Q2 2024 Semtech Corp Earnings Call

The officer.

Note that this conference is being recorded at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation I would now like to.

Turn the call over to Centex, Executive Vice President and Chief Financial Officer, and Mako Shaquille.

Thank you operator.

A press release announcing now.

I'll just add the results was issued after the market close today.

It is available on our website at <unk> Dot com.

Todays call will include forward looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements.

For a more detailed discussion of these risks and uncertainties. Please review the Safe Harbor statement included in today's press release and in the risk factors section of our most recent periodic reports filed with the Securities and Exchange Commission.

As a reminder comments made on today's call are current as of today only.

<unk> undertakes no obligation to update the information from this call should facts or circumstances change.

During this call auto for us is making financial results, although our net sales would have flowed to non-GAAP financial measures unless otherwise noted.

A discussion of why the management team of course, she does sauce.

non-GAAP financial measures useful along with detailed reconciliations of such non.

non-GAAP measure.

To the most comparable GAAP financial measures are included in today's press release.

Turning to Q2 of fiscal 2024.

The company delivered net sales of 200 I thought of yet.

$4 million in line with the midpoint of our guidance.

An increase of 1% sequentially and 14% year over year.

Yeah.

Gross margin of 49.6% earnings per share of your level of sense was above the high end up our guidance range.

In Q2 shipments into North America.

China, Europe , and the rest of award what represented 24%, 29%, 14% and 33% respectively.

The additional Sierra wireless has increased our geographic mix towards North America and Europe .

So to the red cells represented approximately 46% of net revenue and distribution represent that the remaining 64%.

In Q2 gross margin was 49, 6% a.

Above the guidance range driven by some one time.

Benefits.

For Q3, we expect gross margin to decrease by approximately 150 basis points sequentially at the midpoint of our guidance.

The favorable impact of how that makes up I see components revenue is offset by the onetime benefits in Q2 and lower absorption.

Due to the softer demand environment and just subsequent to lower absorption, whereas we expect our gross margins for the rest of it yet to remain around current levels.

In Q2 operating expenses was $86 million, 6% below the midpoint of the guide, yes due to full cost.

Cost reduction actions and additional synergies.

We expect these cost reduction actions and incremental synergies to drive Q3, op recognize spreads lower so between if you $1 million on $85 million.

In Q2 cash flow from operations was a $12 million use of cash.

Impacted by demand softness on interest expense on our debt.

Our cash flow from operations, we remain a challenge in Q3 due to a softer demand environment.

Our gross debt at the end of Q2 was $1 $4 billion or approximately five three times leverage on a net basis.

We expect our leverage levels to increase for the remainder of the year Ashwin that begets this softer demand environment.

We expect to be in compliance with financial covenants included in our debt agreements.

The Q2 weighted average cash interest rate was approximately 6.37%.

In summary, our financial performance continues to be impacted by macroeconomic headwinds.

Meanwhile, we are taking focused actually I was to realign our operations I'll Stuart Nevertheless, not only to manage the current headwinds, but also to position us for strong growth when the demand environment improves.

Now hand, the call over to Paul Thank.

Thank you America.

While our net sales for the second quarter met expectations I'm proud to note that our cost saving measures enabled us to surpass estimates on both gross margin and a P. S fronts, yet as we navigate today's economic climate, our Q3 outlook remains cautiously reserved reflecting elevated channel and customer inventories stem.

Seeing from previously optimistic projections.

We're intensifying our focus on cost control and operational enhancements and response.

I see component sales after an initial dip this fiscal year is now showing stability with a 16% sequential growth in net sales.

Further improvement is anticipated for the rest of the year and into the next due to customer design engagements being prime to boost consumption in the upcoming quarters, particularly in the infrastructure and consumer end markets.

Our Iot systems product group witnessed an 11% sequential decline, bringing the total to $119 million.

On a pro forma basis, while we have experienced a decline in demand for both module and router products modules revenue is presenting a particular challenge in the current quarter. However, we are seeing silver linings in the broadband module business horizon with legislative discussions, putting our low cost APAC competitors under the spotlight.

This presents us with an unexpected opportunity to expand our market share in.

And quarter pipeline engagements have significantly increased as a result, and we're gearing up to seize this window to our advantage.

Despite a minor drop in wireless radio enabled components sales Lora end node sales increased slightly.

Laura has potential for private networks, especially where power reach and mobility are crucial remained significant well Laura may not be a cellular infrastructure substitute its unmatched value proposition for specialized private networks remains and debated.

We're envisioning and more inclusive strategy to harness this vast potential, especially at the outer fringes of the Iot realm.

Q2, Iot connected services remained relatively consistent at $24 million, a 20% year over year growth was achieved from smart and enhanced carrier connectivity.

