Sierra Wireless, Inc. (NASDAQ: SWIR) (TSX: SW) today reported
results for its first quarter ended March 31, 2019. 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.
Revenue for the first quarter of 2019 was $173.8 million
compared to $186.8 million in the first quarter of 2018. Our
reporting segmentation has changed from those reported at December
31, 2018 when we previously reported three segments. Our new
organizational structure clearly delineates our Device-to-Cloud
solutions activities and we now have two reportable segments
effective the first quarter of 2019: (i) the IoT Solutions segment
and (ii) the Embedded Broadband segment. We have adjusted our
comparative information.
Quarterly revenue for our two business segments was as follows:
(i) Revenue from IoT Solutions was $94.3 million in the first
quarter of 2019, up 5.4% compared to $89.4 million in the first
quarter of 2018 driven by strong sales of Airlink gateway products;
and (ii) Revenue from Embedded Broadband was $79.5 million in the
first quarter of 2019, down 18.4% compared to $97.4 million in the
first quarter of 2018 due to weaker demand from mobile computing
and networking customers.
“We are making good progress driving improved efficiency
throughout our operations to accelerate our transformation into a
leading global IoT solutions provider,” said Kent Thexton,
President and CEO of Sierra Wireless. “At the same time, we are
investing in innovative cellular technologies and capabilities to
enhance our differentiated Device-To-Cloud offering and grow our
recurring subscription-based revenue.”
GAAP RESULTS
- Gross margin was $54.6 million, or
31.4% of revenue, in the first quarter of 2019 compared to $62.1
million, or 33.2% of revenue, in the first quarter of 2018.
- Operating expenses were $64.4 million
and loss from operations was $9.8 million in the first quarter of
2019 compared to operating expenses of $72.0 million and loss from
operations of $9.9 million in the first quarter of 2018.
- Net loss was $11.2 million, or $0.31
per diluted share, in the first quarter of 2019 compared to net
loss of $8.4 million, or $0.23 per diluted share, in the first
quarter of 2018.
NON-GAAP RESULTS(1)
- Gross margin was 31.5% in the first
quarter of 2019 compared to 33.4% in the first quarter of
2018.
- Operating expenses were $54.8 million
and loss from operations was $0.2 million in the first quarter of
2019 compared to operating expenses of $58.6 million and earnings
from operations of $3.8 million in the first quarter of 2018.
- Net loss was $0.9 million, or $0.02 per
diluted share, in the first quarter of 2019 compared to net
earnings of $3.3 million, or $0.09 per diluted share, in the first
quarter of 2018.
- Adjusted earnings before interest,
taxes, depreciation and amortization ("Adjusted EBITDA") was $4.5
million in the first quarter of 2019 compared to $9.0 million in
the first quarter of 2018.
(1) See "Non-GAAP Financial Measures" and "Reconciliation of
GAAP and Non-GAAP Results by Quarter" below.
Cash and cash equivalents at the end of the first quarter of
2019 were $74.1 million, representing a decrease of $15.0 million
from the end of the fourth quarter of 2018. The net loss from
operations, combined with working capital requirements, primarily
to fund higher inventory, drove this reduction in cash.
Accounting Standard Adoption
We adopted the new accounting standard for lease accounting (ASC
842) effective January 1, 2019. Our first quarter 2019 financial
results reflect the adoption of this new standard.
Financial Guidance - Full Year
For the year ended December 31, 2019, we expect revenue to be
flat year-over-year and we expect Adjusted EBITDA to be
approximately $35 million. We expect non-GAAP net earnings per
share to be approximately $0.30 to $0.35 for the full year 2019.
See "Non-GAAP Financial Measures" below.
This non-GAAP guidance constitutes "forward-looking statements"
within the meaning of applicable securities laws and reflects
current business indicators and expectations. These statements are
based on management's current beliefs and assumptions, which could
prove to be significantly incorrect. Forward-looking statements,
particularly those that relate to longer periods of time, are
subject to substantial known and unknown risks and uncertainties
that could cause actual events or results to differ significantly
from those expressed or implied by our forward-looking statements,
including those described in our regulatory filings. See
"Cautionary Note Regarding Forward-Looking Statements" below.
