司亞樂 (SWIR) 2015 Q2 法說會逐字稿

Good afternoon, my name is Phoenix and I will be your conference operator today. At this time I would like to welcome everyone to the Sierra Wireless second-quarter earnings 2015 conference call. (Operator Instructions). I would now like to turn the call over to David Climie, Vice President of Investor Relations. You may begin.

Thanks, Phoenix, and good afternoon, everybody. Thank you for joining today's conference call and webcast. 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 review the highlights of the second-quarter 2015 results; Dave will provide a more detailed overview of our financial results as well as our guidance for the third quarter of 2015; following that Jason will provide some comments on our announced acquisition of MobiquiThings and the Company's devise-to-cloud strategy and then a brief summary and then we will move to 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 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 third quarter of 2015 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 discussion and analysis which can be found on SEDAR and EDGAR, as well as our other regulatory filings. This presentation should be viewed in conjunction with our quarterly earnings release.

With that, I will now turn the call over to Jason Cohenour for his comments and highlights on the second-quarter 2015 results.

Thank you, David, and good afternoon, everyone. I will begin with some brief highlights of the second quarter of 2015. Revenue was strong in the second quarter at $158 million, representing year-over-year growth of 17% and record quarterly revenue for the Company.

Our year-over-year revenue growth was driven by a combination of strong organic growth of 14% and solid contribution from acquired businesses including a full quarter from Wireless Maingate. Strong revenue in the quarter helped to drive continued year-over-year improvements in the Company's operating leverage and profitability.

Adjusted EBITDA increased 93% to $13.1 million in the second quarter and our non-GAAP earnings from operations increased 193% to $10.7 million. Overall we are very pleased with our second-quarter operating results.

We also completed the acquisition of Accel Networks in the second quarter and integration activities are underway. As a reminder, Accel is a provider of secure 4G managed connectivity services for distributed enterprises, such as retail outlets, with more than 300 customers and 5,000 locations across the US.

Accel's connectivity solution can be used as a primary or backup network connection for these distributed enterprises and this is a market we believe represents a secular growth opportunity for the Company as 4G speeds and reliability now represent an attractive alternative to more expensive and harder to deploy T-1 circuits.

We also announced the acquisition of MobiquiThings, an innovative mobile virtual network operator in Europe. MobiquiThings is focused on managed connectivity services for the Internet of things with experience and the payment, transportation, security, utility and healthcare markets.

We expect both of these organizations to help us scale our cloud and connectivity services business and to accelerate our overall device-to-cloud strategy.

Let's take a quick look at the second-quarter 2015 results in each of our two business segments. Our OEM solutions business experience strong growth in the second quarter. OEM revenue increased 18.5% year over year to a record $138.2 million. Non-GAAP gross margin in the quarter was a solid 29.8%.

Year-over-year revenue growth in the quarter was driven by improved sales in several market segments including automotive, transportation, energy and networking.

During the quarter our component supply situation also improved faster than anticipated, enabling us to fulfill more customer demand in Q2 than originally expected.

During Q2 we secured a record number of design wins as well, adding to our robust customer program pipeline which will fuel future growth. Design wins were diverse and well distributed coming from several segments and regions.

Also during the quarter we introduced our next generation smart embedded modules designed to simplify and accelerate the development of IoT applications. The AirPrime WP series, which is available for 3G and 4G LTE technologies, is completely footprint and form factor compatible with our HL series modules which maximizes flexibility and choice for our OEM customers.

The WP series also features an ultra-low-power mode for implementations where power management is a high priority such as solar or battery-powered applications. The next gen WP also comes pre-integrated with our Linux-based Legato application platform and ready to connect with our AirVantage cloud, which provides a fast, elegant way for developers to create and deploy their applications.

In our continuing effort to foster innovation in the Internet of Things and to enable the broader developer community, we also announced a beta version of an open hardware reference design that we call Project mangOH. The open reference design offers a flexible platform based on industrial grade components which enable developers to go from prototype to market faster than ever before.

The reference design also incorporates a new IoT connector that we designed that is being supported by Texas Instruments, Freescale and Linear Technology as an open interface standard to promote interoperability amongst solution components and further accelerate the development of IoT applications. We expect more industry leaders to adopt our new IoT connector spec in the coming months.

