Q4 2020 Sierra Wireless Inc Earnings Call

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Maybe some gentlemen, thank you for standing by and welcome to the Sierra Wireless incorporated's fourth quarter 2020 conference call and webcast at this time. All participants are in a listen-only month after the speaker's presentation. There will be a question-and-answer session to ask a question during the session. You will need to press * then 1 on your telephone. Please be advised of today's conversation is being recorded you require any further assistance, please press star then zero. I would not like to have a conference over to your speaker today David Connie vice president of investor relations with you, please go ahead sir. Thanks and good afternoon everybody. Thank you for joining today's conference call and webcast on the call today or 10 Sexton president and CEO and Sam Cochrane our CFO as a reminder. Today's presentation is being webcast will be available on our website following the call. Today's agenda is as follows can't provide his corporate update and Sam will provide a detailed review of our queue.

For and year-end 2020 results volume by Q&A before we get started. So we reference the company's cautionary note regarding forward-looking statements a summary of our cautionary note can be found on page two thousand Web cast 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 within the meaning of Securities laws. You seem to include our strategy goals objectives expectations and commentary regarding the outlook for our business are forward-looking statements are based on a number of material assumptions including those listed on page two page presentation, which could prove to be significantly incorrect additionally forward-looking statements are based on our Management's current expectations, and we caution investors of forward-looking statements particularly those that way to longer periods of time are subject to substantial known and unknown material risks and uncertainties that could cause actual events or results to differ significantly from those expressed or implied by our forward-looking statements dead.

I draw your attention to

A longer discussion of a risk factors in raif and Management's discussion and Analysis, which can be found on Cedar and Edgar as well as other regulatory filings. This presentation should also be viewed in conjunction with our quarterly earnings release with that. I'll now turn the call over to can't for his corporate update.

Thanks, David. I'll start my prepared remarks today with some highlights from the fourth quarter as well. As some brief comments on full year twenty-twenty. We will be discussing our continuing operations on today's call with the exact motive business line under discontinued operations. As you are aware. We completed the sale of the automotive product line in November. And as a result our balance sheet has been significantly strengthened off Family review. This is more detail in a summary of the fourth quarter results and balance sheet. So let's turn to some of the highlights and Q4 total revenue in the fourth quarter was 120.5 Million up sequentially 6.5% from Q3 and ahead of Street consensus. Our business transformation is proceeding well with three quarters of sequential Revenue growth. I am pleased to see this Improvement despite the tight component Supply situation in the industry and the impact of the COVID-19 pandemic globally.

Q for recurring other service Revenue was thirty two point six million up 25.1% year-over-year and have 9.4% sequentially as our continued focus on iot solution is showing improving results looking at service wins in Q4 as measured by Alt r or long-term annual recurring Revenue. We achieved record eltar wins, totaling 56.3 million up 40% sequentially for full year twenty-twenty. We secured a hundred forty million in Elkhart wins an increase of 54% compared to 2019.

This result shows the success of our transformation efforts to win in the market with abundant Solutions delivering faster time-to-market for our customers and sticky high-margin recurring revenue for Sierra Wireless log in queue for our Global sales team continued to Secure Solutions wins with new and existing customers. So I'd like to share a few examples from Q4.

The first win is with a leading designer and manufacturer of Gateway systems for the commercial and residential Market. They needed an iot solution that enabled them to do remote monitoring and control both the entry and exit points on Commercial properties. They also required Cellular Communications to support audio video access for their gate openers and Overhead Doors use an apartment buildings off campuses. We are providing them with a device to Cloud solution using are ready to connect embedded modules that is bundled with the connectivity Services package the hardware value of this design win with this girl is expected to be one point four million. And the service is El Toro is expected to be approximately 700,000.

Another new customer we signed up in Q4 is a global Power Systems company focused on.

Improving efficiencies of electrical motors for the industrial energy Market this customers Gathering real-time data twenty four by seven from their machines so that they could monitor their equipment impact system performance and provide preventative maintenance the solution required a single vendor with an end end solution. So we're providing RLX 40 Gateway Cloud platform and Global connectivity issues with the elk are associated with this design wind is expected to be 2.9 Million and the hardware value of approximately 1.6 million.

And the last example in Q4 is a design wind that we signed with the help of Microsoft and in good example of our partnership work with both Microsoft and is here the customer who came to us through the use your team is a global Industrial company that is looking to monitor its assets twenty four by seven 4 predicted maintenance services initial project includes are often orchestration software Solutions with deployments to about 10,000 industrial assets and stealing to significantly more devices and recurring Revenue in times. We see the industrial sector really picking up and we are pleased to partner with Microsoft on securing this design went and working are strong industrial Coyote Point together. Now, let's quickly look at some company highlights and 2020.

Recurring other service Revenue increased 18% year-over-year in 2020, and we ended the year with more than four million connected devices. The acquisition of em in Australia has been successful and our goal by grabbing. He was growing strongly in the ANZ Market globally are focused on selling solution and growing recurring other services. Revenue has made great progress and we are winning in the competitive market wage. I'm very pleased with the hundred forty million in Delta that was generated last year on top of the $91 million from the previous year this sets up the company. Well as the remain very focused on our targets of achieving $2,000 million raised recurring other services by the end of two twenty two and four hundred million by the end of 2 to 24.