Subsequent Event
As part of the company’s overall cost savings program, we
announced internally two initiatives on April 30th:
i. to optimize the footprint of our design
centers, we have launched a process to reduce the size of our
development team in Paris and consolidate more of our R&D in
both Canada and Asia; and
ii. to improve our administrative efficiency,
we have decided to partner with a global outsourcing leader to
provide certain transaction-based services. We expect to be fully
transitioned by the end of the year.
These two initiatives will impact approximately 125 positions,
including approximately 99 in France. Once completed, we expect to
incur approximately $28 million in severance and transitional
costs.
Non-GAAP Financial Measures
We disclose these non-GAAP financial measures as we believe they
provide useful information to investors and analysts to assist them
in their evaluation of our operating results and to 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 includes allocation of
realized gains or losses on forward contracts and excludes the
impact of stock-based compensation expense and related social
taxes, acquisition-related amortization, acquisition-related and
integration costs, restructuring costs, impairment and certain
other non-recurring costs or recoveries.
Non-GAAP income tax expense includes certain tax adjustments and
taxes on acquisition-related amortization, acquisition-related and
integration costs, restructuring costs, other non-recurring costs
and foreign exchange.
In addition to the above, Non-GAAP net earnings (loss) and
non-GAAP net earnings (loss) per share exclude the impact of
foreign exchange gains or losses on translation of certain balance
sheet accounts, 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 costs, restructuring cost,
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 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 fund
future capital expenditures.
Conference call and webcast details
Sierra Wireless President and CEO, Kent Thexton, and CFO, David
McLennan, will host a conference call and webcast with analysts and
investors to review the results on Thursday, May 9, 2019, 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: 9060546
To access the webcast, please follow the link below:
Sierra Wireless Q1 2019 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=1956137&s=1&k=378F474A63B205DDA60A9C021FBD9C9F
The webcast will remain available at the above link for one year
following the call.
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”) and may include
statements and information relating to our Q1 2019 corporate
update; financial guidance for our fiscal year 2019, expectations
regarding the Company's cost savings initiatives, our business
outlook for the short and longer term, statements regarding our
strategy, plans, goals, objectives, expectations and future
operating performance; the Company’s liquidity and capital
resources; the Company’s financial and operating objectives and
strategies to achieve them; general economic conditions; estimates
of our expenses, future revenues, non-GAAP earnings per share and
capital requirements; our expectations regarding the legal
proceedings we are involved in; statements with respect to the
Company’s estimated working capital; expectations with respect to
the adoption of IoT solutions; expectations regarding trends in the
IoT market and wireless module market; expectations regarding
product and price competition from other wireless device
manufacturers and solution providers; and our ability to implement
effective control procedures. 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", “expects”, “is
expected”, “anticipates”, “believes”, “plans”, “projects”,
“estimates”, “assumes”, “intends”, “strategy”, “goals”,
“objectives”, “potential”, “possible”, or variations thereof.
- 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, but not limited to, 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 macro-economic business
conditions;
- expected cost of sales;
- expected component supply
constraints;
- our ability to win new business;
- our ability to fully integrate the
business, operations and workforce of Numerex Corp. ("Numerex") and
to return the Numerex business to profitable growth and realize the
expected benefits of the acquisition;
- our ability to integrate other acquired
businesses and realize expected benefits;
- expected deployment of next generation
networks by wireless network operators;
- our operations not being adversely
disrupted by other developments, operating, cyber security,
litigation, or regulatory risks; and
- expected tax and foreign exchange
rates.