Moving to our Enterprise Solutions segment, revenue grew by 8% year-over-year to $19.8 million in Q2, which includes a full quarter contribution of $4.1 million from the acquired Wireless Maingate business and a small contribution from Accel Networks which we closed on June 18. Second-quarter non-GAAP gross margin in our enterprise business was a solid 50.3%.

During the quarter we secured several customer wins in the transit, public safety, energy and industrial markets. Public safety we received our first orders for mobile gateways to be deployed on the FirstNet LTE network for first responders in the US, positioning the Company as an early innovator in a potentially large and growing market opportunity.

As I mentioned on the last call, we believe the market opportunity for enterprise gateway solutions for the IoT is vast and we are committed to reinvigorating this line of business. In addition, during the first six months of 2015 we have either acquired or announced plans to acquire three providers of managed connectivity services for the IoT.

Given the tremendous value creation opportunity in both these areas of the value chain, we have implemented changes to our organizational structure and management team to provide the executive focus and investment required to accelerate growth. Those changes are as follows.

Jason Krause, formerly SVP of Corporate Development and Marketing, has been appointed SVP and General Manager of Enterprise Solutions, focusing on the reinvigoration and growth of our gateway solutions business.

Emmanuel Walckenaer, formerly SVP and General Manager of Enterprise Solutions, now leads the newly created cloud and connectivity services business. In this role Emmanuel will be focused on the integration of our recently and a soon-to-be acquired managed service companies, the creation of a unified platform for the Internet of Things, and the growth of our services business.

With regards to our cloud and connectivity services business, we have now completed the integration of the Maingate core network platform with our AirVantage cloud, providing customers with a unified user experience for both connectivity and cloud services.

During the quarter our services sales team also secured a number of wins for cloud and connectivity services in fleet management, utility and industrial markets. One customer example already taking advantage of our integrated cloud and connectivity offering is Veolia Water Technologies, a leader in ultrapure water purification systems.

Veolia's Visionaire service, which provides their customers with remote performance monitoring of purification systems, has deployed our device to cloud solution including gateways, AirVantage cloud and connectivity services. This unified device-to-cloud solution significantly reduced the development time and complexity for Veolia in getting their new service delivered to customers.

I will now turn the call over to Dave who will provide more detail on the Q2 financial results and Q3 2015 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.

As a reminder, the full reconciliation between our GAAP and non-GAAP results is provided in the press release. 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 a translation of balance sheet accounts and certain tax adjustments.

Turning to our second-quarter results. Q2 results were strong with $158 million of revenue and solid profitability on both a GAAP and non-GAAP basis. Adjusted EBITDA was $13.1 million and non-GAAP net earnings were $8.6 million or $0.26 a share.

Our Q2 results include contribution from Accel Networks starting June 18, the date we closed the acquisition. From June 18 to quarter end Accel contributed $300,000 of revenue and breakeven earnings. Our guidance for Q2 did not include any contribution from Accel.

Excluding Accel and comparing our results to guidance, revenue in the second quarter was $157.7 million. This was above the high end of our guidance range of $153 million to $156 million and was driven by better-than-expected sales in our OEM segment due to a generally improve supply situation and upside from certain automotive, transportation, networking and energy customers.

In the second quarter the Wireless Maingate business, which was acquired on January 16, 2015, contributed $4.1 million of revenue and was in line with our expectations.

Non-GAAP gross margin was 32.3%, similar to what we realized in Q1. Non-GAAP operating expenses in the quarter were $40.3 million, which was lower than expected and flat compared to Q1. The lower-than-expected OpEx in the quarter was a result of ongoing cost management initiatives and timing of certain R&D expenses.

Better-than-expected revenue combined with flat operating expenses resulted in second quarter profitability that exceeded our guidance expectations, with non-GAAP earnings from operations of $10.7 million and non-GAAP net earnings of $8.6 million or $0.26 per share. The non-GAAP tax rate in Q2 was 19.6%, in line with our expectations.