Given the relatively low attachment rates for our cloud services platform, we will be focusing on enhancing hardware revenue with a high margin software sales and a renewed focus for our Iot managed connectivity and cloud platforms.

The signal integrity products group grew 12% sequentially in Q2 quarter to $46 million cloud Hyperscale data center revenue was significantly up sequentially in the quarter benefiting from the momentum in AI driven applications.

<unk> sales were were driven by strong hundred gig 200 gig 400 gig data center in broadcast revenue Tri edge and fiber edge applications, all improved sequentially with a large U S hyperscale or placing initial orders for a 400 gig active optical cable application. These gains were offset by weaker 10 gig, China PON and <unk>.

Wireless infrastructure revenue.

Inventories remain high amidst improving although cyclically weak end market demand, China infrastructure demand, although stable remains muted our product portfolio and PON is well positioned and is poised to benefit when this market rebound and then in the upcoming quarters.

The advanced sensing and protection products group grew 35% sequentially, primarily driven by anticipated production.

Of new design and secured and smartphone applications, we are especially well positioned with new protection circuitry for North American smartphone vendor.

Proximity sensing or hour per se product was also up in the quarter ahead of anticipated regulations in China for specific absorption ratio limits starting in fiscal year 'twenty five.

Per se, it's still in the early innings of the design cycle, but the penetration in early ramp is encouraging we continue to make progress in diversifying our end markets for the advanced sensing and protection products group with approximately half of product revenue coming from industrial telecom and automotive applications.

For Q3, 2024, we project net sales between $190 million and $210 million non-GAAP earnings for Q2 are expected to range between minus nine cents and plus 22 cents per diluted share.

We're steadfast in our commitment to the synergy plan presented to investors earlier this year and aim to fulfill it ahead of schedule post my induction I launched a robust cost reduction initiatives, which along with other measures has decreased our app opex run rate by about $100 million compared to last year's combined entity pro forma.

Further refinements are on the horizon.

During my short tenure at some tech I've been immensely impressed by our team's dedication and talent are unique state of the art products create a competitive barrier setting us apart after extension extensive discussions with team members I'm optimistic about navigating current market challenges. The tech industry is seeing fluctuations due to pandemic driven demand.

But the need for electronic advancements remains robust at syntex, our vision is clear enable a smarter more connected planet our focus for the upcoming months will be to execute this vision I'll now turn it over to the operator for Q&A.

Yeah.

Thank you.

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One moment, please while we poll for questions.

Thank you. Our first question comes from Craig Ellis with B Riley Securities. Please proceed with your question.

[laughter].

Hello, Craig.

Oh I'm sorry.

I think we have to take everybody off mute.

One moment.

Thank you. Our first question is from Quinn Bolton with Needham and company. Please proceed with your question.

Hey, guys. Thanks for taking my question Paul welcome to send a check I guess first question, obviously guidance coming in I think much below expectations on a revenue basis.

The semiconductor business has already been hit pretty hard by the combination of weak demand in market inventory polymeric can you give us some sense for for the October guide it at 200 million.

The semiconductor business flat down or up and you know where do you see this year wireless contribution.

And in and in the October quarter. It it looks like it's got to be well below 100 million. If if the semiconductor business is I think you indicated in the script might be flat trended higher in the back half of the fiscal year.

Yes. Thank you for the question Colin I think you know for the most part we definitely see a bot a seen a bottoming out of semiconductors that happened fairly early.

Early in the cycle.

And of late I think we've seen it a little bit of a pullback in hardware routers as is off in terms of end market demand and when I say end market demand I'm really looking at P. O S numbers, so it's off slightly.

But modules has substantially pulled back the you know the mix between those routers has it tends to be heavy channel dependent those inventories are not too terribly out of out of whack given the pullback.

But modules is largely a direct business and we've seen.

You know at least some indicator from our direct customers that they're sitting on some substantial inventories are over the next several quarters. So I've seen the hardware business pulled back semiconductors, Conversely is doing fairly well skipping along the bottom.

Perhaps we're beyond the dead cat bounce that one looks forward to resume a kind of a normal rate and and then I'd say from the most part going forward we'd expect.

Great. Thanks, Thanks for that color and then a follow up question.

Paul.

Referenced sort of having already reduced the opex run rate.

With synergies and other actions by $100 million, you guided opex and in Q3 to a level of $81 million to $85 million is is that the right baseline to think you know in model going forward do you think you can bring non-GAAP opex, even lower and how long will you hold opex.

It kind of that baseline level.

Before you start to increase Opex.

So that's the way it's a good question you know I wouldn't necessarily look at the current quarter as a baseline we're going to have some ebbs and flows in that number in terms of R&D projects.

