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Sierra Wireless Inc (SWIR)
Q2Â 2020 Earnings Call
Aug 7, 2020, 9:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Sierra Wireless second quarter earnings conference call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Mr. David Climie, Vice President of Investor Relations at Sierra Wireless. Please go ahead.
David Climie -- Vice President of Investor Relations
Thanks and good afternoon, everyone. Thank you for joining today's conference call and webcast. On the call today are Kent Thexton, President and CEO; and Sam Cochrane, 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. Kent will provide his corporate update and Sam will provide a detailed review of our second quarter 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. This 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 that 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 on our annual information form and management's discussion and analysis, which can be found on SEDAR and EDGAR, as well as other regulatory filings. This presentation should be viewed in conjunction with our quarterly earnings release.
With that, I will now turn the call over to Kent for his corporate update.
Kent P. Thexton -- President and Chief Executive Officer
Thanks, David. Our second quarter results were in line with our expectations despite a very dynamic operating environment and some supply chain challenges. Our recurring and other services revenue in Q2 was $28.1 million, up year-over-year and sequentially. The sequential increase was the result of improved activity in our IoT Solutions verticals while absorbing some usage slowdowns due to COVID. The overall number of connected devices was stable in Q2 compared to the prior quarter. Our team was engaged in a broad range of IoT solutions opportunities in Q2. And LTARR design wins were $20.4 million, sequentially lower than the strong $40 million in Q1 due to COVID-19 slowing some contract signatures. I will share later on some solid service wins and that the overall final opportunity is strong. With an increasing number of people working from home and remotely during COVID-19, and our networking and PC OEM business also experienced a sequential increase in Q2 as our customers had improving demand throughout the quarter, and we expect this trend to continue into the current quarter. Given the impact of the COVID-19 pandemic, our revenue in Q2 was largely impacted by the weakness in the automotive segment. As you know, the automotive manufacturers temporarily closed many of their production facilities, and this impacted our demand in the second quarter. However, we are pleased to see most OEM factories have reopened, including the carmakers retail showrooms, and overall demand is improving. Excluding the COVID-related decline in our Q2 automotive revenues, the rest of our business was up sequentially despite some supply challenges and slowdowns from COVID.
Internally, our workforce has been productive during the pandemic, and we recently reopened our offices in North America and Europe as our Asian offices had opened earlier. We are taking a prudent, gradual approach to the reopening, and it is progressing well with our employees. I'm also pleased that our global teams are working very closely with our customers, suppliers and manufacturers to ensure planned shipments, production allocations and support services are being managed properly. I would now like to take a few minutes to talk about the announced divestiture of our automotive product line to Rolling Wireless, a consortium that is led by Fibocom Wireless, publicly traded on the Shenzhen Stock Exchange. On July 23, we announced a definitive agreement to divest our automotive embedded module line for $165 million, including approximately $92 million in cash. Revenue for the automotive line last year was $166 million. This strategic divestiture enables us to strengthen our focus on fully integrated device to cloud IoT solutions that generate higher-value recurring revenue. It also allows our R&D teams to focus on our key 5G enterprise programs, including embedded modules for our mobile broadband and our new gateways and routers for our enterprise networking customers. The sale of the automotive product line unlocks shareholder value, improves our balance sheet by providing additional liquidity and allows us to increase our market leadership in integrated IoT solutions. We expect the transaction to close in the fourth quarter of 2020, and it is subject to normal closing conditions as well as approval from the Ministry of Commerce in China.