Looking at some of the key Q2 financial metrics on a year-over-year basis, total Q2 revenue of $158 million was up 17% year over year and up 5% sequentially. Q2 organic revenue, excluding Wireless Maingate and Accel Networks, was up 13.7% year over year compared to Q2 2014.

Revenue from OEM solutions was $138.2 million, representing an increase of 18.5% year over year. The year-over-year growth drivers were broad-based, including from the automotive, transportation, enterprise networking and energy segments.

Revenue from Enterprise Solutions was $19.8 million, up 7.6% year over year. The year-over-year increase was driven by revenue contribution from Wireless Maingate, partially offset by a decline in revenue from our gateway products.

However, as expected, we saw sequential growth in revenue from gateways during Q2. And as Jason noted in his remarks, we have made some organizational changes in the Enterprise Solutions business to bring additional focus on driving growth in gateway revenue.

We continued to see improving business model leverage in Q2. Strong Q2 revenue growth resulted in a significant year-over-year profitability improvement. Q2 adjusted EBITDA almost doubled to $13.1 million compared to $6.8 million in the same quarter last year. And Q2 earnings from operations almost tripled to $10.7 million compared to $3.7 million a year ago.

As is well known, there has been a considerable appreciation in the US dollar relative to other currencies during the past 12 months.

On a year-over-year basis we estimate that changes in FX had the following impact on our Q2 2015 non-GAAP results compared to Q2 2014. Specifically, revenue was negatively impacted by $1.5 million and gross margin was consequently lower by 0.6%. Non-GAAP earnings from operations was positively impacted by $2.6 million mainly due to the positive effect of FX on our operating expenses.

We had solid cash flow performance during the quarter and our balance sheet remained strong. During the second quarter the business generated $12.9 million of cash from operations. CapEx was $4.2 million resulting in free cash flow of $8.7 million. With the purchase of Accel Networks for $9.3 million our cash balance declined by $3.1 million to end the quarter at $96.5 million. And also the Company remains debt free.

Moving to our guidance for the third quarter of 2015, the following guidance includes contribution from the acquisition of Accel Networks for the full quarter, but does not include a contribution from MobiquiThings which we expect to close later this quarter.

We expect to Q3 2015 revenue to be in the range of $157 million to $160 million. This includes an estimated $2 million contribution from Accel Networks. The midpoint of our Q3 revenue guidance is relatively flat compared to Q2. Year-over-year this represents 10.6% overall growth or 6.2% on an organic basis. I would note that the year-over-year comparison is relative to a very strong Q3 2014, therefore a tough comp.

Flat sequential revenue in Q3 partially reflects the timing of sales between Q2 and Q3. This includes some acceleration of demand in Q2 as select customers move to secure supply given the well-known RF component shortages. Improvements in RF component availability during the quarter enabled us to meet more of this demand than originally expected.

Assuming the midpoint of our Q3 revenue guidance, our expected year-over-year organic growth rate is 13.1% for the first nine months of 2015, solidly within our previously stated 10% to 15% expected growth range. And we reiterate that we expect to be within this range for the full year of 2015.

We expect gross margin percentage in the third quarter to be similar to gross margin in Q2, and we expect Q3 operating expenses to increase modestly from Q2 to Q2 driven by the addition of a full quarter of Accel's OpEx, which is estimated to be approximately $1 million.

Based on this we expect Q3 non-GAAP consolidated earnings from operations to be between $9.5 million and $11 million and non-GAAP net earnings to be between $7.5 million and $9 million or earnings per share of approximately $0.23 to $0.27.

I will now turn the call over to Jason who will provide a brief summary as well as comments on the MobiquiThings acquisition and our cloud connectivity strategy. Jason.

Thanks, Dave. So before heading into our call summary I will speak briefly about the acquisition of MobiquiThings announced on June 23, as well as our strategy for cloud and connectivity services for the Internet of Things.

MobiquiThings is a highly innovative MVNO based in southern France, providing managed connectivity services specifically for the IoT. MobiquiThings has had success in several market segments where we also participate including security, transportation, utility, healthcare and payment services. The Company has approximately 75 customers, 100,000 subscribers and is growing.

While the MobiquiThings business is nascent and relatively small, the Company brings compelling technology, a world-class core network platform, an instant pan-European coverage footprint and a strong team.