Pull back on R&D projects in previous quarters, those are coming into fruition, now, which kind of a if you read between the lines. There. It says our baselines, perhaps a little bit better than what were currently showing.

In terms of how good can it be I think the you know the way I kind of look at it and the way. The team is looking at as to say alright, everybody kind of bloated expense during the Covid cycles. So if we go back you know imagine a run rate business that was pre COVID-19 a look at those opex levels, where the company used.

Used to be at we should be able to easily get back there. So I think that there's a without giving an absolute number there's improvements to be made.

The first tranche is I don't want to say easy because you know it's it's a it's always difficult to make those those changes are the decision, making is perhaps a little bit easier the second tranche needs to be a bit more thoughtful going forward and so when you I need to spend some more time discovering them.

At the end.

The workings of the organization and how it can be optimized and expect that to be continual improvement on a go forward basis, but I do believe that there is more efficiency for this this company to to garner.

Great. Thank you I'll get back in queue.

Thank you.

Next question comes from the line of Craig Ellis with B Riley Securities. Please proceed with your question.

Thanks for taking the question and trying again, Paul welcome to the call.

I wanted to start Paul with the.

An intermediate term question for you. Since this is your first call can you just take a step back in and look out over the next six to 12 months in and just frame up what are your priorities are as you come into the role and start to interact with the street and look at the initial phase opt.

<unk> you can make with the <unk> Tec business.

That is a great question I think Ed you know when you.

You come into a company you'd like to be afforded the opportunity to learn and really go through a proper discovery purpose or.

Our process and I think you know we.

Uh huh.

You know the current state of the economy. This current state of the company has necessitated a hey, we're going to have to walk and chew gum at the same time come.

Coming in and enacting some cuts I will say.

You know my priorities are a little bit split and I believe.

That's not us, it's really kind of a twofold approach needs to be done in parallel where we kind of look at how can we structure the company for its most efficient profitability.

Profitability model given the current make.

Makings projects products.

And and then and then the various go to market along with assessing what we're really good at the beachheads in technology that we have and putting together good strategic plan for our long term vision and long term operating model I think our we're making nice progress on making nice progress along those fronts.

You know I would say of late it seems like I spend a good portion of my day on the tyranny of the urgent.

And affection of term, but still we have a good team here as soon as we identify something I'm able to delegate and continued to kind of think a little bit longer term. So.

Short term get us back to final financial health and on the intermediate constructed plan for long term operating model envision that that works and will drive shareholder value.

That's real helpful. Thank you and then I'll follow up with the Mac on a couple of clarification. So in Mecca can you just help us understand how we compare the prior 50 million.

Sure related synergies target with the 100 million.

Expense reduction that Paul just mentioned and then.

With respect to the gross margin color what are the biggest changes that have occurred from where we were expecting 100 to 150 basis points of expansion through the year to flattish from here. Thank you.

Hi, Craig.

So with regard to synergies I think the last time I debit number for the synergies as I said it was about $15 million that we would have expected I think we're doing a little bit better than that now I don't have an exact number but we're doing a little bit better than that and then in addition to some of the other actions that Paul.

Already taken it when the company that is.

How we're getting to a $100 million in.

Dr Shaw from our pro forma.

<unk>.

With regards to gross margin, it's actually very simple.

The benefits of that.

It's off a higher mix of the IC component revenues that is a good for gross margin. However, when.

When the guidance was initially discourse.

Craig the expectation was that the revenue levels will be much higher and we will be able to improve the utilization of our manufacturing.

Business yourself stuff like that so right now we have a lot of fixed manufacturing overhead that are we're not able to absorb them that if they are that is the primary reason for coming off of that previously our expectation that was set for about 800 are hungry to have about 15 basis points.

Gross margin improvement.

That's helpful. If I could just sneak one more in for Paul Paul You commented in your prepared remarks about the strength and signal integrity and it looked like it was within data center can you just talk about the visibility you have to that strengthened and what some of the specific program driver sorry for that thanks guys.

And so we've got quite a bit of visibility there. It's I will say, though it's a bit more difficult to plan for those particular customers because when they are ready to go they turn on a dime.

And it's it's a it's also the kind of thing that we don't have a ton of channel inventory that's out there waiting to be consumed either so.

It's a we're cognizant of it it's very much a hands on process, where we're running proof of concepts are understanding that the programs that are coming in staging them getting ready for when the orders dropped down in terms of planning that in a particular quarter is a bit more difficult. So.

I think we have a good sense that its going to becoming a bit more of a relevant figure for us over the next several quarters, but exactly which quarter, it's a little bit more difficult for me to determine.

Thanks, guys.

Thank you. Our next question comes from Anthony Stoss with Craig Hallum.

Please proceed with your question.

Hey, Paul.

To put a finer point on what.

