Sierra Wireless Reports Third Quarter 2018 Results

Revenue increases 17.9% year-over-year to $203.4 million in the third
quarter of 2018

VANCOUVER, British Columbia–(BUSINESS WIRE)–Sierra Wireless, Inc. (NASDAQ: SWIR) (TSX: SW) today reported results
for its third quarter ending September 30, 2018. 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.

“We had strong growth in revenue and adjusted EBITDA on a year-over-year
basis in the Third Quarter,” said Kent Thexton, President and CEO. “We
continued to strengthen our position as the leader in Device-to-Cloud
IoT solutions and our two highest margin businesses – namely Enterprise
Solutions and IoT Services – increased to 27% of total revenue in Q3.”

Revenue for the third quarter of 2018 was $203.4 million, an increase of
17.9%, compared to $172.6 million in the third quarter of 2017. Product
revenue was $179.4 million, up 11.1% year-over-year, and Services and
Other revenue was $24.0 million, up 117.8% compared to the third quarter
of 2017. Quarterly revenue for the three business segments was as
follows: (i) Revenue from OEM Solutions was $148.3 million in the third
quarter of 2018, up 7.6% compared to $137.9 million in the third quarter
of 2017; (ii) Revenue from Enterprise Solutions was $32.1 million in the
third quarter of 2018, up 22.0% compared to $26.3 million in the third
quarter of 2017; and (iii) Revenue from IoT Services was $23.0 million
in the third quarter of 2018, up 172.8%, compared to $8.4 million in the
third quarter of 2017 driven by the contribution from Numerex and
organic subscriber growth.

GAAP RESULTS

  • Gross margin was $67.3 million, or 33.1% of revenue, in the third
    quarter of 2018 compared to $57.3 million, or 33.2% of revenue, in the
    third quarter of 2017.
  • Operating expenses were $66.4 million and earnings from operations was
    $0.9 million in the third quarter of 2018 compared to operating
    expenses of $56.9 million and earnings from operations of $0.4 million
    in the third quarter of 2017.
  • Net loss was $1.0 million, or $0.03 per diluted share, in the third
    quarter of 2018 compared to net earnings of $1.4 million, or $0.04 per
    diluted share, in the third quarter of 2017.

NON-GAAP RESULTS(1)

  • Gross margin was 33.1% in the third quarter of 2018 compared to 33.3%
    in the third quarter of 2017.
  • Operating expenses were $56.5 million and earnings from operations
    were $10.9 million in the third quarter of 2018 compared to operating
    expenses of $47.9 million and earnings from operations of $9.5 million
    in the third quarter of 2017.
  • Net earnings were $10.5 million, or $0.29 per diluted share, in the
    third quarter of 2018 compared to net earnings of $7.7 million, or
    $0.24 per diluted share, in the third quarter of 2017.
  • Adjusted earnings before interest, taxes, depreciation and
    amortization (“Adjusted EBITDA”) were $16.0 million in the third
    quarter of 2018 compared to $13.2 million in the third quarter of 2017.

(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 third quarter of 2018 were
$67.5 million, representing a decrease of $5.9 million, compared to the
end of the second quarter of 2018. The decrease in cash was primarily
due to capital expenditures and repurchase of common shares under our
Normal Course Issuer Bid, partly offset by cash provided by operating
activities.

Chief Operating Officer Appointment

Jason Krause has been appointed Chief Operating Officer of the company.
In his new role, Jason will be responsible for all aspects of Sierra
Wireless product and services, including: product portfolio strategy;
product management; R&D supply chain; quality; and global MNVO network
and service operations. Prior to his new position, Jason was Senior Vice
President and General Manager of the Enterprise Solutions business unit,
and before that, he was Senior Vice President of Marketing, Strategy,
and Corporate Development. Before joining Sierra Wireless in 2007, Jason
worked at the Boston Consulting Group and held marketing and engineering
roles at Altera Corporation. He has an MBA from the Rotman School of
Management at the University of Toronto and a BASc in Electronics
Engineering from Simon Fraser University.

Accounting Standard Adoption

We adopted the new accounting standard for revenue recognition (ASC 606)
effective January 1, 2018. Our third quarter 2018 financial results
reflect the adoption of this new standard and prior periods have been
adjusted accordingly.