In terms of new product offerings in 2020. We successfully launched our 5G embedded module during Q4.

We are certifying our 5G gateways and routers globally and our 5G md-90 router was recently certified on T-Mobile network and will be launching soon.

Our Global sales teams have secured numerous design winter 5G module last year with key long-term Enterprise customers. I'm very excited about the growth path for 5G low-latency applications name is including Enterprise networking public transit asset monitoring health care and Public Safety.

I'm also pleased to be strengthened our executive management team in 2020 by hiring Sam Cochran Steve Harmon our senior vice president of America's and most recently James Armstrong who is now with Enterprise Solutions business is senior Vice President. James has great experience from spirent Communications and a strong Wireless experience with a PhD in electrical engineering from Purdue. So we're glad to have them as well.

before I turn the call over to

Sam I would like to point out that starting in the first quarter of 2021 would be willing to to new reporting segments with the sale of our Automotive product line in mid November last year. It's an opportune time for us to have two strong pillars of one focused on iot Solutions and the other focused on Enterprise Solutions.

The Enterprise Solutions reporting segment will include are linked cellular routers and gateways Riot applications business for monitoring and asset-tracking and our Enterprise connectivity Solutions and software packs together this segment generator 242 million of Revenue twenty-twenty with gross margins of 50.5% We double their Enterprise Pipeline on twenty-twenty and we are well-positioned wage growth and it's attractive and growing Market.

Coyote Solutions reporting segment will include our portfolio cellular modules from lpwa through to our high speed and battered 5G Broadband module as well as our iot connectivity Solutions services and software this segment generated 307 million and twenty twenty and we are highly differentiated with a complete device to Cloud offering the total addressable variety solution with ten to twenty billion and we are seeing success with the industrial iot Market as the industrial leaders start to connect and digitize their machines and assets. We are well-positioned wage solid growth as our customers deploy cellular modules partnered with connectivity services for simple and scalable Solutions. Overall. We remain very focused on delivering our Innovative device to Cloud that are generating higher-margin subscription-based recurring Revenue with that. I will now pass it over to Sam for his review and comments on the fourth quarter and year-end results.

Thank you, Ken. Good afternoon. Everyone as a reminder. Our fourth quarter Financial results are reported in US dollars in on a US gaap basis. We also present non-gaap resolved provide a better understanding of our operating performance.

A full reconciliation between our gaap and non-gaap results is available on the IR page of our website.

Before I begin with a review of our quarterly results, I'd like to point out that our fourth quarter 2020 financial statement are based on continuing operation and we have segregated the automotive business with the sales competing on November 18th as discontinued you have included in the notes to our Q4 financial statements information on a gaap basis regarding the automotive business and we will provide additional information in our end. So now let me turn to our continuing operation and comment on the fourth-quarter and full-year 2020.

Total revenue in Q4 from continuing operations was 120.5 million a decrease of 3.7% compared to the same period last year.

Non-gaap, gross margin in the fourth quarter was 36.1% compared to 35.8% in the fourth quarter last year.

Thank you for we continued our focus on right-sizing the business and reducing off at.

As a result our non-gaap operating expenses were Fifty Point 1 million in the quarter. We expect this affects run-rate to continue to decrease in to 20 21.

Non-gaap adjusted ebitda in Q4 was -2.9 Million compared to -3.2 million the prior year.

For the full year twenty-twenty total revenue from continuing operations was 448.6 Million compared to 547.3 million. The loss of Revenue in 2020 is primarily attributable to the impact of the COVID-19 pandemic the type component Supply environment and the decline in Mobile Computing revenues with the loss of Dell and Lenovo design wins two years ago.

Just ibadah in 2020 was -34.9 Million compared to 9.8 million in 2019.

Now, let's take a quick look at Q 420 on a year-over-year basis.

Revenue in the iot solution segment was 87.6 Million down slightly by 3.6% year-over-year.

It's in our Solutions segment recurring and other services Revenue was thirty two point six million up 25.1% year-over-year driven by increased customer age and growth in the number of connected devices.

The current in other services Revenue represented 27.1% of our total revenue in Q4.

The growth of recurring Revenue was offset by lower Hardware Revenue primarily due to the impact of the global pandemic and some Supply related constraints in the quarter.

Revenue in the embedded Broadband statement was 32.9 Million lower by 3.8% year-over-year primarily due to the decline in Mobile Computing revenues with a glass of Delmon over design win two years ago.

This is the last quarter of the Dell Lenovo design loss impact so there is no impact related to that going forward.

Total gross margin was 43.5 million or 36.1% in Q4 compared to 35.8% the prior year.

The increase year-over-year with do to improve margins in iot solution 1.6% to 38.6% due to mix partially offset by declining and better Broadband goes off at 29.5% do to lower mobile Computing gross margins from the previously discussed design locker.

Taking a look at Q4 and a sequential basis.

Revenue and iot solutions to increase eight point five million or 10.7% compared to the prior quarter with Enterprise networking Gateway and routers showing Improvement as we are often more of our increased pipeline from the last quarter.

Additionally recurring and other services Revenue increased 9.4% sequentially in Q4.

