EX-99.1 2 a2017q1pressrelease.htm 2017 Q1 PRESS RELEASE Exhibit

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Sierra Wireless Reports First Quarter 2017 Results

Revenue increases 13.3% year-over-year to $161.8 million in the first quarter of 2017


VANCOUVER, BRITISH COLUMBIA - May 4, 2017 - Sierra Wireless, Inc. (NASDAQ: SWIR) (TSX: SW) today reported results for its first quarter ending March 31, 2017. All results are reported in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (GAAP), except as otherwise indicated below.

“In the first quarter of 2017, we delivered solid year-over-year revenue growth and profitability results that exceeded our expectations,” said Jason Cohenour, President and CEO.  “We continued to strengthen our position as a leader in device-to-cloud solutions for the Internet of Things with new customer wins, new product offerings and the acquisition of the assets of GlobalTop Technology's GNSS business.”

Revenue for the first quarter of 2017 was $161.8 million, an increase of 13.3% compared to $142.8 million in the first quarter of 2016. Revenue from OEM Solutions was $133.0 million in the first quarter of 2017, up 10.0% compared to $120.9 million in the first quarter of 2016. Revenue from Enterprise Solutions was $21.7 million in the first quarter of 2017, up 44.8% compared to $15.0 million in the first quarter of 2016. Revenue from Cloud and Connectivity Services was $7.1 million in the first quarter of 2017, up 2.1% compared to $6.9 million in the first quarter of 2016.

GAAP RESULTS
•
Gross margin was $55.7 million, or 34.4% of revenue, in the first quarter of 2017, compared to $46.8 million, or 32.8% of revenue, in the first quarter of 2016.
•
Operating expenses were $57.1 million and loss from operations was $1.5 million in the first quarter of 2017, compared to operating expenses of $48.1 million and loss from operations of $1.3 million in the first quarter of 2016. The loss from operations in the first quarter of 2017 included a $3.7 million impairment charge on an intangible asset related to a terminated service offering that has now been superseded by a more technically advanced offering.
•
Net loss was $0.2 million, or $0.01 per share, in the first quarter of 2017, compared to net earnings of $0.7 million, or $0.02 per share, in the first quarter of 2016.

NON-GAAP RESULTS
•
Gross margin was 34.5% in the first quarter of 2017, compared to 32.9% in the first quarter of 2016.
•
Operating expenses were $46.7 million and earnings from operations were $9.1 million in the first quarter of 2017, compared to operating expenses of $43.3 million and earnings from operations of $3.6 million in the first quarter of 2016.
•
Net earnings were $7.7 million, or $0.24 per share, in the first quarter of 2017, compared to net earnings of $2.6 million, or $0.08 per share, in the first quarter of 2016.
•
Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") were $12.4 million in the first quarter of 2017, compared to $6.7 million in the first quarter of 2016.

Cash and cash equivalents at the end of the first quarter of 2017 were $92.5 million, representing a decrease of $10.3 million compared to the end of the fourth quarter of 2016. The decrease in cash was primarily due to high



working capital requirements, capital expenditures, the acquisition of the assets of GlobalTop Technology's Global Navigation Satellite System ("GNSS") business and the repurchase of common shares for cancellation, partially offset by proceeds from stock option exercises.

Acquisition
On March 31, 2017, we acquired substantially all of the assets of GlobalTop Technology’s ("GlobalTop") GNSS embedded module business for total cash consideration of approximately $3.2 million, subject to working capital adjustments.  GlobalTop’s GNSS products generated approximately $5.0 million in revenue during the last 12 months prior to the acquisition and the business was approximately breakeven.

Financial Guidance
For the second quarter of 2017, we expect revenue to be in the range of $165 million to $175 million and non-GAAP earnings per share to be in the range of $0.24 to $0.32. This guidance includes a full quarter of contribution from the acquired assets of GlobalTop's GNSS business.

This Non-GAAP guidance reflects current business indicators and expectations. Inherent in this guidance are risk factors that are described in greater detail in our regulatory filings. Our actual results could differ materially from those presented above. All figures are approximations based on management's current beliefs and assumptions.