Going forward, our go-to-market teams will remain focused on delivering device, cloud platform and connectivity service solutions to our customers. We are seeing more industrial and enterprise IoT customers adopting our fully integrated IoT solutions because they have a low total cost of ownership, faster time to market, and they are easily scalable. We have the advantage of working with our customers early in the design cycle, starting with our devices. And our ability to fund quality hardware with fully integrated connectivity service and 24/7 support is a key differentiator when we're up against our competition. As mentioned, LTARR in the second quarter was $20.4 million, sequentially lower due to the impact of the COVID-19 situation. That said, we did secure a number of solid wins, and I'd like to share four case examples from Q2. One of our customers needed an IoT connectivity solution they could deploy initially in the U.S. and then roll out in Europe. It's a retail enterprise locker delivery service where items purchased online are placed in collection lockers for pickup and customers can open the locker with a QR code that is emailed to them. The differentiator in this deployment was our integrated end-to-end solution where we provided our customers with a Sierra Smart SIM, our cloud platform and an LX 60 gateway device. The turnkey IoT solution, the customer immediately has a scalable, reliable single-source solution. The service of LTARR is expected to be $1.8 million and the gateway hardware is about $0.5 million. Another customer, specializing in industrial air compressors, who is looking for an IoT solution that can gather real-time data from its equipment at the edge of the network. The company had compressors located in South Asia, Europe and the U.S. Our initial discussions with them started with an LPWA gateway and quickly moved on to how they were going to connect and manage the data. An integrated solution that included our FX 30 gateway and smart SIM for connectivity was the answer, and they could use the solution to scale worldwide quickly and easily. The service of ALTARR is expected to be $1.3 million and hardware revenue of approximately $0.7 million.
Another example was a leading global medical device manufacturer that develops patient lift systems to monitor the equipment in hospitals and homes. The combination of our LPWA CAT M1 module and CRS connectivity services provides the customer the single solution across regions and enables them to proactively manage downtime and maintenance. The service of LTARR is expected to be $1.2 million and total hardware revenue of $0.8 million. The fourth example is a global automotive solutions customer that was looking for a leading IoT solution to collect and analyze vehicle data. We are enabling their in-vehicle hardware with our WP76 ready-to-connect module, and then we went on to win their connectivity business using our global smart SIM. This unified robust solution is being deployed in the U.S. and scaled into other geographic regions. The service of LTARR is expected to be about $1.4 million and the revenue from hardware just over $5 million. These four design wins are good use case examples of how we bundle our device with recurring services to win against the competition, increase our subscription-based revenue and drive shareholder value. As we look forward, I'm also excited about the market opportunity for our new 5G embedded modules and 5G gateways and routers. We've been working very hard with some of our top customers on key design wins in enterprise networking, and we'll be launching our 5G products starting later in the third quarter. Our 5G funnel is strong. We have 15 design wins to date with some key customers, and the market interest looks good. We believe key end markets for 5G applications, in addition to enterprise networking, include public safety, public transit and asset monitoring in the areas such as manufacturing, energy, infrastructure, utility and commercial security. Along with the scheduled launch of our 5G embedded modules, we'll be announcing several high-end 5G gateways and routers for industrial and enterprise applications. For those customers requiring high-speed wireless broadband connectivity with low latency, 5G will certainly be the IoT solution that meets their needs. Globally, our team at Sierra remains very focused on launching our 5G programs, as mentioned, as well as delivering innovative, fully integrated IT solutions that generate higher-margin recurring revenue. And with Sam Cochrane as our new CFO, we are very much focused on improving the company's overall operating efficiency with a strong focus on cash and cash generation.
With that, I will now pass over to Sam for his review of the second quarter results.