- 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. 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
competitors or from those with greater resources;
- the loss of, or significant demand
fluctuations from, any of our significant customers;
- our business transformation initiatives
may result in disruptions to our business and may not achieve the
anticipated benefits;
- our ability to attract or retain key
personnel and the impact of organizational change on our
business;
- deterioration in macro-economic
conditions and resulting reduced demand for our products and
services;
- risks related to the acquisition and
ongoing integration of Numerex;
- disruption of, and demands on, our
ongoing business and diversion of management's time and attention
in connection with acquisitions or divestitures;
- cyber-attacks or other breaches of our
information technology security;
- risks related to the transmission, use
and disclosure of user data and personal information;
- our financial results being subject to
fluctuation;
- our ability to respond to changing
technology, industry standards and customer requirements;
- 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 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, network service interruptions,
cyber-security vulnerabilities or other quality issues;
- our dependence on a limited number of
third party manufacturers;
- unanticipated costs associated with
litigation or settlements;
- our dependence on mobile network
operators to promote and offer acceptable wireless data
services;
- risks related to contractual disputes
with counterparties;
- risks related to governmental
regulation;
- risks inherent in foreign
jurisdictions; and
- risks related to tariffs or other trade
restrictions.
About Sierra Wireless
Sierra Wireless (NASDAQ: SWIR) (TSX: SW) is an IoT pioneer,
empowering businesses and industries to transform and thrive in the
connected economy. Customers start with Sierra because we offer a
device to cloud solution, comprised of embedded and networking
solutions seamlessly integrated with our secure cloud and
connectivity services. OEMs and enterprises worldwide rely on our
expertise in delivering fully integrated solutions to reduce
complexity, turn data into intelligence and get their connected
products and services to market faster. Sierra Wireless has more
than 1,300 employees globally and operates R&D centers in North
America, Europe and Asia. For more information, visit
www.sierrawireless.com.
AirPrime, AirLink, AirVantage, mangOH and Legato 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 (LOSS)
(In thousands of U.S. dollars, except
where otherwise stated)
(unaudited)
Three months ended March 31,
2019 2018
Revenue
Product
$ 151,113 $ 162,931
Services and other
22,700
23,947
173,813
186,878
Cost of sales Product
108,444
113,900 Services and other
10,739
10,878
119,183
124,778
Gross margin
54,630 62,100
Expenses Sales and marketing
22,506 22,425 Research
and development
22,797 24,465 Administration
12,390
12,264 Restructuring
1,397 3,591 Acquisition-related and
integration
95 1,765 Loss on disposal of iTank business
7 — Amortization
5,244
7,466
64,436
71,976
Loss from operations
(9,806 ) (9,876 ) Foreign exchange gain (loss)
(852 ) 1,115 Other income
31
55
Loss before income taxes
(10,627 ) (8,706 ) Income tax expense (recovery)
596 (343 )
Net
loss $ (11,223 )
$ (8,363 ) Other comprehensive loss: Foreign currency
translation adjustments, net of taxes of $nil