Non-GAAP Financial Measures
We disclose non-GAAP financial measures as we believe they provide useful information on actual operating performance and assist in comparisons from one period to another. Readers are cautioned that non-GAAP financial measures do not have any standardized meaning prescribed by U.S. GAAP and therefore may not be comparable to similar measures presented by other companies.

Non-GAAP gross margin excludes the impact of stock-based compensation expense and related social taxes and certain other nonrecurring costs or recoveries.

Non-GAAP earnings (loss) from operations excludes the impact of stock-based compensation expense and related social taxes, amortization related to acquisitions, acquisition-related and integration expense, restructuring expense, impairment and certain other nonrecurring costs or recoveries.

In addition to the above, Non-GAAP net earnings (loss) and non-GAAP earnings (loss) per share exclude the impact of foreign exchange gains or losses on translation of certain balance sheet accounts, unrealized foreign exchange gains or losses on forward contracts and certain tax adjustments.

We use the above-noted non-GAAP financial measures for planning purposes and to allow us to assess the performance of our business before including the impacts of the items noted above as they affect the comparability of our financial results. These non-GAAP measures are reviewed regularly by management and the Board of Directors as part of the ongoing internal assessment of our operating performance. We also use non-GAAP earnings from operations as one component in determining short-term incentive compensation for management employees.

Adjusted EBITDA is defined as net earnings (loss) plus stock-based compensation expense and related social taxes, acquisition-related and integration expense, restructuring expense, impairment, certain other nonrecurring costs or recoveries, amortization, foreign exchange gains or losses on translation of certain balance sheet accounts, unrealized foreign exchange gains or losses on forward contracts, interest and income tax expense. Adjusted EBITDA is a metric used by investors and analysts for valuation purposes and we believe that it is an important indicator of our operating performance and our ability to generate liquidity through operating cash flow that will fund future working capital needs and capital expenditures.



Conference call and webcast details
Sierra Wireless President and CEO, Jason Cohenour, and CFO, David McLennan, will host a conference call and webcast with analysts and investors to review the results on Thursday, May 4, 2017, at 5:30 PM Eastern Time (2:30 PM PT). A live slide presentation will be available for viewing during the call from the link provided below.
To participate in this conference call, please dial the following number approximately ten minutes prior to the start of the call:
•
Toll-free (Canada and US): 1-877-201-0168
•
Alternate number: 1-647-788-4901
•
Conference ID: 84503339

To access the webcast, please follow the link below:
Sierra Wireless Q1 2017 Conference Call and Webcast
If the above link does not work, please copy and paste the following URL into your browser:
http://event.on24.com/r.htm?e=1383379&s=1&k=D46EC898C0B9EFC5D714E55301DB0455
The webcast will remain available at the above link for one year following the call.
Investor and Media Contact:
 
David Climie
 
Vice President, Investor Relations
 
+1 (604) 231-1137

dclimie@sierrawireless.com
 
 
 
Investor Contact:
 
David G. McLennan
 
Chief Financial Officer
 
+1 (604) 231-1181
 
investor@sierrawireless.com
 

Cautionary Note Regarding Forward-Looking Statements
Certain statements and information in this press release are not based on historical facts and constitute forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws (“forward-looking statements”) including statements and information relating to our financial guidance for the second quarter of 2017 and our fiscal year 2017, our business outlook for the short and longer term, statements regarding our strategy, plans and future operating performance. Forward-looking statements are provided to help you understand our views of our short and long term plans, expectations and prospects. We caution you that forward-looking statements may not be appropriate for other purposes. We do not intend to update or revise our forward-looking statements unless we are required to do so by securities laws.
Forward-looking statements:
•
Typically include words and phrases about the future such as “outlook”, “will”, “may", “estimates”, “intends”, “believes”, “plans”, “anticipates” and “expects”.




•
Are not promises or guarantees of future performance. They represent our current views and may change significantly.