Revenue in the embedded Broadband segment decrease one point four million or 4.1% sequentially primarily due to lower mobile Computing Revenue.

Total gross margin was up 1.1 million in Q4. The sequential increase was due to mix Improvement in both iot solution and embedded broadband.

Operating expenses declined 2.1% sequentially to 50.1 million in Q4 and adjusted ebitda was -2.9 Million an improvement compared to age of seven point 1 million in Q3.

Moving to our cash position cash flow from operations and q40 point seven million in capex with 7.9 million. The quarterly cat box is higher than I am forty-two equipment replacement for 5G development that was required in Asia following the divestiture of the automotive business.

Net proceeds from the sale of the automotive business was 144.2 million and during the quarter. We paid down our credit facility of 34.4 million. We also spent three point five million requiring the M2M business that is based in New Zealand extending our iot services business into that new market.

As a result of these activities we had an increase of ninety nine point four million in cash at the end of the quarter finishing the year with a hundred and seventy one point four million of cash on the balance sheet.

Have you looked at the first quarter of 2021 we will be consuming approximately twenty million in cash due to three main factors one. You need to increase capacity and inventory to come back the current shortage and component to we have restructured real close. We are encouraging as we improve our operating efficiency and 3. We also have someone time working, adjustment associated with the Auto Sale occurring in the first quarter of this year.

Before I move on to guidance for the first quarter, I would just like to say a few words about the new segmentation. We will be reporting on in q1.

Today's release we have included a table that shows the revenue and gross margin for the two new segment.

The Enterprise Solutions segment includes gateways and routers iot applications such as Offender Monitoring security and asset-tracking.

is

Well Enterprise connectivity services are Cloud management platform software and services that are all related to our Gateway and router business.

In 2020. This is generated a hundred forty one point seven million in Revenue at a gross margin of 50.5% in Q4. It had thirty eight point nine billion Revenue agent and a gross margin of 51.5%

the solutions segment includes our cellular modules and embedded Broadband modules as well as our iot connectivity Services Cloud management platform software or services that are all related to our iot module.

In twenty-twenty. This is generated three hundred six point nine billion Revenue at a gross margin of 28.4%

Thank you for it has 81 point six million in revenue and gross margin of 28.6%

providing more information on each segment at the end of the first quarter.

Now for Outlook the impact of the COVID-19 demek on our Global business continues to remain uncertain especially as it relates to current type supply chain environment off what we continue to evaluate the effects of COVID-19 on our business the overall severity and duration of adverse impacts related to COVID-19 on our business Financial condition and operating results for the first quarter 2021 and Beyond cannot be reasonably estimated at this time, the ultimate size of the impact of the COVID-19 demek on our business will depend on future developments which cannot be currently predicted.

Regarding the first quarter of 2021. We expect a revenue to be in line the street consensus of 109.9 million.

There is strong demand for our products and services in the first quarter and we have secured Hardware orders and recurring revenues as approximately 15% above current Street consensus 4321. However, we are facing a very tight Global Supply Chain environment that's constrained our ability to Source components and fully deliver to this level of demand Kenton. I continue working closely with all our suppliers and Manufacturing Partners to close the gap.

We appreciate all the hard work being done across our supply chain from our staff suppliers and manufacturers and partners who are working with us tirelessly support our customers orders which service critical application.

That ends my prepared remarks today operator. I would now like to open the call for question certainly at this time. If you would like to ask a question as a reminder, please press star then the number one on your telephone keypad to withdraw your question, press the pound key. We will pause for just a moment to come by with you and a roster.

Your first question comes from the line of Josh Nichols from B Riley your line is open.

Yeah, thanks for taking my question and good to see the continued sequential Improvement on the top line as well as the the bottom line that we're seeing here. I want to ask you talked a little about about the first quarter. Um, but looking more at the effects and the cost savings initiatives. Could you talk about where we stand for the twenty-five to Thirty million in any kind of Outlook you who provides as far as the the anticipated turn to kind of sustainable profitability from like a cash burn or even a perspective.

Sure, Josh, thanks for the question is can text in here. I'll ask Sam to talk about the the offense levels but overall business model progress is good and grown know top-line and then making sure our cost structures lined up. So Sam, do you want to talk to the 25 to 30 million dollar cost reductions? Yes. Thank you for your question. So head count is down two levels around 10:40. Oh, so 1040 that's down about 20% from where we came into the year. So very good progress is being made there and we're on track for those targets off.

Thanks, and then if you could provide a little bit more color, I know getting the timing of the 5G Ram right? It's been a little bit difficult, but it seems like you're making good progress on there. How you doing as far as shipments and and any type of targets as far as what you could do on that front and kind of margin accretion potential is that ramps up a little bulb?

Yeah, it's Kent here. So, you know, we are very excited about 5, G as I said in my comments we've done very well in securing design wins with the customer to be early in 5G. We're in that early stage where the demands levels are not fully certain. We will be starting to ship product. Um to too many customers what we've seen in other iterations 3G and 4G and I'll speak to 4G as you know, the you start to get deployments and then as it as it starts to mature used to belong to see the volumes ramp and we expect that to happen similarity with 5G. We've been, you know early with the technology. We've got a lot of very positive feedback from the market both from customers and carriers and those designed slots are highly valuable. They when you win a design slot you're in with those customers from multiple years so we don't expect

The 2021 is going to be a significant volume of 5G is going to be early stages of the ramp and will continue to accelerate as we move into May 2022. So an important long-term value step for us, but not great clarity on the the volume of 5G yet in 2021.