Colin was asking on Opex. So there was some.

I guess, one time things that elevated the Opex should we think about opex coming down a couple million dollars each quarter sequentially and at what point do you think your goal of getting to $100 million cost taken on in total will be done in which quarter and I have a couple of follow ups.

So I don't think I said, a couple of hundred million dollars.

But I think we're on a run rate basis were $100 million off I think we can improve that I wont put a number on it at this juncture in terms of the rate of falloff.

Don't expect it to be.

Significant windfall chunks that happened, but we will be looking to execute as quickly as possible.

And I'll say through Q1 is the current plan to have most of those operational efficiencies in place after that it would be continual improvement that we would look to the next so trying to give you a little bit of a timeline or avoid putting an exact number on it until I have a good feel for what that budgeting exercise is.

Got it and then at what point are you going to reach a determination what assets you may want to keep either from Sierra or simply because you're getting closer to that.

I think if I look at.

First of all right now every asset that's a that's a positive contribution as an asset to keep at this juncture.

Unless I can hit certain clearance ratios associated with those assets and that really kind of comes down to.

The short term exercise if you ask me long term do I need.

Certain assets I've already made a determination what is strategic in my mind and critical for our future.

Other than that we don't.

We need certain assets in order to get that job done for the long term vision of where we'd like to go I'd.

I'd like to spend a little bit more time on that plan, but I have a good sense of which assets I can divest and it just comes down to whether or not I can reach those clearance ratios, having said that I really don't think this is a conducive environment to doing a deal or running a process.

So I my my my goal.

And my determination at this point is to be is to get the company to a point, where we are not forced to do a divestiture, but we can do that if it strategically makes sense.

I think of it more as a long term principal pay down.

Got it and last question just your comments related to the FCC coming out last week, highlighting the Chinese module makers and you said your pipeline is increasing.

This has been discussed with the Commerce Department and other agencies for almost two years, what's giving you confidence now that they actually might do something.

Yeah, we saw a significant boost in the pipeline and I think it's to the point where.

You know I'll quote one customer are they don't believe that that it's necessarily an issue of risk, but they just don't feel like they can fight the politics anymore. So.

If we kind of look at it from that standpoint, I think we are if I can offer this.

You know better quality better security.

Maybe a slight premium to the cost that they are currently playing paying for low cost APAC counterpart.

I don't know why somebody wouldn't come my way because.

We're certainly going to solve that problem. We also have the ability to put in place TAA compliant.

<unk>, if that becomes a requirement as well so it really kind of comes down to from an infrastructure or critical industrial applications, we will be the guy to beat and we're going to make sure that we're the guys can be.

Alright, Thanks, Paul.

Okay.

Thank you.

Our next question comes from harsh Kumar with Piper Sandler. Please proceed with your question.

Hi, Thank you Paul Congratulations on your first earnings here at <unk>.

Well, what you've got here is you've got two companies a couple of different product lines and as an analyst I'm trying to understand what is sometimes what is Sierra wireless and I was wondering if just somehow from Jacobs simplicity, you would be willing to give us.

How much is core cemetery revenues and how much is core Sierra Sierra wireless that reason within Sierra wireless if you don't mind breaking out of routers versus modules, because you called out I think.

You said the routers were off slightly and margins were down quite a bit I was wondering if you could help us level set.

Some parts and pieces. So we can we can be better at modeling.

Yeah, and so if we look my commentary was on modules versus router was in the current quarter. So I'm kind of projecting a little bit really kind of talking about the guidance here.

You got routers I'm going to give you some rough percentages. So don't expect us to reconcile to the to the dollar, but essentially you've got a $300 million of module business, you've got $100 million connectivity and $100 million of routers I'm I'm really over simplifying.

The actual buckets and allocations, but routers pulled back approximately 30% to 35% or so but modules is substantially off.

In the going forward quarter, I don't expect that to.

To sustain at those levels I expect that inventory.

To be consumed it is a business, where you end up placing a purchase order for a chipset manufacturer. So.

So any any acquisition of those chipsets really need to make sure that the modules follow through and so a lot of those orders tend to be in CNR. So you can kind of see how we had a bit of a pile up.

Even at the end customers, even though modules is largely direct about 80% direct business. So good visibility into those customers good visibility into demand I'd say that their consumption their end market demand is off a little bit.

But it really does come down to the ordering patterns that are kind of made this happen.

Thank you Paul that was Super helpful. And then the other one that a lot of our customers our clients our investors are asking us.

They truly believe in and I think youre, saying its pretty much that subject is off the ground and kind of our or let's just say having along the bottom.

Looking a little bit brighter, but.

But customers really want to understand maybe simplistically, but how many how many more months or quarters or weeks of excess inventory exist. There before we maybe start to see similar positive trends at Sierra wireless would you be willing us willing to shed some color I'm not sure.