•
Are based on a number of material assumptions, including those listed below, which could prove to be significantly incorrect:
•
our ability to develop, manufacture and sell new products and services that meet the needs of our customers and gain commercial acceptance;
•
our ability to continue to sell our products and services in the expected quantities at the expected prices and expected times;
•
expected cost of goods sold;
•
expected component supply constraints;
•
our ability to win new business;
•
our ability to integrate acquired businesses and realize expected benefits;
•
expected deployment of next generation networks by wireless network operators;
•
our operations not being adversely disrupted by component shortages or other development, operating or regulatory risks; and
•
expected tax rates and foreign exchange rates.

•
Are subject to substantial known and unknown material risks and uncertainties. Many factors could cause our actual results, achievements and developments in our business to differ significantly from those expressed or implied by our forward-looking statements, including without limitation, the following factors. These risk factors and others are discussed in our Annual Information Form and Management's Discussion and Analysis of Financial Condition and Results of Operations, which may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov and in our other regulatory filings with the Securities and Exchange Commission in the United States and the Provincial Securities Commissions in Canada:
•
competition from new or established cloud and connectivity service providers or from those with greater resources;
•
disruption of, and demands on, our ongoing business and diversion of management's time and attention in connection with acquisitions or divestitures;
•
the loss of any of our significant customers;
•
cyber-attacks or other breaches of our information technology security;
•
difficult or uncertain global economic conditions;
•
our financial results being subject to fluctuation;
•
our ability to attract or retain key personnel;
•
risks related to infringement on intellectual property rights of others;
•
our ability to obtain necessary rights to use software or components supplied by third parties;
•
our ability to enforce our intellectual property rights;
•
our ability to respond to changing technology, industry standards and customer requirements;
•
our reliance on single source suppliers for certain components used in our products;
•
failures of our products or services due to design flaws and errors, component quality issues, manufacturing defects or other quality issues;
•
our dependence on a limited number of third party manufacturers;
•
unanticipated costs associated with litigation or settlements;
•
our dependence on wireless network carriers to offer and promote acceptable wireless service programs;
•
risks related to contractual disputes with counterparties;
•
risks related to governmental regulation;
•
risks related to the transmission, use and disclosure of user data and personal information; and
•
risks inherent in foreign jurisdictions.




About Sierra Wireless
Sierra Wireless (NASDAQ: SWIR) (TSX: SW) is building the Internet of Things with intelligent wireless solutions that empower organizations to innovate in the connected world. Customers start with Sierra because we offer the industry’s most comprehensive portfolio of 2G, 3G and 4G embedded modules and gateways, seamlessly integrated with our secure cloud and connectivity services. OEMs and enterprises worldwide trust our innovative solutions to get their connected products and services to market faster. Sierra Wireless has more than 1,100 employees globally and operates R&D centers in North America, Europe and Asia. For more information, visit www.sierrawireless.com.

"AirPrime," "AirLink," and "AirVantage" are trademarks of Sierra Wireless. Other product or service names mentioned herein may be the trademarks of their respective owners.




SIERRA WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(In thousands of U.S. dollars, except where otherwise stated)
(unaudited)
 
Three months ended March 31,
 
2017

 
2016

Revenue
$
161,793

 
$
142,797

Cost of goods sold
106,132

 
95,982

Gross margin
55,661

 
46,815

 
 
 
 
Expenses
 
 
 
Sales and marketing
18,167

 
15,629

Research and development
19,477

 
18,778

Administration
10,386

 
9,527

Restructuring
373

 
—

Acquisition-related and integration
451

 
374

Impairment
3,668

 
—

Amortization
4,626

 
3,762

 
57,148

 
48,070

Loss from operations
(1,487
)
 
(1,255
)
Foreign exchange gain
1,099

 
2,292

Other income
9

 
26

Earnings (loss) before income taxes
(379
)
 
1,063

Income tax expense (recovery)
(168
)
 
345

Net earnings (loss)
$
(211
)
 
$
718

Other comprehensive earnings:
 
 
 
Foreign currency translation adjustments, net of
taxes of $nil
1,582

 
5,132

Comprehensive earnings
$
1,371

 
$
5,850

 
 
 
 
Net earnings (loss) per share (in dollars)
 
 
 
Basic
$
(0.01
)
 