(3,615 ) (767 )
Comprehensive
loss $ (14,838 )
$ (9,130 ) Net loss per share (in dollars) Basic and
diluted
$ (0.31 ) $ (0.23 ) Weighted average
number of shares outstanding (in thousands) Basic and diluted
36,106 35,912
SIERRA WIRELESS, INC. CONSOLIDATED BALANCE
SHEETS
(In thousands of U.S. dollars, except
where otherwise stated)
(unaudited)
March 31, 2019
December 31, 2018
Assets Current assets Cash
and cash equivalents
$ 74,143 $ 89,076 Restricted
cash
221 221 Accounts receivable, net of allowance for
doubtful accounts of $3,539 (December 31, 2018 - $2,968)
151,686 171,725 Inventories
57,317 50,779 Prepaids
and other
18,638 11,703
302,005 323,504 Property and equipment
39,298 39,842
Operating lease right-of-use assets
27,500 — Intangible
assets
80,741 84,890 Goodwill
207,895 211,074
Deferred income taxes
11,758 11,751 Other assets
13,311 12,855
$ 682,508 $ 683,916
Liabilities Current liabilities Accounts payable and accrued
liabilities
$ 171,383 $ 184,220 Deferred revenue
7,548 6,213
178,931
190,433 Long-term obligations
41,206 43,250 Operating lease
liabilities
24,657 — Deferred income taxes
5,840 6,103
250,634 239,786
Equity Shareholders’
equity
Common stock: no par value; unlimited
shares authorized; issued and outstanding: 36,150,299 shares
(December 31, 2018 - 36,067,415 shares)
434,054 432,552
Preferred stock: no par value; unlimited
shares authorized; issued and outstanding: nil shares
— —
Treasury stock: at cost; 6,972 shares
(December 31, 2018 – 119,584 shares)
(118 ) (1,965 ) Additional paid-in capital
30,217 30,984 Retained deficit
(19,518 )
(8,295 ) Accumulated other comprehensive loss
(12,761 ) (9,146 )
431,874 444,130
$
682,508 $ 683,916
SIERRA
WIRELESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
Three months endedMarch 31,
2019 2018
Cash flows
provided by (used in): Operating
activities Net loss
$ (11,223 ) $ (8,363 )
Items not requiring (providing) cash Amortization
8,371
10,708 Stock-based compensation
3,158 2,814 Deferred income
taxes
77 68 Loss on disposal of iTank business
7 —
Unrealized foreign exchange loss (gain)
254 (1,562 ) Other
101 439 Changes in non-cash working capital Accounts
receivable
16,814 2,757 Inventories
(6,735 )
6,624 Prepaids and other
(7,647 ) (5,564 ) Accounts
payable and accrued liabilities
(15,166 ) 1,986
Deferred revenue
1,371
949 Cash flows provided by (used in) operating activities
(10,618 ) 10,856
Investing activities Additions to property and equipment
(3,858 ) (4,064 ) Additions to intangible assets
(488 ) (845 ) Proceeds from sale of property and
equipment
57 17 Proceeds from sale of iTank business
500 — Cash flows used in
investing activities
(3,789 )
(4,892 )
Financing activities Issuance of common
shares
94 672 Taxes paid related to net settlement of equity
awards
(670 ) (665 ) Decrease in other long-term
obligations
(141 ) (199 )
Cash flows used in financing activities
(717
) (192 ) Effect of foreign exchange rate
changes on cash and cash equivalents
191
(187 ) Cash, cash equivalents and restricted
cash, increase (decrease) in the period
(14,933 )
5,585 Cash, cash equivalents and restricted cash, beginning of
period
89,297 65,224
Cash, cash equivalents and restricted cash, end of
period $ 74,364
$ 70,809
SIERRA WIRELESS, INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS BY QUARTER
(in thousands of U.S. dollars, except where otherwise
stated)
2019 2018
Q1 Total Q4
Q3 Q2
Q1
Gross margin - GAAP $ 54,630 $ 264,571 $ 65,895 $ 67,267 $
69,309 $ 62,100 Stock-based compensation and related social taxes