The Company's unique technology assets include a platform and SIM card implementation that supports multiple mobile network identifiers, or [MSIEs], in each SIM card, the ability to provision and change these network identifiers over the air and to enable mobile network switching at the device level based on certain parameters such as quality of cellular coverage.

These technology elements provide the ingredients needed to deliver a superior quality of service offering to customers and to dynamically manage cost of service. We are excited about adding such capabilities to our cloud and connectivity service offering as we believe they put us in a unique position to create and deliver a highly differentiated service to our customers.

We expect MobiquiThings to generate 2015 revenue of approximately EUR3 million and to break even on an adjusted EBITDA basis. We have agreed to purchase MobiquiThings for EUR14 million in cash at closing with additional consideration tied to a performance-based earn-out formula. We expect the transaction to close during Q3.

After closing MobiquiThings will become a key element in our cloud and connectivity line of business led by Emmanuel Walckenaer, as stated earlier.

The MobiquiThings, Wireless Maingate, Accel Networks and AirVantage cloud platforms and teams will be integrated to create a line of business with annual recurring revenue of approximately $30 million, with a mission to growth this business based on a truly unified differentiated platform for enabling the Internet of Things. Accomplishing this is central to our overall device-to-cloud strategy and vision.

We believe the recently acquired companies and teams will help to accelerate this strategy and to enable our customers to build, deploy and operate their IoT applications faster, easier and more cost effectively than ever before. We believe that this strategy makes us unique in the market and will lead to growth, market share gains and value creation.

To summarize, we are very pleased with our performance in the second quarter of 2015. Year-over-year revenue growth was strong once again driven by robust organic growth in our OEM business and solid contribution from acquired businesses. Year-over-year profitability metrics also continue to improve significantly highlighting our commitment to profitable growth and improving operating leverage.

We have realigned our team and are making targeted investments in driving accelerated growth in key areas such as gateways, and cloud and connectivity services for the Internet of Things.

We also continue to commit capital in ways that will strengthen our strategic position and create value for shareholders. We closed the Wireless Maingate acquisition in January and have already achieved the key goal of integrating the Maingate and AirVantage platforms to provide a unified user experience for customers.

Maingate has quickly become a central component of our device-to-cloud solutions for the Internet of Things and we have seen early validation of growth synergies, securing additional connectivity wins with new customers and existing Sierra customers such as Veolia.

We have continued to scale our business and capability in cloud and connectivity services with the addition of Accel Networks and soon MobiquiThings. Both companies will continue -- will contribute significantly to accelerating our recurring revenue growth and our device-to-cloud strategy.

We remain confident that continued profitable growth combined with acquisitions that enhance our strategic position and business model will lead to further value creation for shareholders.

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

(Operator Instructions). James Kisner, Jefferies.

Yes, I was just hoping you could clarify a little bit what you said about the growth rate for the full year. I mean it sounds like you think you're going to be in the range of 10% to 15% on an organic a basis for the full year and you have acquired multiple companies here. I just am trying to simplify just a little bit what you are implying for Q4.

Would we -- I mean, given that we are seeing a little bit of depressed revenues, I think in part because of the sort of catch up from the supply-chain, would we expect sort of better than seasonal Q4? Can you just kind of walk us through what you are implying there with a little more specificity so we can model it right?

Hi, James, it is Dave here. First of all, I don't think our revenues are depressed at all. I think we had a very, very strong Q2. And yes, that is a little slow down in Q3 partially because of the outstanding results in Q2.

Our nine month year-to-date growth year over year is around 13%. And we fully -- we are not going to give guidance for Q4, but we fully expect to be firmly within the 10% to 15% range that we have been pretty consistent on for the full year of 2015.

That is an organic growth rate, James.

Okay, that helps I guess. Can you talk a little bit on mix and pricing? I am just wondering, have there been any changes on mix? Any update on the mix of 4G, 3G, 2G? And also, have you seen anything change in the pricing environment sort of across the board? That's it.

Thanks, James. This is Jason, I will take that. So I would characterize the ASPs as stable first of all. And part of that can be attributed to the favorable mix shift as mix continues to move to favor 3G and 4G technologies over 2G technologies.