$
0.02

Diluted
(0.01
)
 
0.02

Weighted average number of shares outstanding (in thousands)
 
 
 
Basic
31,909

 
32,156

Diluted
31,909

 
32,500






SIERRA WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except where otherwise stated)
(unaudited)
 
March 31, 2017

 
December 31, 2016

Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
92,545

 
$
102,772

Accounts receivable, net of allowance for doubtful accounts of $2,482 (December 31, 2016 - $2,486)
129,782

 
143,798

Inventories
48,328

 
40,913

Prepaids and other
6,134

 
6,530

 
276,789

 
294,013

Property and equipment
34,254

 
34,180

Intangible assets
69,005

 
74,863

Goodwill
157,971

 
154,114

Deferred income taxes
16,014

 
16,039

Other assets
7,610

 
5,250

 
$
561,643

 
$
578,459

 
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
147,095

 
$
167,500

Deferred revenue and credits
4,591

 
5,263

 
151,686

 
172,763

Long-term obligations
33,470

 
32,654

Deferred income taxes
10,591

 
11,458

 
195,747

 
216,875

Equity
 
 
 
Shareholders’ equity
 
 
 
Common stock: no par value; unlimited shares authorized; issued and
outstanding: 32,157,057 shares (December 31, 2016 - 31,859,960 shares)
348,528

 
342,450

Preferred stock: no par value; unlimited shares authorized;
issued and outstanding: nil shares
—

 
—

Treasury stock: at cost: 241,915 shares (December 31, 2016 – 355,471 shares)
(3,493
)
 
(5,134
)
Additional paid-in capital
21,152

 
24,976

Retained earnings
12,553

 
13,718

Accumulated other comprehensive loss
(12,844
)
 
(14,426
)
 
365,896

 
361,584

 
$
561,643

 
$
578,459







SIERRA WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
 
Three months ended March 31,
 
2017

 
2016

Cash flows provided by (used in):
 
 
 
Operating activities
 
 
 
Net earnings (loss)
$
(211
)
 
$
718

Items not requiring (providing) cash
 
 
 
Amortization
6,997

 
5,568

Stock-based compensation
2,126

 
2,035

Deferred income taxes
(914
)
 
—

Impairment
3,668

 
—

Other
64

 
4

Changes in non-cash working capital
 
 
 
Accounts receivable
14,925

 
(434
)
Inventories
(6,625
)
 
7,080

Prepaids and other
(1,908
)
 
771

Accounts payable and accrued liabilities
(19,448
)
 
(7,868
)
Deferred revenue and credits
(796
)
 
(274
)
Cash flows provided by (used in) operating activities
(2,122
)
 
7,600

Investing activities
 
 
 
Additions to property and equipment
(2,887
)
 
(2,843
)
Additions to intangible assets
(800
)
 
(295
)
Proceeds from sale of property and equipment
—

 
3

Acquisition of GNSS business
(3,192
)
 
—

Cash flows used in investing activities
(6,879
)
 
(3,135
)
Financing activities
 
 
 
Issuance of common shares
4,621

 
528

Repurchase of common shares for cancellation
(2,779
)
 
(6,144
)
Purchase of treasury shares for RSU distribution
—

 
(4,214
)
Taxes paid related to net settlement of equity awards
(1,027
)
 
(352
)
Payment for contingent consideration
(960
)
 
—

Decrease in other long-term obligations
(96
)
 
(63
)
Cash flows used in financing activities
(241
)
 
(10,245
)
Effect of foreign exchange rate changes on cash and cash equivalents
(985
)
 
(2,036
)
Cash and cash equivalents, decrease in the period
(10,227
)
 
(7,816
)
Cash and cash equivalents, beginning of period
102,772

 
93,936

Cash and cash equivalents, end of period
$
92,545

 
$
86,120






SIERRA WIRELESS, INC. 