I would definitely take a kind of an end demand or consumption look at the business and I've been going through that pretty exhaustively at least on the IC side. We've got really good data that exists in our analytics systems here and so I can say confidently that at this juncture, we've got a couple of quarters.

Underneath us where that end market consumption has stabilized and in fact, we're starting to see some upticks I'll say the possibility exists for some Q4 upsides, although we're not currently putting it in and the forecasts and so it does feel like.

We've been skipping along the bottom here at.

At least for the semiconductor business and hardware I think it's a bit of a couple of different factors.

It's it's search cycle kind of happened in <unk>.

Alongside semiconductors, but due to supply chain and cycle times, you can get a little bit of a pile up or later effect that whipsaw effect is coming in a little bit later stage, but for the most part I still.

I still have a high degree of confidence in the overall health of the business Theres not one piece of business here that I can note that.

Is going to terminate early or accelerate.

End of life and so it's.

It's merely a product as you noted of just kind of consuming channel inventories and and then focusing our go to market sales efforts and making sure that we're not leaving any stone unturned. So in terms of how many quarters of inventory I have largely believed that we were not going to spring back I'm not quoting a V shaped recovery where.

We're going to spring back to previous levels I think those were largely overstated.

True all good orders, but customers were extremely optimistic they were just they were telling the truth they will just wrong.

In terms of how much product they needed. So I kind of think in terms of a bit of a U shaped recovery, how it's going to play out in the results and I still think mid next year.

Recovery cycle for us.

Would largely be in line of channel inventory drawdown along with.

A a methodical pickup in Pos.

Baxter moderate levels.

Can I sneak in just one last one do you think things get worse from the guidance that you gave up roughly call. It $200 million do you think we go take another step down or do you think we're chopping at the bottom.

Total business.

I believe it's at the bottom.

Okay. Thank you. Thanks, so much Paul.

Yeah.

Thank you. Our next question comes from tore Svanberg with Stifel. Please proceed with your question.

Yes. Thank you welcome Paul and me.

I assume this is your last call. So thank you for all the interactions over the years.

My first question for you Paul.

So it sounds like Youre, finding a bottom.

But assuming that we kind of stay here for a while at what point would you have to take some <unk>.

Actions as far as the balance sheet is concerned because youre five three times levered that number is only going to go up next quarter or so.

At what point what are some of the things that you're looking for it to take some more drastic actions.

Well the first step is the size of the business.

According to what end market consumption is I don't want to get into the point, where I cut too deep into R&D and limit our ability to grow in the future. So philosophically.

Speaking, we're kind of looking at all support functions.

And trying to optimize the organization I will say from that standpoint, I do think that there was a lot of optimization to be had so spending levels didn't need to be.

At the levels that they were in the combined entities in order to support the businesses that they have so I.

I do think that there is some improvements there to be made and I think that will be in fairly good shape.

I think that exercise you know given the fact that.

The capital markets or not.

Not really conducive to doing a divestiture, although we're not opposed to that all cards are on the table and addressing the balance sheet.

I am really resigned to making sure that we get there on our own organically and and can develop a plan that drives 12 to 18 months of a fair of confidence in the model to drive those those covenants and I think that we've got that developed anything on top of that would be additional.

An improvement in the current outlook, but I think that we're going to be in good shape at least for the next 12 to 18 months, if we get a recovery mid.

Mid next year and this is what's in the model then I think it's all improvement from there so trying to take a take a fairly conservative look.

In terms of recovery expectation I'm not banking on the market going up I'm going to make sure that we size the business accordingly.

The size of the spend for the business that we have and then as the market picks up I think it will be in a much better position because it will be upside from that standpoint.

Yes, that's fair.

Really helpful.

And as my follow up in America on gross margin.

The mix and sort of the fixed cost absorption makes sense, but.

At what level.

Would the semiconductor gross margin start to improve a little bit more materially because you talked about some fixed cost absorption that at current levels, you're not really able to overcome so.

What does the semiconductor business have to be in order to see more step function improvements in gross margin because obviously the mix is.

Overall, there is moving in the right direction right, but I'm just trying to understand the fixed cost absorption part of it.

So.

Sorry.

First of all thank you for your.

For your kind words I really enjoyed.

Working with the book to you.

So side analyst.

Through the years.

Hopefully our past cycle across it off somewhere else in the future.

With regards to your question I think.

We would expect that to see.

The gross margin for the semiconductor business as we see maybe a change if someone it makes you know im increase.

10 gig PON, which is pretty high.

Higher gross margins for us.

Some recoveries in the Lora business from the current levels. The Lora business is suffering a bit from on high.

High levels of inventory in the channel at this point.

We continue to see a mix of it.