Thanks.

Last question for me then I passed the Baton here. Um clearly it looks like one Q demand is coming in materially stronger than what kind of the street and thought obviously there's near-term component shortage issues. But how long do you think it'll take to resolve those and if you are able to get those resolved over next quarter or two fair to assume that that may imply a stronger second-half. Maybe the street is anticipating and the numbers today. Well, I think you know the supply challenges you will have seen across the board and and I think that those are not going to be with us for most of the year the Silicon shortages, um are are challenging. So I think that's going to be one of the elements that we deal with we are dead, you know pleased to see you know, our work is is increasing orders are demand signals are strong some of our existing customers increasing what they're looking to pertain to age.

And at the same time we talked last year about our increasing wind rates and our overall increase in design wins and some of those starting to to flow through so, you know, we're not providing guidance. And so, um, you know, I wouldn't wouldn't work to change the view at this point in time with those levels of uncertainties. But um, you know, the 15% above consensus of orders that we presented shows that yes, we're, you know, we're pleased with the demand side that we're seeing both for Hardware in trouble currently have any business

Great. Thanks guys. Thank you. Thank you said hi. Good afternoon. Can't can we go a little bit more on the demand environment. So in terms of the strengthening demand that you're seeing is it is it primarily macro driven recovery, or are there any specific practical true statements that especially stand out as you look at the command recovery?

I hope that she had a good speak with you. So, you know, we've we've talked about a few things. So we've had a and I'll talk about our two segments now. So we've had a big focus on what we're doing in the Enterprise Market wage. And so we're seeing good progress in in our our Enterprise business are our overall Gateway sales inclusive of our software. And then so that Thursday that is is something that we will we have been investing in we've been growing Partnerships and you know, we expected that part of that market will will continue. I think there is an element of that. They're not as related to the economy, but we're in areas of Public Safety and industrial areas that are just requiring this high-energy connectivity are ruggedized gateways that are are starting to needs of that market secondly on the uh, i o t solution side of the market, you know, I think there there is a big macro 10 trend of industrial

Is increasing the one example I talked about with Microsoft is an example of a very large. Uh

19 billion dollar company that's working to digitize their assets out in the marketplace. So as we start to see those those are sort of long-term growth Trends on the economic recovery side or recovering from impacts of Covent some of our customers in spaces, like smart metering are seeing increased deployments overall and part of that can be driven by looked to be able to automate everything and not have to have as many humans Touch Products so that you know, those demand requirements are great, you know in the current environment of Parts shortages. It's challenging too long to wrap up further and you know, as a matter of fact just even even committed products, um, you know our hard work to to hang onto in this environment, but our teams been working exceptionally hard. I've been making good progress with our suppliers home to continue to get you know, maximum visibility so we can communicate with our customers on what and when we can deliver, but we see, you know, we see we see a good Market as we move forward.

Great, that's helpful. And you provided a revenue outlook for the quarter but not an earnings Outlook is is that a function of the fact there's a lot of moving Parts with Spike and faith and reception and so forth or what would you say as far as how how the street speaking about earnings relative to revenues the different quarter? Yeah. I'll ask Sam to Comedy minute but we we both decide to not provide guidance because of the great uncertainty in the supply chain side. So, you know, we wanted to uh, share that we are comfortable with in line with the content office number in there are demand exceeds how much product we can get through the factory and ship will then directly affect our profitability levels as Sam said we have we're on track for the month savings that we talked about. Um, and and so, you know, the profitably side can be pieced together. It's really about the volume that we're going to be able to to ship due to the parts constraints, but Sam do you want to comment on Thursday?

Yeah, I can't that that's correct. We got great line of sight into the fax number. The the big uncertainty is in revenue and then barged on mix but there's still some uncertainty about which parts come in and you know, as you know, there's a big gross margin difference between Enterprise products and and modules so until we get better visibility into off our supply chain quite honestly it it's hard to to give more granular guidance.

Can't make sense. And finally you mentioned the deal went through whether Microsoft Channel just as interesting more broadly. Can you speak about I guess how that's in shaping up with the channel for you and off the the pipeline that to bring to the table. Yeah, you know, we we announced the Microsoft partnership sometime back and it takes a while in life organizations, I think to to get engagement. This deal is is important because it's a next tier up customer and a good proof point. We work to drive more strongly was recently talking with the Microsoft had a Partnerships and and you know, we were viewed this as a as a good Catalyst for more business together. So our Pipeline with Microsoft has been broke and is the sales force has become more familiar with the opportunity and the product and the ability to get more Edge data into his ear will see continued progress with that. So it was it was a good step forward.

more to come

great. Thanks.

Thank Santos.

Question comes from the line of Scott Zero from Roth Capital your line is open a good afternoon. Thanks for taking my questions. Hey Kent. First off wanted to wish you best of luck and congratulations in a fireman. I know we're a quarter out from that, but just wanted to to publicly throw that out.

You are next.