During the quarter we saw that continue 2G. 2G represented 17% of overall revenue, 3G 43% and 4G 35%. So a significant mix shift if you compare that to earlier periods. In fact, during Q2, 3G revenue was up year-over-year 16.5%, 4G revenue was up 34.4% year over year, whereas 2G revenue was down year over year.

So that mix shift is definitely still happening and I think plays to our favor from a competitive position standpoint and also supports ASPs.

Great, thanks a lot I will go ahead and pass it (technical difficulty).

Thanos Moschopoulos, BMO Capital Markets.

It sounds like the component shortage issues are now under control. But just to be clear on that, is that fully behind you or is there any sort of residual impact that is left to address there?

So, Thanos, this is Jason. So in Q2, yes, we were able to manage that RF component supply situation pretty effectively. It improved for us during the quarter. Cost us a little money, not so much in COGS, but it cost us in OpEx as we transitioned away from some of those components that are in short supply. So we had to do some redesign and requalification. But the good news is the supply was there.

So as we look out into the future, I think we now have a normalized tight component supply situation, if there is such a thing, whereas in the first quarter I would say we had a very intense RF component supply situation. So, it is still a daily management exercise to make sure we have got the appropriate component supply, but I think we have got it under control.

That is good to hear. You mentioned you had a record number of design wins in the quarter. Relative to the prior quarter any specific themes as far as verticals or geographies where that stems from or is it sort of pretty consistent with what you have seen in recent months?

Yes, I would say consistent. So a significant step up in terms of number of design wins compared to last quarter. I think we characterized it as a record number of design wins, well over 100. And continue to be very diverse in terms of segments and regions. We have seen in the past few quarters I would say improved design win activity in both Europe and Asia compared to previous periods.

And anything you can say as far as the level of design wins?

Size you are talking about?

Yes. Aggregate size, sorry.

Aggregate size. So, we are not going to give a specific number on that, but I would characterize the average size of the design wins as normalized. We did not have any of the very large automotive design wins in the quarter, so I would say it was more of a normalized grassroots design win size.

Yes, that is helpful. Thanks, Jason, I will pass the line.

Mike Walkley, Canaccord Genuity.

Just following up a little bit on your Q3 guidance. With the OEM solutions it sounds like you pulled in a little orders. So with Accel coming into the enterprise business would we expect enterprise to be a little higher mix of the revenue if it is flat sequentially?

Yes, Mike, I think you can safely assume that. And I would say not only as a result of the addition of Accel, but we are expecting a continued sequential step-up in enterprise gateways.

So we have got that -- appear to have that business heading back in the right direction so we think gateway sales go up, we add Accel, so I would say expect a little bit higher mix of enterprise in Q3.

Okay, great. And then just building on that question. With Jason Krause moving over to the business, what is the timetable maybe you think you can get back to organic year-over-year growth for your gateway or just overall organic year-over-year growth for that business?

I'm going to be careful, Mike, not to put that into a specific timeframe. But I think a couple things going on. So as we discussed last quarter, we have already started to I would say accelerate the new product pipeline.

So we will start seeing new products, new platforms hit the market actually in Q4. And then we have got two or three new products stacked up behind that product. So I would say Q4 and the first half of next year are going to be busy new product launch periods for enterprise gateways.

We've also made targeted investments in adding to sales capacity both outside and inside. We have made organizational changes to strengthen sales leadership as well. And then we have dedicated executive focus as Jason Krause moves over to run that business.

So, I think we are putting a lot of the pieces in place and we are already starting to see some sequential step-up. So, I am bullish on the opportunity and I am bullish on our chances. But I can't put a specific timeframe around a return to year-over-year growth.

Okay, great, thanks. One last question from me and I will pass it on. Just based on some of the grass-root orders you have seen and broad strength, as you look out longer-term do you think you are creating the pipeline and the backlog into next year or two to continue this 10% to 15% organic growth? Is that kind of the right size of your growth opportunity for the industry the next couple years?

For the next -- yes, by the way. I do think we are adequately recharging the program pipeline to keep growth going at that rate. And beyond a year time horizon is that growth rate going to be the same, higher or lower? I don't think we are prepared to say at this point in time.