It <unk>.

Industrial and automotive revenues for advanced protection.

System. So it is all it is a combination of the mix of further news in addition to higher levels of revenues for the year for the semiconductor business, what I think are.

Like Paul said, we have seen definitely very good signs that is semiconductor business looks like.

It is poised to start going back up so I would expect that as we go forward to start seeing some higher levels of gross margin as well.

Got it so it sounds like for at least the October quarter. This will be a higher sort of revenue mix in consumer, especially with some of your smartphone design wins and things like that but then beyond that.

You could start to see Paul on the Lora and other.

Contributions, yes exactly.

You got that correct and then just with overall higher level of sulfur.

Revenue is actually driving the need for more inventory abuse and stuff will start driving absorptions higher so and consequently, I assume its not the gross margins will start to pick up again.

That's very helpful. Thank you again.

Okay.

Thank you. Our next question comes from the line of Scott Searle with Roth and Kim. Please proceed with your question.

Hey, good afternoon. Thanks for taking my questions. Paul Congrats on your first quarter nice nice job on the cost front and our Mega want to wish you all the best in your future endeavors. So it's been a pleasure working with you.

Thank you.

Maybe to just dive in on the compliance front quickly Paul and Mike.

You've done a lot on the cost side of the equation, we're taking a step down on the top line can you get back into compliance without a major recovery on the top line or Theres. Some other it sounds like theres. Some other additional opex levers to pull <unk> and ability to get some flexibility on the debt covenant, so I'd kind of like to understand the thought process on the strategy beyond the initial quarter.

As we get into fiscal 'twenty five.

So I think the answer to that Scott is yes.

For the next 12 to 18 months and.

Obviously as that leverage ratio cap continues to step down we will need some recovery in the business beyond a year and a half or so into FY 'twenty six.

But the way I kind of look at it as we took immediate actions for compliance for the covenants.

Buying ourselves some buffer.

In that regard and then we need to continue to optimize cash generation in order to service the debt and then it becomes about principal pay down.

So this is really kind of a two year haul, but in the short term I don't see an issue.

With Covenant compliance I think we've got enough tools and tool bag to make sure that that continues to happen we.

We do need some recovery, if we're going to hold onto this debt over the long term and continue to service it and pay it down and principal through its term.

I think you know.

Longer longer out with a market recovery, we got a little bit more options under our belt in terms of divestiture.

And the like and.

Perhaps refinancing as well it's going to be this is going to be a bit more of a longer story, but in the short term I think we've secured ourselves a 12 to 18 months.

Perfect very helpful and if I could I guess kind of a multipart question following up on some earlier questions.

From a revenue standpoint, a couple of the product lines that are that are seeing some headwinds routers were down in the current quarter modules are looking to take that step down and normalize from an inventory standpoint, I'm wondering on both fronts. There. When do you see router is starting to recover are you seeing that supply demand balance come back in and then with module.

It sounds like you've got some other potential upside opportunities with Chinese Oems not being welcomed in the U S and starting to see that in your order book now so I'm kind of wondering what's you're factoring in on that front and lastly, I think lower took a big step down in the quarter I am wondering how long you see it at these levels before starting to cover recover and.

Then kind of put them altogether.

What is the normalized level of sales that we should be thinking about 12 months from now.

The combined companies, who would go back 12 months ago was around $400 million, obviously below that obviously, not a normalized environment, but what's kind of the number that we shouldn't be thinking about as the world starts to recover.

So Scott I just have to ask a clarification question. So were you, saying routers modules and Laura together those revenue levels are you talking about the whole.

The whole the whole.

Okay.

Alright, So I guess I don't have an answer for you.

On the whole quite yet, but I would say if I looked at demand and try to anticipate.

A moderate recovery, let's say back to normal levels I can kind of it's pretty easy to go look at over the Covid cycle see the rush of demand and then try to draw a line through that I think we've got some businesses that have historically grown at specific CAGR over the last decade, so it's pretty easy to draw.

A line through those and say this is what it should be independent of cycles.

But I'd say, we're still probably north of $1 billion I'm attempting to put a number on it but I'm going to admit that I haven't.

Exhausted and really looked at every single product line, but that's kind of where I would couch. It for the time being on a combined basis in terms of riders when does it recover.

I think that this is temporary.

Routers did not see that big of a blip.

No big of a ramp up during the Covid cycle, there was a little bit of increased demand.

During the frothy by buying cycle, but not extreme not like we saw with modules modules is a little bit more problematic because you had some <unk>.

Cut overs, and you had a bit of a panic that ensued in terms of modules and so there was a lot of double ordering out there and that's why we are a bit more of a.

Inventory pile up so modules is going to take us a little bit longer to work through having said that.

Still like the fact that we've got you know.