59 479 58 57 57 307 Realized losses on hedge contracts (3 ) (30 )
(13 ) (11 ) — (6 ) Other nonrecurring costs —
5 5 —
— —
Gross margin -
Non-GAAP $ 54,686 $ 265,025 $ 65,945 $ 67,313 $ 69,366 $ 62,401
Earnings (loss) from operations - GAAP $ (9,806 ) $
(18,275 ) $ (4,197 ) $ 853 $ (5,055 ) $ (9,876 ) Stock-based
compensation and related social taxes 3,414 13,006 2,743 3,473
3,950 2,840 Acquisition-related and integration 95 3,962 613 570
1,014 1,765 Restructuring 1,397 7,115 2,345 227 952 3,591 Loss on
disposal of iTank business 7 2,064 2,064 — — — Other nonrecurring
costs 1,160 9,421 2,697 1,583 5,141 — Realized losses on hedge
contracts (109 ) (562 ) (296 ) (201 ) (14 ) (51 )
Acquisition-related amortization 3,687 18,575
4,261 4,354
4,426 5,534
Earnings (loss)
from operations - Non-GAAP $ (155 ) $ 35,306 $ 10,230 $ 10,859
$ 10,414 $ 3,803
Net earnings (loss) - GAAP $ (11,223
) $ (24,610 ) $ (3,826 ) $ (1,037 ) $ (11,384 ) $ (8,363 )
Stock-based compensation and related social taxes, restructuring,
impairment, acquisition-related, integration, loss on disposal of
iTank, and other non-recurring costs (recoveries) 5,964 35,568
10,462 5,853 11,057 8,196 Amortization 8,371 39,150 9,308 9,483
9,651 10,708 Interest and other, net (31 ) (51 ) 19 (7 ) (8 ) (55 )
Foreign exchange loss (gain) 852 4,908 2,082 (42 ) 4,034 (1,166 )
Income tax expense (recovery) 596 916
(2,768 ) 1,738
2,289 (343 )
Adjusted EBITDA 4,529
55,881 15,277 15,988 15,639 8,977 Amortization (exclude
acquisition-related amortization) (4,684 ) (20,575 ) (5,047 )
(5,129 ) (5,225 ) (5,174 ) Interest and other, net 31 51 (19 ) 7 8
55 Income tax expense - Non-GAAP (730 ) (2,930 )
(1,245 ) (352 ) (769 )
(564 )
Net earnings (loss) - Non-GAAP $ (854 )
$ 32,427 $ 8,966 $ 10,514 $ 9,653 $ 3,294
Diluted net
earnings (loss) per share GAAP - (in dollars per share) $ (0.31
) $ (0.68 ) $ (0.11 ) $ (0.03 ) $ (0.32 ) $ (0.23 ) Non-GAAP - (in
dollars per share) $ (0.02 ) $ 0.90
$ 0.25 $ 0.29
$ 0.27 $ 0.09
SIERRA WIRELESS, INC. SEGMENTED RESULTS
(In thousands of U.S. dollars, except where otherwise stated)
2019 2018
Q1 Total Q4
Q3 Q2 Q1
IoT
Solutions Revenue $ 94,287 $ 373,937 $ 95,728 $ 95,487 $ 93,274
$ 89,448 Gross margin - GAAP $ 34,479 $ 139,602 $ 36,651 $ 36,059 $
34,282 $ 32,610 - Non-GAAP $ 34,510 $ 139,818 $ 36,675 $ 36,081 $
34,308 $ 32,754 Gross margin % - GAAP 36.6 % 37.3 % 38.3 % 37.8 %
36.8 % 36.5 % - Non-GAAP 36.6 % 37.4 % 38.3 % 37.8 % 36.8 % 36.6 %
Embedded Broadband Revenue $ 79,526 $ 419,665 $
105,667 $ 107,939 $ 108,629 $ 97,430 Gross margin - GAAP $ 20,151 $
124,969 $ 29,244 $ 31,208 $ 35,027 $ 29,490 - Non-GAAP $ 20,176 $
125,207 $ 29,270 $ 31,232 $ 35,058 $ 29,647 Gross margin % - GAAP
25.3 % 29.8 % 27.7 % 28.9 % 32.2 % 30.3 % - Non-GAAP 25.4 % 29.8 %
27.7 % 28.9 % 32.3 % 30.4 %
Total Revenue $ 173,813 $
793,602 $ 201,395 $ 203,426 $ 201,903 $ 186,878 Gross margin - GAAP
$ 54,630 $ 264,571 $ 65,895 $ 67,267 $ 69,309 $ 62,100 - Non-GAAP $
54,686 $ 265,025 $ 65,945 $ 67,313 $ 69,366 $ 62,401 Gross margin %
- GAAP 31.4 % 33.3 % 32.7 % 33.1 % 34.3 % 33.2 % - Non-GAAP
31.5 % 33.4 % 32.7 %
33.1 % 34.4 % 33.4 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190509005963/en/
Investor and Media Contact:David ClimieVice President,
Investor Relations+1 (604) 231-1137dclimie@sierrawireless.com
Investor Contact:David G. McLennanChief Financial
Officer+1 (604) 231-1181investor@sierrawireless.com
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