RECONCILIATION OF GAAP AND NON-GAAP RESULTS BY QUARTER

(in thousands of U.S. dollars, except where otherwise stated)
 
2017
 
 
2016
 
 
Q1
 
 
Total
Q4
Q3
Q2
Q1
 
 
 
 
 
 
 
 
 
 
 
 
Gross margin - GAAP
 
$
55,661

 
 
$
217,743

$
68,796

$
49,368

$
52,764

$
46,815

 
Stock-based compensation and related social taxes
 
108

 
 
420

99

108

107

106

 
Other nonrecurring costs (recoveries)
 
—

 
 
(13,045
)
(13,045
)
—

—

—

 
Gross margin - Non-GAAP
 
$
55,769

 
 
$
205,118

$
55,850

$
49,476

$
52,871

$
46,921

 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) from operations - GAAP
 
$
(1,487
)
 
 
$
21,348

$
19,245

$
(53
)
$
3,411

$
(1,255
)
 
Stock-based compensation and related social taxes
 
2,148

 
 
7,596

1,845

1,856

1,902

1,993

 
Acquisition-related and integration
 
451

 
 
843

376

34

59

374

 
Restructuring
 
373

 
 
—

—

—

—

—

 
Other nonrecurring costs (recoveries)
 
276

 
 
(11,762
)
(13,045
)
1,283

—

—

 
Impairment
 
3,668

 
 
—

—

—

—

—

 
Acquisition-related amortization
 
3,641

 
 
12,102

3,308

3,206

3,058

2,530

 
Earnings from operations - Non-GAAP
 
$
9,070

 
 
$
30,127

$
11,729

$
6,326

$
8,430

$
3,642

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings (loss) - GAAP
 
$
(211
)
 
 
$
15,385

$
15,718

$
(1,769
)
$
718

$
718

 
Stock-based compensation and related social taxes, restructuring, impairment, acquisition-related, integration and other nonrecurring costs (recoveries)
 
6,916

 
 
(3,323
)
(10,824
)
3,173

1,961

2,367

 
Amortization
 
6,997

 
 
25,894

7,043

6,577

6,706

5,568

 
Interest and other, net
 
(9
)
 
 
(83
)
(2
)
(23
)
(32
)
(26
)
 
Foreign exchange loss (gain)
 
(1,099
)
 
 
1,736

3,547

(590
)
1,071

(2,292
)
 
Income tax expense (recovery)
 
(168
)
 
 
4,310

(18
)
2,329

1,654

345

 
Adjusted EBITDA
 
12,426

 
 
43,919

15,464

9,697

12,078

6,680

 
Amortization (exclude acquisition-related amortization)
 
(3,356
)
 
 
(13,792
)
(3,735
)
(3,371
)
(3,648
)
(3,038
)
 
Interest and other, net
 
9

 
 
83

2

23

32

26

 
Income tax expense - Non-GAAP
 
(1,418
)
 
 
(8,241
)
(2,900
)
(2,208
)
(2,086
)
(1,047
)
 
Net earnings - Non-GAAP
 
$
7,661

 
 
$
21,969

$
8,831

$
4,141

$
6,376

$
2,621

 
 
 
 
 
 
 
 
 
 
 
 
Diluted net earnings (loss) per share
 
 
 
 
 
 
 
 
 
 
GAAP - (in dollars)
 
$
(0.01
)
 
 
$
0.48

$
0.49

$
(0.06
)
$
0.02

$
0.02

 
Non-GAAP - (in dollars)
 
$
0.24

 
 
$
0.68

$
0.27

$
0.13

$
0.20

$
0.08

 
 
 
 
 
 
 
 
 
 
 
 











SIERRA WIRELESS, INC. 

SEGMENTED RESULTS 
(In thousands of U.S. dollars, except where otherwise stated)
 
2017
2016
 
 
Q1
Total
Q4
Q3
Q2
Q1
 
 
 
 
 
 
 
 
 
 
OEM Solutions
 
 
 
 
 
 
 
 
Revenue
 
$
133,000

$
516,517

$
135,211

$
127,765

$
132,667

$
120,874

 
Gross margin (2) (3)
 
 
 
 
 
 
 
 
- GAAP
 
$
42,078

$
166,596

$
54,110

$
37,191

$
41,005

$
34,290

 
- Non-GAAP
 
$
42,167

$
154,988

$
42,232

$
37,280

$
41,096

$
34,380

 
Gross margin % (2) (3)
 