A couple $100 million, let's say over a couple of hundred million pipeline increase.

This quarter due to just the.

The legislative discussions that are going on in terms of.

Who goes on the exclusion.

Entity exclusion lists so to me that's a nice opportunity it really does equal market share gain and it could result in a significant drawdown of inventory in North America and EMEA as we gained market share. So that's.

That's kind of an optimistic view of the world, we're going to attempt to go out there and capture those sockets as best we can and then I think routers in terms of those fire safety applications.

Rolled out a couple of new platforms new products. The uptick is the uptake is pretty good.

But there was a lot of a lot of buying by the channel during last year and up until the close of the acquisition, So I'd say that.

Youre going to see a slow drawdown, although Pos never really.

<unk> had a huge significant.

<unk> and its not really.

Falling off nearly as quickly as the rest I think I covered all your questions. There was a lot in there, but hopefully I got it.

Great. Thank you.

Okay.

Thank you. Our next question comes from Christopher Roland with Susquehanna. Please proceed with your question.

Hey, guys. Thanks for the question. Thanks, a Mecca for all the conversations over the years.

And welcome Paul.

Or I guess.

All right great.

I guess, maybe following on on kind of Quinn and harsh is line of questioning here.

In terms of the Sierra business, what did you kind of put it in the combined 85 million dollar range for next quarter.

And I did notice there was some three Q seasonality for that business traditionally before you guys owned it I was wondering if that was coming into play here and that could help us into the January quarter for you guys.

But beyond that.

Signal integrity and protection and sensing we should think about both of those being up in October as well. Thank.

Thank you.

Yes, I think Thats correct.

When you say the Sierra business, we're kind of we're breaking them out into in terms of connectivity I just wanted to be really clear connectivity is still.

Pretty strong that's $100 million business that just clips along and we'll slowly continue to gain market share. Good gross margin business as well that came with the Sierra wireless acquisition, but that connectivity business is pretty solid independent of the hardware revenue that has fallen off that $85 million.

Might be a little bit light, but it'll see a pullback and then I would expect routers to kind of rebound.

Going forward and then.

And then modules depending on how well we do with the current opportunity in front of US we can maybe see a little bit of upside that over the next couple of quarters as things get called then typically there is a certification cycle that's associated with designing an embedded module. So there is.

There is an activity or a time associated with that but it shouldn't go too terribly wrong I typically would handicap it at around 60 to 90 days or so.

Excellent.

And Paul.

When do you think we could get a new long term model for the company overall.

And what would be kind of a platform for doing that would you would you do that on a quarterly call would you put on analyst day together.

And yet the timeframe on any update would be would be great as well.

Yeah, that's a great question.

Certainly it would be very reasonable to have that in a 12 month timeframe.

And perhaps before but I think we would target at the analyst day 12 months to 18 months out.

And just kind of give a broad overview of.

And invigorated strategy, if not <unk>.

New strategy at that point, and then we'd lay up of long term targets at that point as well.

Thank you and maybe just one last one you guys typically give turns needed in the guy to make the guide that that would be great. And then lastly would we ever expect any lora metrics again or is that a thing of the past.

The turns metric.

That was above 50% for the quarter, yes. It turns the turns needed in the quarter is just over 50%.

I'll be honest I'm not a huge fan of giving turns because it's not indicative of.

Very quickly ramping revenue.

So it can cause you to draw some misconceptions or wrong conclusions about the directionality of the business, but at this point were approximately 50% terms.

Create and Lora metrics.

So Chris and a 50% was at the beginning of the call.

Not at this not yes, sorry at the beginning of the quarter.

Yes understood.

And Laura.

I'm sorry, what was your question on Lora.

You used to give a ton of lora metrics, and and and I think that stopped since the combination of Sierra.

You used to give lora related revenue revenue guidance operators gateways pipeline lead a ton of information.

Is that is that ever going to come back.

I don't.

So I don't anticipate it coming back by itself I think you know.

I'm happy to give you the that Laura is approximately $100 million business every year.

We're going to be shifting the focus.

<unk>.

Two more of an IND and node.

In connected node.

Focus from and then also what pieces are necessary in order to enable that that use and rollout of private networks I think adoption of lora at the last mile of Iot edge.

Some people don't like the the label last mile, but let's call. It the fringe it definitely has value proposition there it definitely makes sense.

The totality of what has been called Lora inclusive in that has been infrastructure. It's been helium. It's been a number of things that at this point I, just don't believe a viable and.

It's not something that I want it out so if you could give me a couple of quarters.

Two.

Better define what that lower rollout strategy is going to be.

Or that wireless strategy is going to be.

We will be happy to.

<unk> talked to it in future quarters.

Thanks, So much Paul and good luck.

And I really appreciate.