Thank you. Just just to clarify on the upside demand of 15% That is for the entire business. Is that correct? So in a normalized environment, we're not component constrained. You're looking at $125 million versus a you know, a hundred nine hundred ten million. Is that correct? Or is there one segment of the business or two segments business that are being excluded from that upside number know you have that correct terms of the order volume that we have seen. We in many quarters. We might have small amount to supply constraints that would would fit into their it's just exceptionally large this quarter. So, um, you know, but that is that is we wanted to share the demand view. So the while we're saying we're in line with consensus we want to reflect what's going on from the sales side progress with our business judging and and just in terms of the realignment and Reporting segments of the businesses Enterprise Solutions. It sounds like is everything within that category now tied to an Enterprise Gateway or router. It wasn't correct.

Because I think you mentioned some asset tracking applications as well. But it sounds like some industrial iot modules or in the iot solutions business. So want to kind of clarify in terms of how that's being being reported dead is just basically going to look more like a CradlePoint type of segment in terms of the router Gateway and recurring component that goes along with it. Yeah, good question Scott. So the majority of Enterprise segment is our gateways and the recurring Revenue software support and maintenance. It goes along with them. We've also included in our Enterprise segment what we call our iot applications business and those were businesses that we originally acquired from numerous acts include asset-tracking prisoner monitoring and home security. And so those businesses have many jobs or Dimensions to our Enterprise business similar strong gross margin profile and strong recurring Revenue Dimensions to them. So it's it's majority gateways. Yep.

Five software plus our iot applications business. That's our Enterprise very helpful. I don't suppose there's any additional color that you could put with that in terms of the number of units that are under management. I think you took over all the were four million years, but now that spread across the two business segments how many of those are tied to Enterprise Solutions? And is there a larger recurring Revenue component that goes along with that because of what you're talking about Enterprise gateways and routers. We are not providing a breakout of our attachment rates by segment this point in time. However, majority of our connectivity business is an eye out for Solutions. And more of the Enterprise side is the attachment of our Cloud software device management support and maintenance for our gateways month. Gotcha and going forward. Are you going to continue to report your total recurring Revenue then that spread across those two segments or does that kind of go away now, we're just strictly with those two segments.

no will be will be reporting the the total services and other recurring revenues as as a

Total of the whole business on a continual basis. So I think that's an important metric. Okay, and let's see if I could you know, just wondering if you're seeing any sort of up Tick in business as we get to the 3-g end-of-life across a couple of networks in North America. If you see any sort of pick up on that front and maybe as well any sort of commentary or thoughts that you're seeing related to Seaver s a couples, I think probably pretty well what's going on in Enterprise Solutions, but it's still early on that front. Love to get thoughts on that front. Thanks.

So on the let me answer the 3-g question for so I think it's been a few false Dawns on that. They've been delayed, you know deadlines and delays. So I think a lot of 3/8 activity has happened. We still have some devices that will continue to upgrade going forward and that's just in the American Market in in Europe. They haven't announced Sunset dates and there's quite a bit of 2G going on in Europe. And we that that migration path will will happen later. So I think that it's more about as customers will start to be, you know, the predominant technology now is is 4G and customers are going to look to future-proof themselves by upgrading to 5G and that will will be the the trend that we're looking to start happening through the year. And and I'm sorry. What was your question?

Related to seabra's if you're seeing any sort of early interest in demand from that particularly on the Enterprise Solutions front. Thanks. Yeah. Yeah private Network. Yeah. We're we're very keen on on c b r s. We have seen some increased demand for that are gateways operate on on on public network frequencies and see BRS frequencies. And and so we've seen em, utilities municipalities other customers are interested in CBRF, you know, we've talked about our partnership with Motorola. They're very active and see BRS and we provide both ways to help them with with those product areas. And so we think that, you know, we're still in the early Innings of CBS rollouts. A lot of frequencies have been acquired and lots of interest in adding private Network capability. In addition to public our devices have the benefit of a single management platform to allow the user to track that device whether it's in a public or private domain and yep.

we're we're we're well-positioned and it's it's a trend that we're um, you know, we're well positioned to take advantage of

great. Thanks so much.

Thanks a lot. Your next question comes from the line of Mike Walkley from canaccord genuity year line is open. All right. Thanks and my best wishes. You also can't in the next step of your journey. Thank you questions just for me back to the 15% higher Revenue. Just we know it's a tight Supply across industry. But you know of that call it fifteen million. You're not going to be able to ship this quarter. Do you think most of that is just pushed out to Future quarters or do you think those are potential loss sales tax customers going to be fine alternate Supply good question Mike and a good to speak with you. So I think that you know, we expect most of that to roll forward. Um, there's you know, in a few instances where it's perishable demand, but you know, we're we're working very hard for our customers. It's uh, it's never good when you can't supply to the to the timelines that they need, so we're

We're just active with.

A wide range of suppliers to to work and have had great success with them, you know prioritizing some of our especially Public Safety market products to be able to get us components for that. So so we're looking at the roll-forward at the short answer to your question, but you know working hard at it every day, right? That's helpful. Thanks. And then Sam a follow-up question for you you one with the title office supply. You know, what are the impact may be a shorter-term gross. Margin, you have to pay more for components in this tight environment on a relative basis or can you pass those on to customers and then second I thought you said you had good line of sight into ProForm operating expenses for the March quarter. Can you help us? Just think about a a run rate for modeling given it's the first full quarter without any Automotive running through it off. Yeah good questions. So first one, they'll be they'll be a margin impact you can think about it as as a round of percent or having to go out and Ed.