 
 
 
 
 
 
 
- GAAP
 
31.6
%
32.3
%
40.0
%
29.1
%
30.9
%
28.4
%
 
- Non-GAAP
 
31.7
%
30.0
%
31.2
%
29.2
%
31.0
%
28.4
%
 
 
 
 
 
 
 
 
 
 
Enterprise Solutions
 
 
 
 
 
 
 
 
Revenue
 
$
21,718

$
71,486

$
20,976

$
18,938

$
16,577

$
14,995

 
Gross margin (1) (2) (3)
 
 
 
 
 
 
 
 
- GAAP
 
$
10,485

$
39,949

$
12,002

$
9,273

$
8,922

$
9,752

 
- Non-GAAP
 
$
10,500

$
38,913

$
10,930

$
9,286

$
8,934

$
9,763

 
Gross margin % (1) (2) (3)
 
 
 
 
 
 
 
 
- GAAP
 
48.3
%
55.9
%
57.2
%
49.0
%
53.8
%
65.0
%
 
- Non-GAAP
 
48.3
%
54.4
%
52.1
%
49.0
%
53.9
%
65.1
%
 
 
 
 
 
 
 
 
 
 
Cloud and Connectivity Services
 
 
 
 
 
 
 
 
Revenue
 
$
7,075

$
27,604

$
6,834

$
6,857

$
6,985

$
6,928

 
Gross margin
 
 
 
 
 
 
 
 
- GAAP
 
$
3,098

$
11,198

$
2,684

$
2,904

$
2,837

$
2,773

 
- Non-GAAP
 
$
3,102

$
11,217

$
2,688

$
2,910

$
2,841

$
2,778

 
Gross margin %
 
 
 
 
 
 
 
 
- GAAP
 
43.8
%
40.6
%
39.3
%
42.4
%
40.6
%
40.0
%
 
- Non-GAAP
 
43.8
%
40.6
%
39.3
%
42.4
%
40.7
%
40.1
%
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
Revenue
 
$
161,793

$
615,607

$
163,021

$
153,560

$
156,229

$
142,797

 
Gross margin
 
 
 
 
 
 
 
 
- GAAP
 
$
55,661

$
217,743

$
68,796

$
49,368

$
52,764

$
46,815

 
- Non-GAAP
 
$
55,769

$
205,118

$
55,850

$
49,476

$
52,871

$
46,921

 
Gross margin %
 
 
 
 
 
 
 
 
- GAAP
 
34.4
%
35.4
%
42.2
%
32.1
%
33.8
%
32.8
%
 
- Non-GAAP
 
34.5
%
33.3
%
34.3
%
32.2
%
33.8
%
32.9
%
 
 
 
 
 
 
 
 
 
 
(1) Q1 2016 Enterprise Solutions results include a $1.9 million recovery from a legal settlement with a supplier related to a quality issue with a component used in some of our gateway products. Excluding this recovery, GAAP and Non-GAAP gross margin percentage would have been 52.4% and 52.5%, respectively.
(2) Q2 2016 OEM Solutions results include a $1.7 million recovery from certain legal costs pursuant to a favorable arbitration decision on a contract dispute with an intellectual property licensor. Excluding this recovery, GAAP and Non-GAAP gross margin percentage would have been 29.6% and 29.7%, respectively. Q2 2016 Enterprise Solutions results also include a $0.2 million recovery from this arbitration decision. Excluding this recovery, GAAP and Non-GAAP gross margin percentage would have been 52.7% and 52.8%, respectively.




(3) Q4 2016 OEM Solutions and Enterprise Solutions GAAP gross margins include a favorable impact of $12.9 million and $1.5 million, respectively, of a change in estimate on accrued royalty obligations. This is comprised of two components, an amount of $11.7 million and $1.3 million, respectively, related to a one-time reduction effective October 1, 2016 (excluded from non-GAAP gross margin), and a $1.2 million and $0.2 million, respectively, favorable impact related to royalties accrued on the products sold in Q4, 2016 (included in non-GAAP gross margin).