You've taken the helm here.

Thank you Sir.

Yes.

Thank you. Our next question comes from Cody Acree with the Benchmark Company. Please proceed with your question.

Thanks, Paul and welcome and.

Thank you for all the help over the years has been very much appreciate it Paul.

Paul If you could just take a step back at the.

Sierra Wireless acquisition and can you just give us your high level view of the strategic fit of the companies as you see them today.

Yeah.

Yes, Thank you Cody.

I'm smiling because you asked a difficult question to answer but.

I'll give it my best so at this point I will say.

The investment thesis.

For the acquisition.

Still holds true today, if we if we look at it and we say okay.

We have a unique radio technology in Laura and I would further refine that to say a sub gigahertz low power.

Low bandwidth far reaching.

Protocol.

Where can that best be used and how do we how do we create a platform or an ecosystem that makes it very easy to adopt and rollout that is the operative question.

And so if you look at what would be required in that in that implementation that ease of use implementation you would obviously need lora chips on connected endpoints of which we do have and sell today.

You would need.

Configuration software.

You would need device management system software, you would need traffic routing software that would sit on a gateway or router.

Through some other backhaul cellular or otherwise so from that standpoint, you can connect those dots you would also need a cloud platform to enable that configuration.

Need a snap or coupon eddies.

On a router.

Gateway sitting on the edge and then that would feed into a cloud and then you would that would allow you to provide.

API hooks into customer software or provide individuals.

Insights for those connected devices on that edge. So all of those components exists and the acquisition now the question was.

It would naturally be is the acquisition necessary to fulfill that vision and the answer to that is no. You can go off and develop it on your own but certainly helps to have all these pieces together. So now that we have those pieces, how do we best pull those pieces together for an ease of use play in Iot.

And that is something that we're going to have to think really hard about.

It's not enough to have the individual pieces, it's the orchestration of the coordination between those pieces and the end market in order to make that a reality. So we're going to be spending some time on that that vision re imagine what it takes to get there.

Independent of whether or not we need assets strategic assets or not and we will work on an execution plan. So I've got a few ideas on that <unk> got some of our bright minds working on that as well and we'll be rolling that out over the next couple of quarters.

Do you think Paul that there is a strategic.

Applications fit with your customer base. That's that is obvious that that may have not been as with the initial acquisition.

Okay.

I do there is it really kind of comes down to use case.

We say application but.

I'd say it comes down to use case.

Have one particular customer.

Theres two rfps out there that are requesting the use of lora and they like the aspects of Lora.

It's been a bit of a more complicated program in terms of installation and rollout that would include both cellular modules and routers and software.

And so there is a strategic application.

Or strategic fit with certain customer use cases, and I can give you. One example, we've got a customer that was doing an installation for a field of tanks and they want to be able to monitor each tank rather than putting a cellular router at each tank.

<unk> two devices that are pulling in telemetry pressure temperature.

Capacity and the depth of whatever those fluids are they would rather have one cellular router and that to have be connected to a bunch of sensors across the field that would represent that field.

The entire tank field.

And it would be a much.

A lower cost of installation and lower capex requirement and it would make that installation fairly easy in terms of configuring devices that are pretty belabor is right now so.

If you look at it yes, it does fit really nicely with where the market wants to go but there are some pieces missing in terms of making it a reality and that's what we have to focus on.

Okay. Thanks, Paul Thanks for the help.

Okay.

Thank you.

Our next question comes from harsh Kumar with Piper Sandler. Please proceed with your question.

Yeah, Hey, Paul. The example, you just described actually fits perfectly for smart meters.

And I was curious if you've received any interest from.

And he kind of utility companies for us similar deployments, because I think it but simplify smart.

Smart meter installations in small cities extremely well.

It would also lower the cost and maintenance of those smart meters. So if you just look at power consumption.

PWA as opposed to Laura if you just look at bandwidth requirements and you could argue that bandwidth.

Costs are fairly low.

On <unk>, but they are essentially free when you go to Laura So I do think.

I'm, saying private networks, but that doesn't mean that it can't be a Roger a rather large private network, that's rolled out by a utility or municipality as well. So I think lora is a perfect fit in those areas.

And I.

I guess from our standpoint, we would be able to support both applications there might be some applications where they need.

And L. PWA solution, we're happy to accommodate those but we can also accommodate a lora based solution.

Solution as well.

Understood. Thank you so much.

Yeah.

Thank you.

There are no further questions at this time I would like to turn the floor back over to Paul Pickle for closing comments.

Alright, well. Thank you guys for joining us today. Thank you for taking it easy on me for my first time around and look forward to talking to you in the future. Thank you very much.

Thank you.

Concludes today's teleconference. You may disconnect your lines at this time, thank you for your participation.

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Sure.

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