And buy parts and raw materials and the gray Market open market paying higher prices, but as Kent said, you know, we are we are very focused on serving our customers demand. They the products they use our used in critical applications. And so we're we're doing what we can to to get those parts and get those products to our customers, but there'll be a a small impact to our gross margin in the short-term. And and to your first question that can you know, most of that will roll over but since we expect the money supply environment to continue in 2021, they'll be new one that come up in in the next quarter and so forth. So while they'll be recovery in Q2, it'll be new constraints as we as we sort of catch up on that backlog. Um, if that makes sense in terms of of objects, I don't want to give any direct guidance there, but I believe in in the prepared remarks I said it would be down.

Again from the 50.1 a level and and you know, two three million in that area would make sense.

Okay, great. That's helpful last question for me and I'll pass it on. Yeah, thanks for your the historical data on the new divisions as we think about iot Solutions longer-term is this gross margin level a good place to be thinking about or is El Toro's you get more and more recurring Revenue where could maybe gross margins Trend in that that business?

Yeah, Mike. Thanks for that question. So, you know, I'll just let me recap a little bit. So I think that you know Enterprise is you know Gateway business. It's higher gross. Margin Thursday. We're and then high gross margin, um recurring software in that part of the business in our iot Solutions modules and the global competitive dynamics of it make it a lower gross product line, but then we're attaching the higher gross margin recurring revenues. So as that makes continues to grow as our recurring Revenue to Hardware Revenue ratio continues to move in a direction of recurring Revenue that will drag along increase our overall gross margins in that business from the second thing that we've talked about previously is as we continue to scale are connectivity business, we expect to see the growth margins in that business improve. So we'll have we'll have Improvement in mix and then Improvement on the hardware side on the on the module side, you know with the the strong Global move towards lpwa dead.

And lower asps. Yeah that that will continue to have that product area as as lower lower revenue and continued to be relatively low gross margins.

Um, but that um, that's good for the overall Market that elasticity of demand is those lower costs units look for a Ford more connection points for IO Data and and then I would have we're in a good position to enjoy a good profitability on providing the full device Cloud solution for our customers.

Got you. Well, thanks take my questions. Okay. Thanks Mike. Your next question comes from the line of Derek Soderbergh from Colliers security is your line is open Monday.

Hi everyone. Thanks for taking my questions. I want to start with our I guess I'm wondering if there's any impact there from the supply issues. I think you said this could be sort of an issue throughout the year off but some of these role sort of roll forward. Um, so would these supplies use impact the eltar deals may be signed in the past at all. I guess I'm just curious as as to how these supply issues impacted any of your assumptions that you guys make for getting to that cumulative eltar bookings number this quarter and then I have a follow-up. Okay. All right, but thanks to the question Derek and and not the good to have you on the call. So I think in terms of the supply issues affect, uh, you know, and instead of answering for El Toro see our recurring Revenue, so I think that you know what we saw in this year with the Q2 with Colby and and people working remote it impact their ability to get contract signed for you know future business over current Revenue. So our eltar wins and Q2 or log

They rebounded in Q3 and then we had a very strong Q4 as we just highlighted here. The next step with those design wins is to get those into production and the code environment has been some slowing of getting projects into production. I think that globally we're all getting better at the remote working by the number of you know, Hands-On elements of implementations. I mean, there's been some some challenges in that regard, but you know, we're we're making a lot of progress on on on bringing those on where we have customers that we have one and I gave 3 new examples today. We're getting both the hardware Revenue in the service Revenue if there is supply shortages that delay being able to get our modules or gateways to those customers. It's going to delay, you know, margin of that recurring Revenue side, but I look at as the you know, this this building base of customers that are going to be consuming, um are ongoing connectivity services along with the hardware off.

We'll continue to drive that growth in our recurring Revenue part of the business. So if you're a month or a quarter late on the hardware in the in in the trend is not going to make a difference.

Got it. And then just quickly on your 170 million cash balance. You know now that you have that Automotive piece divested, you know, I guess how comfortable would you guys feel going out and acquiring something? I mean office environment good for that and then just generally anything on your focus on use of cash as you would be great. Thanks. Sure. You have a good question. So, you know when we announced the sale of our business and I've said and I sort of bush told the same position as that, we're just happy to have a strong balance sheet at this point selling Automotive both strengthen our balance sheet, but allowed us to really focus on these two statements that we're now reporting again. And so that's that's been a big big part of of the driver for that the opportunities that are afforded to us with the strong balance sheet, you know isn't enables us to be opportunistic. We do feel we have any big missing parts that we need to go on from an m&a perspective to acquire but you know will stay will stay tied to what's going on in the marketplace, but no no present plans to wage.

Employee that Capital we'll just we'll we'll keep our balance sheet strength at this time.

Great. Thank you so much.

