Sierra Wireless, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Sierra Wireless Incorporated's fourth quarter 2020 conference column webcast. At this time, all participants are in a listen-only mode. 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 star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, David Kleine, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thanks, and good afternoon, everybody. Thank you for joining today's conference call and webcast. On the call today are Ken Thexton, President and CEO, and Sam Cochran, our CFO. As a reminder, today's presentation is being webcast and will be available on our website following the call. Today's agenda is as follows. Ken will provide his corporate update, and Sam will provide a detailed review of our Q4 and year-end 2020 results followed by Q&A. Before we get started, I will reference the company's cautionary note regarding forward-looking statements. A summary of our cautionary note can be found on page two of the webcast and is now being displayed. Today's presentation contains certain statements and information that are not based on historical facts and constitute forward-looking statements within the meaning of securities laws. These statements include our strategy, goals, objectives, expectations and commentary regarding the outlook for our business. Our forward-looking statements are based on a number of material assumptions, including those listed on page two of the webcast 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 relate 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. I draw your attention to a longer discussion of our risk factors in our AIF and management's discussion and analysis, which can be found on CDAR 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 Kent 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 2020. We will be discussing our continuing operations on today's call with the automotive 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. Sam will review this in more detail in a summary of the fourth quarter results and balance sheet. So let's turn to some of the highlights in Q4. Total revenue in the fourth quarter was $120.5 million, up sequentially 6.3% 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. Q4 recurring and other service revenue was $32.6 million, up 25.1% year-over-year, and up 9.4% sequentially, as our continued focus on IoT solutions is showing improving results. Looking at service wins in Q4, as measured by LTAR, or long-term annual recurring revenue, we achieved record LTAR wins, totaling 46.3 million, up 40% sequentially. For full year 2020, we secured 140 million in LTAR wins, an increase of 54% compared to 2019. This result shows the success of our transformation efforts to win in the market with bundled solutions, delivering faster time to market for our customers and sticky high margin recurring revenue for Sierra Wireless. In Q4, our global sales team continued to secure IoT 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 US-based designer and manufacturer of gateway systems for the commercial and residential markets. 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 used in apartment buildings and on campuses. We are providing them with a device to cloud solution using our ready to connect embedded modules that is bundled with the connectivity services package. The hardware value of this design win with this global leader is expected to be $1.4 million, and the service's LTAR is expected to be approximately $700,000. Another new customer we signed up in Q4 is a global power systems company focused on improving the efficiencies of electrical motors for the industrial energy market. This customer is gathering real-time data, 24 by 7, from their machines so that they could monitor their equipment, improve system performance, and provide preventative maintenance. The solution required a single vendor with an end-to-end solution. So we're providing our LX40 gateway, cloud platform, and global connectivity service. The LTAR associated with this design win 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 win that we signed with the help of Microsoft and a good example of our partnership work with both Microsoft and Azure. The customer, who came to us through the Azure IoT team, is a global industrial company that is looking to monitor its assets 24 by 7 for predictive maintenance services. The initial project includes our Octave Data Orchestration software solution with deployment to about 10,000 industrial assets and scaling to significantly more devices and recurring revenue in time. We see the industrial IoT sector really picking up, and we are pleased to partner with Microsoft on securing this design win and working our strong industrial IoT pipeline together. Now let's quickly look at some company highlights in 2020. Recurring and other service revenue increased 18% year-over-year in 2020, and we ended the year with more than 4 million connected devices. The acquisition of MDEM in Australia has been successful, and our recurring revenue is growing strongly in the ANZ markets. Globally, our focus on selling solutions and growing recurring and other services revenue has made great progress. and we are winning in the competitive market. I'm very pleased with the 140 million in LTAR that was generated last year, on top of the 91 million in LTAR from the previous year. This sets up the company well, as we remain very focused on our targets of achieving 200 million run rates of recurring and other services by the end of Q2 2022, and 400 million by the end of Q2 2024. 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 MG90 router was recently certified on T-Mobile's U.S. network and will be launching soon. Our global sales teams have secured numerous design wins for 5G modules last year with key long-term enterprise customers. I'm very excited about the growth path for 5G low-latency applications in areas including enterprise networking, public transit, asset monitoring, healthcare, and public safety. I'm also pleased that we strengthened our executive management team in 2020 by hiring Sam Cochran, Steve Harmon, our senior vice president of Americas, and most recently James Armstrong, who is now running our enterprise solutions business as senior vice president. James has great experience from Spirit Communications and a strong wireless experience with a PhD in electrical engineering from Purdue. So we're glad to have him on the team as well. Before I turn the call over to Sam, I would like to point out that starting in the first quarter of 2021, we'll be moving to two 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 colors of growth. One focused on IoT solutions and the other focused on enterprise solutions. The enterprise solutions reporting segment will include AirLink, cellular routers and gateways, our IoT applications business for monitoring and asset tracking, and our enterprise connectivity solutions and software. Together, this segment generated $142 million in revenue in 2020, with gross margins of 50.5%. We doubled our enterprise pipeline in 2020, and we are well positioned for growth in this attractive and growing market. The IoT solutions reporting segment will include our portfolio of cellular modules, from LPWA through to our high-speed embedded 5G broadband modules, as well as our IoT connectivity solutions, services, and software. This segment generated $307 million in 2020, and we are highly differentiated with our complete device-to-cloud offering. The total addressable market for IoT solutions is $10 to $20 billion, and we are seeing success with the industrial IoT market as industrial leaders start to connect and digitize their machines and assets. We are well positioned for solid growth as our customers deploy cellular modules bundled with connectivity services for simple and scalable IoT solutions. Overall, we remain very focused on delivering our innovative device-to-cloud solutions 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.