Samuel Cochrane -- Chief Financial Officer
Thank you, Kent. Good afternoon, everyone. I'm very excited to have joined Sierra Wireless as Chief Financial Officer. My focus will be on running a profitable growth company that delivers free cash flow. Given the current macro environment and the COVID-19 pandemic, it is vitally important that we focus on cash, improving the company's overall operating efficiency and generating positive earnings. I will make additional comments on that in my prepared remarks shortly. As a reminder, our second quarter financial results are reported in U.S. dollars and on a U.S. GAAP basis. We also present non-GAAP results to 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. Total revenue in the second quarter was $144.1 million, down 24.7% compared to Q2 2019. In a challenging global environment, our quarterly results were aligned with our expectations. Non-GAAP gross margin in the second quarter was 31.8% compared to 30.8% in the second quarter last year, reflecting slightly improved margins in reporting segments. Our non-GAAP operating expenses in Q2 were $55.8 million, basically flat year-over-year from Q2 2019. The second quarter opex this year includes the addition of the M2M Group, which we acquired in January 2020. Our non-GAAP net loss was $11.1 million and adjusted EBITDA was negative $5.3 million compared to a non-GAAP profit of $2.5 million and adjusted EBITDA of $7.9 million a year ago. Operationally, given the global COVID-19 pandemic, we did experience some tight component supply issues in Q2 related to some of our suppliers in Malaysia, the Philippines and Mexico. Additionally, we also had some challenges related to the transportation of goods and logistics as cargo capacity on carrier and specialized flights remain tight. Revenue in our IoT Solutions segment was lower by 17.5% year-over-year.
Within our IoT Solutions segment, recurring and other service revenue was $28.1 million, up 12% year-over-year driven by growth in connected devices and the addition of acquired M2M Group revenue. Recurring and other services revenue represented 19.5% of consolidated revenue. The growth in recurring revenue in Q2 was offset by lower hardware revenue primarily due to slower economic activity in energy, sales and payment and public safety, some supply constraints related to the COVID-19 pandemic and continuing pressure from low-priced competitors in hardware-only segments. Revenue in our embedded broadband segment was down by 32.5% year-over-year. This decline was primarily the result of automotive revenue being lower in the quarter as a result of the OEMs closing their factories and weak end market demand for vehicles in the quarter related to the COVID-19 pandemic and lower mobile computing revenue year-over-year due to prior design win losses. Total gross margin was $45.9 million or 31.8% in Q2 compared to 30.8% the prior year. Compared to Q1 2020, gross margin increased sequentially by 410 basis points. This reflects IoT Solutions gross margin of 37.3%, up 170 basis points sequentially due to higher recurring revenue; and embedded broadband gross margin of 24.6% in Q2, up 480 basis points sequentially due to higher volumes in mobile computing and networking sales at higher gross margins and lower volume in automotive at lower gross margins. Moving to the balance sheet. We ended the second quarter with $62.5 million of cash. Specifically, during the quarter, cash flow from operations was positive $5.7 million. Capital expenditures in the quarter were $6.5 million, resulting in free cash flow just under breakeven. During the quarter, we repaid $10 million from the existing revolving line of credit. These activities resulted in a $10.3 million decrease in our cash balance from first quarter 2020.
During the quarter, we amended our revolving credit agreement with CIBC to increase our total borrowing capacity from $30 million to $50 million, and the maturity date was extended to April 2023. And in late July, we entered into a CAD12.5 million term loan agreement with CIBC backed by the Canadian government's credit program to provide additional liquidity. Regarding full year 2020, the impact of the COVID-19 pandemic on our global business continues to remain uncertain. Given these conditions, we will continue to not provide guidance, although we are seeing some business improvements. In conjunction with the recently announced divestiture of the automotive business and our focus to grow profitably, we have initiated actions to reduce operating expenses by approximately $20 million, which serves to rightsize the remaining business. This cost reduction program includes the opex associated with the divestiture of the automotive product line as well as other initiatives we're taking in the second half of the year. These measures are to ensure the company is profitable and cash flow positive in 2021, following the closing of the automotive divestiture, which we expect to be completed in the fourth quarter.
That ends my prepared remarks today. Operator, I would now like to open the call for questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Mike Walkley from Canaccord Genuity. Your line is open.
Mike Walkley -- Canaccord Genuity -- Analyst
Right. Thank you very much. Great. Just first question, just to the last point on the guidance. I understand a lot of companies aren't guiding. But can you just update us a little bit on maybe the linearity throughout the quarter? Seeing if you're seeing some gradual improvements in the global economy? And if so, do those trends continue into July?