Sagat if you would like to ask a question, please press star the number one on your telephone keypad you our next question comes from the line of Paul Gruber from RBC Capital markets. Your line is open Monday. Thanks very much and good afternoon to focus on the growth in the services business. Yeah obviously is quite strong this quarter. I imagine a bulk of that. The like rolled is dead activity. Is that the case and could you speak about the relative growth rates of iot connectivity versus maybe Enterprise connectivity and and I guess there's also managed iot services or the bank to see the the Enterprise. Sorry the industrial applications. Yeah. Thanks Paul. Thanks for the question. So are we saw growth in Services across, you know, both of our new segments here. We saw a you know, a good growth in connectivity continued growth and number of connected devices. And so that was driving our services forward and then as we can log

Friday driving more gateways into the market and driving the the software connect to those devices driving the Enterprise side. So they said the majority of our activities in iot situations. And that's really where a lot of our alt aren't connected device winds occur. And as we continue to progress and drive sales of our gateways, which is a very strong Focus for us. I will continue to be able to attach more of our Solutions both are growing and you know that that's that's a a Ford Focus for us.

How do you you know, I appreciate your not giving me any look like the 2021 Outlook but the the 25% growth in Services. Should we expect that growth to be sustained accelerate, you know, you read the Outlook the long-term outlook on services. So how do we think about the the snowball on your bell car and how that would translate into Revenue growth wage? Yeah. I mean generally we've talked about our models it is it is something that people continue to accelerate and it's accumulation model of customers that if we want that we have one and as they deploy off into more of their devices we get the recurring Revenue into that continues to be additive and we talked about new design wins as those come into production and they start selling more devices those continue to add on off. So I reiterated that we're on track for hitting our $200 million recurring Revenue run rate by the middle of twenty twenty two and four hundred million by the middle of 2024 so you can see the acceleration there is dead.

More of those customers continue to deploy and we continue to win new customers with the deployment by so we will see faster growth on the connectivity. So I just because of the the mass of that whereas the young Enterprise recurring Revenue off of deployed gateways is is more of a linear attached to the Gateway with our with our device to Cloud module plus the couch as those continue to get sold into the marketplace. We get an additive added to the fact of the connectivity Revenue then just one last one for me. How do we think about the money Computing segment here? I mean you called out I guess the the design when losses in the past are you you know actively competing for design went to that segment. It's the same thing that you want to pursue going forward. Um, you know, or is it something that you just see is not strategic.

Yeah good.

So, you know previously there was some large volume deals called up before with Lenovo Wendell. And those are a Samsung, you know not I won't be a a reporting ailment going forward because because you know, we're not we're not comparing to other years cops with those in the numbers and that's not a segment that we are focused on moving forward with large-scale PC OEM business. It's it's quite a you know, rapid RFP cycle and with wins and losses and and they don't think High degree of differentiation it off. We have some smaller PC customers that have been longtime customers that we continue to support but where we continue to excel at is in overall should be into other um, um, high-speed Enterprise router type application company. So we've done very well historically there the company had some dead

Areas where they didn't have all of the design slots cuz of some product element as we brought 5G and we really one significant design slot one box lots that we with the company had foregone and previous cycles. And so, you know, where we'll continue to be highly engaged what we do in our modules for embedded Broadband is the same work same do you work we're doing in modules for other businesses. So it's very synergistic most of those Enterprise, um, uh, you know in bed and Broadband type of applications am likely to be able to drive connectivity cuz the nature it's it's sold by a provider like say Cisco and then Cisco cells onto an Enterprise the Enterprise makes their own connectivity decisions. So that's why we're able to bundle are attached into those sort of distribution Arrangements, but we're very glad to support our our customers in that space. And as I said, we've done very well with birth

Do design wins in that area and will continue to work on focus on it.

Thanks to my questions.

Thank you.

Your next question comes from the line of Todd coupon from CIBC. Your line is open. Yeah, good evening everyone. I had a I had a couple of questions and I'll just run through here. If we think about the the cash requirement in q1 twenty million more or less is what you called out how much of that would be roughly one-time in nature.

I'm saying yes. I'm doing talk to that.

Yeah, good question. So roughly about half of that would be one-time in nature going forward. We work our way through the supply chain issues. We've invested in increasing our capacity in the manufacturing site. However, we still may need to add some buffer stock as we sort of debt later in the year and the parts become available. But the restructuring costs in the adjustments related to the auto sale are for sure behind us at least the vast majority of that far behind us. So happy to report that off and just so I'm clear on your statement. Did you say the 50 million x number would go down three or four million in q1. Is it off over the course of twenty twenty-one?

I said I said two to three on the

The Fifty Point one would would go down to two three million heading into q1 but we the the only offset on that one is a little bit of engineering we work that we're having to do with related to again, the the supply chain tightness is causing us to rework new parts the product and solve problems on the go that's leaking to some additional cost. But again, I expect it to come down. I like I mentioned okay and is then is that more or less than absorb the restructuring and then it'll be the regular rhythm of the business for office after birth.

After that, you wanted we should still see some smaller decreases, you know, there's still a little bit of restructuring work happening in the quarter. But the vast majority is down as we work towards that one rate but going forward we're going to be very diligent with our Outbacks and ensure we're investing those dollars in the right area. So I hope that answers your question ma'am. Thank you very much. And then on the recurring Revenue piece 32.9 million up 25% I think is what you called out. What is the 12 months trailing number for that? I think I got it. I might I must have missed it. I was looking for it in the deck and I didn't see it.