Financial Guidance

For the fourth quarter of 2018, we expect revenue to be in the range of
$200 million to $208 million and non-GAAP net earnings per share to be
in the range of $0.22 to $0.30. Included in this guidance range for the
fourth quarter is an estimated negative impact of approximately $0.03 on
earnings per share related to U.S. tariffs on goods imported from China.

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 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 nonrecurring
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, November 8, 2018, 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: 5159508

To access the webcast, please follow the link below:

Sierra
Wireless Q3 2018 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=1823236&s=1&k=E4170A61B49EA5F9B5C0F935576B42D2

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”) including statements and information
relating to our financial guidance for the fourth quarter of 2018 and
our fiscal year 2018, our business outlook for the short and longer
term, statements regarding our strategy, plans 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; expectations regarding the
acquisition of Numerex; 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”, “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 cost of sales;
    • expected component supply constraints;
    • our ability to win new business;
    • our ability to integrate the business, operations and workforce
      of 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 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 competitors or from those
      with greater resources
    • 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
      other acquisitions or divestitures;
    • the loss of, or significant demand fluctuations from, any of
      our significant customers;
    • cyber-attacks or other breaches of our information technology
      security;
    • 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;
    • 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;
    • 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 reliance on single source suppliers for certain components
      used in our products;
    • 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;
    • difficult or uncertain global economic conditions;
    • 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
September 30,

   

Nine months ended
September 30,

      2018    

2017
As adjusted (1)

    2018    

2017
As adjusted (1)

Revenue                
Product $ 179,390 $ 161,523 $ 521,127 $ 476,093
Services and other     24,036       11,037       71,080       31,101
      203,426       172,560       592,207       507,194
Cost of sales
Product 124,528 110,131 359,656 319,891
Services and other     11,631       5,135       33,875       14,878
      136,159       115,266       393,531       334,769
Gross margin     67,267       57,294       198,676       172,425
Expenses
Sales and marketing 21,743 17,975 66,234 54,699
Research and development 22,621 21,044 71,477 60,825
Administration 14,998 10,560 47,066 31,525
Restructuring 227 199 4,770 831
Acquisition-related and integration 570 2,077 3,349 3,403
Impairment 3,668
Amortization     6,255       5,049       19,858       14,435
      66,414       56,904       212,754       169,386
Earnings (loss) from operations 853 390 (14,078 ) 3,039
Foreign exchange gain (loss) (159 ) 1,667 (3,092 ) 6,283
Other income (loss)     7       32       70       29
Earnings (loss) before income taxes 701 2,089 (17,100 ) 9,351
Income tax expense     1,738       735       3,684       1,319
Net earnings (loss)     $ (1,037 )     $ 1,354       $ (20,784 )     $ 8,032
Other comprehensive earnings (loss):
Foreign currency translation adjustments, net of taxes of $nil     322       3,822       (6,919 )     11,862
Comprehensive earnings (loss)     $ (715 )     $ 5,176       $ (27,703 )     $ 19,894
 
Net earnings (loss) per share (in dollars)
Basic $ (0.03 ) $ 0.04 $ (0.58 ) $ 0.25
Diluted (0.03 ) 0.04 (0.58 ) 0.25
Weighted average number of shares outstanding (in thousands)
Basic 36,085 32,200 36,007 32,093
Diluted     36,085       32,735       36,007       32,665

(1) Three and nine months ended September 30, 2017 have been
adjusted to reflect the adoption of ASC 606 – Revenue from Contracts
with Customers.

 

SIERRA WIRELESS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except where otherwise stated)

(unaudited)

 
      September 30, 2018    

December 31, 2017
As adjusted (1)

Assets    
Current assets
Cash and cash equivalents $ 67,460 $ 65,003
Restricted cash 221 221

Accounts receivable, net of allowance for doubtful accounts of
$2,656
(December 31, 2017 – $1,827)

173,285 173,054
Inventories 51,430 53,143
Prepaids and other     12,205   8,221  
304,601 299,642
Property and equipment 42,451 42,977
Intangible assets 91,743 108,599
Goodwill 213,663 218,516
Deferred income taxes 9,018 12,197
Other assets     12,824   12,713  
      $ 674,300   $ 694,644  
 