Kent P. Thexton -- President and Chief Executive Officer
Mike, Kent Thexton here. Thank you for the question. Good to speak with you. So linearity throughout the quarter, I would say that we June, we saw more business activity start to pick up. And I think that in general, we're seeing progress, as we mentioned on the call. There are areas that are stronger and areas that are weaker. In our networking, embedded broadband area, we've seen strong demand combined with some supply challenges as that area of the ramp. Other segments, industrial segments like oil and gas have been slow. But in general, we've seen activity start to pick up in June. And so we're continuing to progress and are seeing progress in business. And while uncertainty remains, we're happy with how things are moving forward.
Mike Walkley -- Canaccord Genuity -- Analyst
Kent, just a follow-up question on the 5G progress. Can you just help us think about the opportunity for both lines of your business, when you think this could really help kind of the networking and PC OEM module wins along with some of the 5G routers and gateways? How much of a step function could this be for your business into 2021?
Kent P. Thexton -- President and Chief Executive Officer
Yes. Mike, 5G is shaping up nicely. I think it is more of a 2021 impact. We expect to launch our first 5G modules in Europe this quarter, Q3, and in North America in Q4. And so while that activity starts to come in, it will be fairly early stages. We have a strong pipeline of customer interest. As mentioned in the call, 15 design wins already is strong. So it will start to provide revenue positive impacts in 2021. Also, as we refresh our Airlink enterprise gateway business with 5G devices, it's a full product refresh update that we'll be pulling out in 2021. So we're excited about the opportunities there for more advanced software and features on our leading position in public safety and industrial gateways.
Mike Walkley -- Canaccord Genuity -- Analyst
And just a question maybe for Sam. On the gross margin trends in the business, can you help us just think about maybe embedded broadband where the gross margins trend once you do the divestiture? And then on IoT solutions as businesses recover higher-margin gateways come back into the mix and you're continue to nicely grow recurring revenue. Where can you remind us kind of long-term margin targets in IoT solutions?
Samuel Cochrane -- Chief Financial Officer
Yes. Sure. IoT solutions, I'll start with that one. You're right on the mix. As we see recovery in oil and gas, utilities, public safety, we will see that higher-margin business pick up, and that will be upward trajectory on our gross margins. The second piece of that is also our connectivity as we see more connected devices grow and we grow our recurring revenue, that will also be an increasing share of our mix. So gross margins will also be that's a good tailwind for gross margins there as well. Now on the embedded broadband, as you know, automotive was a lower-margin business. So as that is divested, as we work toward closing that transaction, the remaining mix on the sort of mobile computing networking, networking modules and such are higher-margin than automotive, but still an overall sort of lower-margin business in the IoT solutions business. Long-term targets, we're not providing any at this time. But you got to think that with automotive on the way out, recurring revenue growing and as enterprise sales back up with oil and gas, public safety utilities picking back up post-COVID, there's a lot of tailwinds for margin as we move forward.
Kent P. Thexton -- President and Chief Executive Officer
And Mike, maybe it's Kent. I'll make one further comment on gross margins. I think that you will see as the divestitures complete, we expect that will happen in Q4, that in first clean quarter, you'll see a good step function in gross margin as the business is dominated by IoT solutions.
Mike Walkley -- Canaccord Genuity -- Analyst
I hope everybody stays healthy. On the call and thanks for taking my questions.
Kent P. Thexton -- President and Chief Executive Officer
Thanks, Mike.
Operator
[Operator Instructions] Your next question comes from the line of Paul Treiber from RBC Capital Markets. Your line is open.
Paul Treiber -- RBC Capital Markets -- Analyst
Thanks very much and good morning, Just was hoping you could provide some background on the sale of the automotive business, how long has that been in the works. And was that a key element of your strategy when you first joined as CEO?
