside that maybe it's a quarter or two but doesn't necessarily indicate long-term trends, or is it more conservatism, it's still kind of new so you don't want to get carried away?

I think it's more of the latter. And I think it's going to behoove us all to kind of take a conservative view on that rate until it really does prove to be sustainable at whatever, 19% organic growth rate. So we are not comfortable enough yet to say yes to the 19% -- continued 19% growth rate, so I don't think you guys should either. And then we should see how 2015 plays out, and if we do see that it's sustainable and we are getting more wind behind our sails, then certainly we will carefully guide folks up, but we are not there yet. So, we are much more comfortable in the 10% to 15% growth range expectation for 2015.

Okay. It's sounds encouraging, and we will leave it there. Thank you.

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

Great. Thanks very much Connor. And to callers, thank you very much for participating in today's earnings call. And as is typical, management is available should you have any follow-up questions. Connor, you can disconnect the line.

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