Damn, do you have that to hand? Sorry. Can you repeat that question The trailing-twelve-month 20/20 recurring Revenue agent number was

for the for the whole year. Give me a second here.

The boat 118 top I don't have it. Yeah, it's it's 116. So the 118 number. Sorry for the small delay there the 118 number include about 2 million related to the auto business. So from continuing Ops, it's 1:16 to 11:16. So when you guys make the statement your you tracking nicely and with that growth rate of just that the one the one 16 compares to the 200 and the 400 that that that is that's the stated goals. Right? Well, I stated goals are great basis. So I wouldn't say necessarily that the 160 relates directly to that. But yeah, that's the trailing-twelve-month. Yeah, right. Yeah. So the way okay, I accept that. So the way you think about it is more to run rate of the fourth quarter and then how that progresses towards those two goals. So yeah. Yeah and cuz the early

Your question, you know 25% plus or minus depending on clothes rates and because of covet and sort of getting through all of this month. Is there is there any other dynamics that are sort of noteworthy here, you know beyond beyond COVID-19.

is like

If we were to think if you were to think about this versus your expectations, I don't know if you can strip away Cove it hard to do I suppose but you know, how is it how is it progressing versus expectations? If you if you could some qualitative commentary, let's say around that 32.6 million twenty-five percent increase in the fourth quarter.

Yeah, I think at a high level, you know, the strategies playing out as we were expecting and focused on on doing you know, we started talking about in 2018 then reported 93 million ballots are and then now this year a hundred forty million adults are and those are the design wins that that we've been driving into um, give them more complete solution team customers many of the new customers coming in the industrial iot side shipping their products to multiple countries. We simplify the whole time to Mark and deliver that connectivity aspect and and I defy the solution for them so faster time-to-market and good returned so that that you know, that part of our strategy has been playing out. There's been you know impacts of covert on how quickly some of those projects get approved or implemented but the general trend is there and I think the main thing is actually helped their General trend from the industrial companies that wage

We're working weather looking to digitize their assets. They want to be able to get a preventative maintenance and and other benefits from that. Um, one of the large customer another industrial IT company not the one mentioned here with sharing with us that they see a 25% increase in follow-on sales and a 20% reduction in cost to serve as they get their machines hooked up by a coyote so that they're getting the sensor data from the devices. They deploy so the business case is strong for industrial companies. And that's that's going to be a big macro Trend. We're going to see over, you know the years to come and walk, you know, I think that all industrial companies will have to have uh an iot strategy to be able to compete. So we're we're very well positioned. We're highly differentiated to serve that need as that industrial iot market and I think with the impacts of covet and people wanting to have things automated and not required to have as much of a human touch that that's going to accelerate things as we as we move forward so, you know dead

You know expecting this Market to be significant. It's playing out that way and and covet is just increasing the aptitude for industrial companies to want to connect their ass. Yeah. Okay. No, that's helpful. I don't know if you're going to provide this but is there any color you can comment on qualitatively around retention, you know our grocery tension churn net retention how that's you know, sort of expansion into the base. Once once you actually land a project. Yeah, once we deploy them a project we are we are generally there for the life of the asset and so the churn is very low once the customer is getting the iot from that device the only turn as if they no longer want that off data. We're not seeing that or that asset goes end of life. And then we're well-positioned for the design win the next Generation assets and they'll be shipping out there to replace it so dead.

You know it is it is at once we are deployed with customers and providing that device to Cloud. So we have the you know.

The Edge connectivity we're managing it through our device management are Sim management interfaces to the customer. We have our Global markets managing and making sure that those devices are always on the reporting data. It's very sticky last question for me. You know, I you know, we're obviously aware of the CEO lanciaux transition. Is there is there any sort of commentary or comments that can be made relative to you know, existing strategy and you know what sort of adjustments might be anticipate with uh with with the with the CEO transition any any any comments that can be made on that would be helpful. I appreciate it. Thanks very much. Yeah, sure Faith to talk to that. You know, I mean our board's really lined up with the with the overall strategy and so, you know, we're looking for the company to continue on this path and you know build build birth.

Our success as we move forward the ability to offer a complete device to Cloud solution is proving very important for winning business in the marketplace Thursday. We are well-differentiated and we you know look to scale both sides of our business iot solution to the Enterprise Solutions. So it's really about continued focus on that executions been a pretty big transformation over the last two years, you know from our products through the rebuilding what we do in our go-to-market side. And so that that heavy lifting is has been mostly complete and you know focused on Iraq continued execution into this large employ Market. Thanks a lot. I appreciate the call.

Yeah, thanks.

There are no further questions that you want to call back to management for closing remarks.

Well, thank you very much. Great set of questions today glad to to share our annual results with you and and look forward to to continued engagement. We may wish everyone best of health in these challenging times. I think there is some good light at the end of the tunnel with what's happening with vaccinations and and declining rates. We look forward to more faith getting back to normal and especially having a product Supply getting back to normal, but we'll continue to work that hard for, you know for our customers and for our results. So thank you very much every month. I have the good rest of your day. Cheers.

That concludes today's conference call you may now disconnect.

Dead dead dead.