Kent P. Thexton -- President and Chief Executive Officer
Paul, thank you for the question. So I think that on our strategy has been consistent of being the global leader in IoT solutions, building our capability, provide complete bundles of hardware with connectivity, with cloud, with security. So that's been our focus, and that's where we've been working to drive to. Automotive didn't have a lot of synergies with that strategy. It has been an area with strong R&D investment. It's been an important part of the company's growth. The opportunity for this transaction came along. And we look at opportunities and analyze them. And we felt this was best for creating shareholder value, to be able to realize the value of that asset, which we think we've done very favorably and continue to work focus really on the growth of our IoT Solutions and enterprise business lines. So I wouldn't say that this was you have to be you have to focus on the market opportunities. This was a potential area of strategic opportunity. And yes, it has come to fruition.
Paul Treiber -- RBC Capital Markets -- Analyst
And for modeling purposes or when we look out for the year, even just looking at the quarter, could you provide some indication of how automotive revenue was tracking or is expected to track through the year? And I'm just trying to gauge the magnitude of contraction in automotive relative to your other hardware business lines.
Kent P. Thexton -- President and Chief Executive Officer
Yes. Paul, I think that you'll see as we report Q3 in November, we'll be giving a complete rollout of automotive segments. So we're not going to get into not make specific details right now. We're going to focus on getting the transaction closed and we'll roll through that. But if we did announce that automotive revenue last year was $166 million, and I think that you can we would expect that overall, there would be modest growth on that number in on a whole year basis as we include the slowdown in Q2.
Paul Treiber -- RBC Capital Markets -- Analyst
And over the last couple of months, I mean you've had a number of new Board members joined. What's been the feedback from them on the company's strategy? And what's been their contribution to date from a Board perspective?
Kent P. Thexton -- President and Chief Executive Officer
Yes. Thanks, Paul. Well, we put a lot of energy and effort into on boarding our new directors to get them up to speed with industry details, our strategy, etc. And then obviously, a transaction of this nature is important Board consideration. So we did a lot of work bringing the Board up to speed on the transaction. We got a lot of useful input as we work to complete the deal parameters and took it through to completion and had unanimous Board support for the transaction as we got to the finish line. So I think that the frequency and intensity of meetings was strong because of this transaction, which I think will be very helpful for us, a lot of tremendous insights from the Board, strong new experience basis across various aspects. So we've had as well as the five new Board members, Greg Waters was with relative new and as CEO of several semiconductor companies has provided great and helpful insights. Tom Linton joined, has retired from Flextronics, but from that part of our business has provided great insights. Another Jim Anderson, another semiconductor CEO with Latif Semiconductor. So a lot of good business wisdom that has been helpful. Some you see that in the short term as we completed this auto transaction, but more as we work to continue to drive our strategy and drive for global leadership in IoT solutions, lots of great help coming from the Board.
Paul Treiber -- RBC Capital Markets -- Analyst
Great help coming from the Board. Great, thanks for taking my questions.
Kent P. Thexton -- President and Chief Executive Officer
Thanks, Paul.
Operator
Your next question comes from the line of Scott Searle from ROTH Capital. Your line is open.
Scott Searle -- ROTH Capital -- Analyst
Hey, good morning, Thanks for taking my questions. Just a couple of quick clarifications to start off. Kent, I'm not sure if I missed it, but did you quantify the top line impact from some of the component headwinds that you saw? And I just wanted to also clarify, could you give us an idea again about the size of the M2M revenue base as well as employees? And then I want to make sure I heard clearly as well, embedded broadband would have been up excluding auto. Is that correct? And I had a couple of follow-ups.