But I will also say that in the sales funnel, not yet in the program pipeline, are potentially very, very large design wins. We haven't won those yet, but if we win one or two of those, those will be single design wins that equal a very significant recharge to the program pipeline.

So grass-root stuff, yes. We like it, it is diverse, it tends to be a little bit higher margin. And that is adequate to keep up current growth rates. And if we get some of these big elephants it could accelerate that in later years.

Thanks for taking my questions. Good luck with the elephant hunting.

Tim Quillin, Stephens Inc.

First of all on the revenue that you might think of as pulled forward a little bit on the OEM side. Is that -- was it pulled forward just because of your ability to ship as you got the RF components in? And could you quantify maybe how much you feel like was pulled out of 3Q into 2Q?

It is tough to put a specific number on that, but it could be $2 million, it could be $3 million, Tim, in terms of pull in. And the other thing that we don't have clear visibility to is how many of those orders were placed because customers knew about the RF component shortage. There is sometimes a tendency to order ahead if you know there is a shortage. So, yes, I would size it at about $2-million-plus.

Right. And I know this maybe gets perilously close to 4Q guidance, but as you think about the OEM solutions business especially, the way it's -- the contour of that revenue, does it seem like you will be returning to sequential growth in 4Q?

That is our view at this time.

Okay, very good. And then on the gateway business, the enterprise gateway business. So my understanding of the situation is that maybe you were a little bit late to market with some LTE products and maybe you can confirm that to me.

And also maybe go through an after action report of why that might have happened and how you might avoid that situation in the future. And then how you are doing with the new LTE gateways and routers?

Yes, I'm not -- by the way, I am not sure I would hang it on, quote, late to market with LTE. We have actually been in the market with some LTE gateways for a couple years now. And so I would characterize it more as a need, Tim, to create products that satisfy very specific market segment needs in a more precise way.

I believe what we are seeing in our gateway business now is a bit of a transition from a more general gateway, general-purpose gateway oriented business to a more segment driven business. And that is going to drive very specific features, form factors, etc., into our gateway products.

That is what is loaded up in the product -- the new product pipeline right now are these much more segment driven products. Think of them as coming closer to the bull's-eye.

Right. And can you talk about what segments those might be addressing and how that -- maybe the better way to think about it is how you identified the opportunity or identified the hole in your product line that these two products might address?

Sure, sure. So we have got what I would characterize as three groups of -- or three larger market segments, first is industrial.

Industrial has -- you will find a lot of energy applications, smart grid applications, heavy equipment applications and the like, solar deployments, which tend to need a very industrial hardened product. Power management is very key, support for certain protocols is key.

The other key market is mobility and inside mobility a bunch of sub segments including public safety, emergency services, transit and that is primarily transit buses. And in general I would call it general fleet management.

And then third is enterprise. And enterprise is really around the distributed enterprise, so not replacing Cisco routers but connecting to Cisco routers to provide a backup connectivity or in some cases even primary connectivity to a distributed enterprise.

And that is -- when you hear me say distributed enterprise think retail outlets and kiosks, that kind of thing. So those are the three key segments and we have got products in the pipeline that are really focused on those key segments.

Okay, that is a great rundown. And then last question, if I may, is how much interaction do you foresee between your services components right now? I know Accel is more of a US-based or US focused company, but how can you get the Maingate, MobiquiThings and Accel to work together where one plus one plus one is equal more than -- it equals more than three? Thank you.

Yes, yes, great question. We are -- so a couple things there. We would need to -- our first focus is Europe. So our main focus here is to make sure that we have got pan-European coverage, so EU-28 coverage, not only with cellular coverage but also the kind of pricing we need to be competitive in the market. We get some of that with Maingate, I think we get a whole bunch more with MobiquiThings.

Second we need to -- we also need to drive platform integration. That is not necessary to drive growth, but I think it is necessary to be in a truly differentiated position in the market. So we are going to unify these platforms over time, in parallel selling of course, but over time we are going to unify these platforms, deliver a single user interface to customers for both cloud services and connectivity.