Kent P. Thexton -- President and Chief Executive Officer
Well, let me try to each unpack each of those. So in terms of the supply chain impacts, no, we did not quantify that specifically. I think that this has happened with COVID, some of our manufacturers of parts had facilities that were closed and impacts on their supply chain that have fed through. So we've been working very closely with our suppliers. What it meant for Q2 is some of the volume that we would have shipped could have shipped in Q2 rolls forward into Q3. And we have areas where we're growing faster than our lead times would necessitate for some parts. So we continue to work hard to get those complete. So we expect that we will get all that product produced in the year, but will substantially catch up in Q3, but not completely likely. But we'll leave the comments at that level. On the M2M Group, as we talk about that business upon announcing it in January, it was at about a just shy of a $10 million recurring revenue run rate. We fully integrated that business now, so we're not breaking it out discretely. Very pleased with the progress, integrating some of our products into their offerings, taking some of their good business practices into other areas of our business that we've been able to leverage.
And I think on your third question of embedded broadband and would it be of ex auto. So the on a sequential basis, yes. On a year-over-year basis, as we've mentioned before, the revenue from Lenovo and Dell, which was over $100 million annual run rate, those businesses were lost before I joined in that full impact of that is in the numbers now. So on a year-on-year basis, no, it would be down because of the impact of that PC OEM sector. That said, our networking other part of embedded broadband in terms of networking is going along well. So pleased with that. And as I mentioned in my overall comments, if you take auto out, all of the rest of our business combined was up sequentially from Q1. So ex auto, we were executing well.
Scott Searle -- ROTH Capital -- Analyst
Great. And if I could, on the 5G front, exciting to hear that you guys are getting products into the marketplace and starting to get some design wins. Certainly, it brings a higher ARPU along with it. But I was wondering about the recurring services opportunity, do all of the 5G design wins have some component or opportunity to attach that recurring revenue to it? And the ARPUs on that front, 5G, does it change the dynamic at all? Should it be higher for you guys? And one other on the recurring services front. Now you're running north of $110 million, kind of running where the breakeven is on that business. And if you could just update us in terms of gross margins in that business, did we see an improvement sequentially?
Kent P. Thexton -- President and Chief Executive Officer
Okay. You're squeezing the questions in here nicely, Scott. Let me try to make sure I capture them all. So on the 5G front, you used the word ARPU, we tend to use ARPU for our recurring revenue business. I think that the device value will be higher in 5G. So as we sell 5G devices, the average ASP that we will see per module and when it's included on our gateways will be higher. Our early areas, our design wins are mostly higher. Networking area, those are areas we generally do not attach recurring revenue, too. So if it's another routing customer that is selling 5G onto enterprises and enterprises typically doing the connectivity themselves. We get more of our connectivity and industrial IoT when we would sell a complete solution to a machine maker that is selling devices around the world, and it speeds up time to market, total cost of ownership to have our embedded connectivity on that.
On 5G, overall on our gateways, we will start to see recurring revenue off of those businesses. But as we segmented before, embedded broadband areas that we don't typically expect to drive to drive 5G revenue. And given that it's so early, a lot of this work was will be done in a tight conjunction with the carriers, but we would expect that to evolve over time. Our 5G gateways have built into them the latest LTE technology. So 5G coverage won't be ubiquitous on launch, but it will fall back to CAT-20, which is the highest speed 4G technology available. So it will be leveraging both 5G and 4G overall. So I hope that answers the question about 5G, Scott.
Scott Searle -- ROTH Capital -- Analyst
Yes. Perfect.
Kent P. Thexton -- President and Chief Executive Officer
Okay. On the recurring revenue side, we've talked before about our gross margins on our recurring revenue aspects being around 40%. And that we expect that will continue to grow with scale. So we're still on that exact same trajectory. I don't have an answer to your question about where breakeven is on the connectivity side. Perhaps that's something we can take offline. But it's we're pleased with both where we're going on overall growth. We're pleased with the continued progress on our wholesale cost to enhance that business. And as we continue to get more scale in our products like Octave where we do advanced analytics at the edge and we transmit events versus data, we're able to increase our margins further because we can provide some information value to the customer with a lower payload over the year. So all of those aspects continue to grow toward reduced wholesale costs, better compression at the edge. And overall scale benefits on cost or infrastructure would drive increasing gross margins in our connectivity business as we continue to scale it.