And of course we are going to leverage the scale that we get in the respective sales teams. Because remember, we are not only getting platforms and subscribers here, we are getting sales teams and technical capability and marketing capability as well. So think of it as we are scaling the organization, not just in terms of subscribers and revenue, but also the people we need to continue to drive the growth.

And then Accel, think about Accel as really focused on this distributed enterprise that I referred to earlier. In the first 12 months we are going to be careful about how tightly we integrate Accel, we are going to be focused on low hanging fruit and driving growth. And in terms of platform integration that is going to take a little longer.

That is great.

I don't know if that answered your question with precision or not. But that is how we are thinking about it.

That is a good recap, thank you.

Mike Latimore, Northland Capital.

Just, Jason, you mentioned the potential for some -- or some large design win potential in the pipeline. Any specific verticals or are they fairly diverse, those opportunities?

They are automotive. They are automotive. That is usually where the really big ones are. I shouldn't limit it there, but there is quite a bit of activity in automotive and some of the deals are potentially very large.

Having said that, last quarter we had some really good success in smart metering which were also very nice size, nice size design wins. But as I look at that funnel of opportunities right now, the real big elephants tend to be automotive heavy.

Yes, got it. And I guess in the meantime, obviously you (technical difficulty) auto is a top category in the quarter. Would you characterize auto as accelerating, same kind of (inaudible) pace as in the past, falling, just generally how is the audit segment progressing?

It is accelerating. I would characterize it as growing faster than the overall corporate growth rate.

Got it. And then on the enterprise side, you talked a lot about new products coming to market. Do you feel like the channels are right -- in the right place and it's more a product topic to get enterprise accelerating here? Or there are some channel development initiatives that could occur?

I think we are in -- I think we have got to do a lot of things frankly. But I do think our core set of channels are good, adequate. I think they are a little bit product starved, so we are going to feed that. We could probably bolster our channel position in Europe; we are not as broad and deep in Europe as I think we need to be.

And then third, I would say direct sales. So, we do do a certain amount of direct sales, we are focused in particular on major enterprise customers, major enterprise accounts providing better, deeper direct sales coverage.

Okay, got it. And then just last question (multiple speakers).

(Multiple speakers).

And last question is I think most of your contracts are in US dollars. I mean, have you had to adjust pricing a little bit to account for the strengthening of the US dollar at all or not really?

You know, I --.

It hasn't been a theme.

No, it hasn't been a theme. Pricing is always a theme, Mike, and always comes up. But I don't think the currency fluctuation has been a key driver of that. Most of our OEM customers have the rest of their COGS in US dollars as well. So it is -- I don't think that has been a big factor.

Yes, okay. Thanks a lot.

Richard Tse, Cormark Securities.

Hi there, it is actually Andrew in place of Richard. I just wanted to quickly touch on your M&A opportunities. And if we can expect the same kind of theme coming out relating to you adding to your recurring revenue and just general services over a number of geographies?

Sure. So I think as we've demonstrated in the last six months, we have been very focused and busy in M&A and particular around services targets. And I would say principally around managed connectivity services offerings that we can put through both our own direct services channels but as well as our OEM and Enterprise channels.

We have been I would say very transparent that that has been our goal and I think we're -- our goal and strategy, we have been executing on that strategy. So as we look forward on additional M&A transactions I would say I would characterize the funnel as still active.

We've got a load of integration ahead of us, by the way, with three new targets coming in. So there is going to be a big focus on integrating those assets extraordinarily well. Having said that, funnel is still active and no big change in terms of the composition of the funnel.

There are gateway names in the funnel, there are services names in the funnel. And that has been our stated focus and continues to be where most of our activity is.

Thank you. And my last question was just related to the valuations and how they have trended over the last six months. Have the service names held constant or is it moving either way up or down?

It is Dave here, Andrew. Valuations have certainly risen over the past 12 to 18 months on the services side and the multiples that we paid for Maingate for instance are representative of transactions that are happening in the marketplace. But they have certainly increased over the past 12 to 18 months.

That is great. Thanks for taking my questions.

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

That is great. Thanks, Phoenix. Yes, so just quickly, we can wrap up the call. I want to thank everybody for taking time to join the call. And as usual, management is available here should you have additional follow-up questions. Phoenix, you can now terminate the line.

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