Scott Searle -- ROTH Capital -- Analyst
Great, thank you.
Operator
And your next question comes from the line of Stephen Li from Raymond James. Your line is open.
Stephen Li -- Raymond James -- Analyst
Thank you. A quick one from me. Kent, the PC OEM, so those slots that were lost, what's your outlook in terms of gaining them back?
Kent P. Thexton -- President and Chief Executive Officer
Interesting question, Steve. So what we've been focused on doing is trying to grow in areas where we have market-leading products and differentiation. So when you look at the customer examples that I went through, where we're able to bring these sorts of customers to market, so a little medical device with embedded LPWA and CAT-1 module and our connectivity services embedded, that's highly differentiated. Nobody else has that sort of product on the market. In the PC OEM area, it's hardware only and it's sort of a less differentiated position. And that has been an area historically of design wins and design losses over the Sierra Wireless history. So I would say it's an area of less strategic focus. So going after trying to win back Lenovo or Dell business, that could be some step function up and then step function down sort of products. We're looking to have more steady and consistent growth. We have a number of PC OEM customers that are to continue with us, and we value those customer relationships and work hard to continue to service their needs. But we're focused on winning in industrial IoT and enterprise and less so on big game hunting in a couple of these areas. So always opportunistic, but I wouldn't expect our gains are just going to be consistent from the strong overall pipeline that we have, the LTARR wins that we talk about as this LTARR converts into recurring revenue and areas like 5G where we'll see growth and less focus on a big step function change in that part of the market.
Stephen Li -- Raymond James -- Analyst
Makes sense. And Kent, the LTARR, you provided, $20.4 million. How much was it year-over-year? Is that up, down?
Kent P. Thexton -- President and Chief Executive Officer
Sorry, pardon me?
Stephen Li -- Raymond James -- Analyst
The LTARR metric you gave for the Q2, $20.4 million. How much was it year-over-year?
Kent P. Thexton -- President and Chief Executive Officer
Yes. So I don't have my notes to hand last year's Q2, but we've had this has been an area of strong growth. Last year, we had $93 million of LTARR in total. Through Q1 and Q2, we're over $60 million. So we're up strongly year-on-year. In Q2, the pipeline was strong. The conversations were strong. We're still seeing the demand for our services being very present. And it was slowing of getting contracts signed, companies with work from home and decision-making being somewhat delayed. So we are not expecting this, the quarterly number, to have an impact on our goals and our success. And my team just messaged me in the background that even though Q2 was half of what Q1 was, it was still up 15% year-on-year. But I'm more focused on this continued overall growth that you'll see. So the increase from $93 million last year with more and more at that as we attach our connectivity to our design wins on modules and gateways.
Operator
And we have no further questions at this time. I'll turn the call back to our presenters for closing remarks.
Kent P. Thexton -- President and Chief Executive Officer
Well, thank you very much. Very good questions this morning. I know it's a very busy earnings day. So we wanted to keep our comments quite succinct to help everybody out. I will just reiterate that we're focused on completing our auto divestiture and our pursuit of leadership in the IoT solutions and enterprise gateway space. So we'll continue to update on those fronts. And we'll look forward to completing Q3 and speaking to everybody at that point in time. Thank you very much.
Operator
[Operator Closing Remarks]
Duration: 40 minutes
Call participants:
David Climie -- Vice President of Investor Relations
Kent P. Thexton -- President and Chief Executive Officer
Samuel Cochrane -- Chief Financial Officer
Mike Walkley -- Canaccord Genuity -- Analyst
Paul Treiber -- RBC Capital Markets -- Analyst
Scott Searle -- ROTH Capital -- Analyst
Stephen Li -- Raymond James -- Analyst