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 173,739 $ 175,367
Deferred revenue    

6,248

  7,275  
179,987 182,642
Long-term obligations 40,771 36,637
Deferred income taxes     6,866   7,845  
      227,624   227,124  
Equity
Shareholders’ equity
Common stock: no par value; unlimited shares authorized; issued and

outstanding: 36,047,933 shares (December 31, 2017 – 35,861,510
shares)

432,211 427,748
Preferred stock: no par value; unlimited shares authorized;

issued and outstanding: nil shares

Treasury stock: at cost; 42,066 shares (December 31, 2017 – 222,639
shares)
(754 ) (3,216 )
Additional paid-in capital 29,083 27,962
Retained earnings (deficit) (4,469 ) 17,502
Accumulated other comprehensive loss     (9,395 ) (2,476 )
      446,676   467,520  
      $ 674,300   $ 694,644  

(1) December 31, 2017 has been adjusted to reflect the adoption of
ASC 606 – Revenue from Contracts with Customers.

 

SIERRA WIRELESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

 
      Three months ended

September 30,

    Nine months ended
September 30,
      2018    

2017
As adjusted (1)

    2018    

2017
As adjusted (1)

Cash flows provided by (used in):                
Operating activities
Net earnings (loss) $ (1,037 ) $ 1,354 $ (20,784 ) $ 8,032
Items not requiring (providing) cash
Amortization 9,483 7,548 29,842 21,739
Stock-based compensation 3,266 2,769 10,317 7,472
Deferred income taxes 1,378 (11 ) 2,460 (1,268 )
Impairment 3,668
Unrealized foreign exchange loss (gain) 653 (2,202 ) 4,978 (8,046 )
Other (348 ) (43 ) 221 (225 )
Changes in non-cash working capital
Accounts receivable (5,070 ) (12,751 ) (6,762 ) (23 )
Inventories 2,114 9,047 1,325 (14,193 )
Prepaids and other 1,396 (367 ) (4,322 ) (5,192 )
Accounts payable and accrued liabilities (9,401 ) (17,039 ) 9,025 (24,869 )
Deferred revenue     193       (349 )       (1,496 )       (1,561 )
Cash flows provided by (used in) operating activities     2,627       (12,044 )       24,804       (14,466 )
Investing activities
Additions to property and equipment (4,789 ) (2,939 ) (13,788 ) (10,879 )
Additions to intangible assets (307 ) (288 ) (1,793 ) (1,385 )
Proceeds from sale of property and equipment 14 76 27
Acquisition of GNSS business                           (3,145 )
Cash flows used in investing activities     (5,082 )     (3,227 )       (15,505 )       (15,382 )
Financing activities
Issuance of common shares 1,257 363 2,535 5,285
Repurchase of common shares for cancellation (3,120 ) (3,120 ) (2,779 )
Purchase of treasury shares for RSU distribution (1,085 ) (1,085 )
Taxes paid related to net settlement of equity awards (334 ) (7 ) (1,788 ) (1,096 )
Payment for contingent consideration (161 ) (130 ) (1,397 )
Decrease in other long-term obligations     (68 )     (106 )       (511 )       (340 )
Cash flows provided by (used in) financing activities     (3,350 )     89         (4,099 )       (327 )
Effect of foreign exchange rate changes on cash and cash equivalents     (146 )     376         (2,743 )       1,609  
Cash, cash equivalents and restricted cash, increase (decrease) in
the period
(5,951 ) (14,806 ) 2,457 (28,566 )
Cash, cash equivalents and restricted cash, beginning of period     73,632       89,012         65,224         102,772  
Cash, cash equivalents and restricted cash, end of period     $ 67,681       $ 74,206       $ 67,681       $ 74,206  

(1) Three and nine months ended September 30, 2017 have been
adjusted to reflect the adoption of ASC 606 – Revenue from Contracts
with Customers.

 

SIERRA WIRELESS, INC.

RECONCILIATION OF GAAP AND NON-GAAP RESULTS BY QUARTER

 
(in thousands of U.S. dollars, except where otherwise stated)     2018     2017 (1)
    Q3     Q2     Q1     Total     Q4     Q3     Q2     Q1
                       
Gross margin – GAAP $ 67,267 $ 69,309 $ 62,100 $ 234,239 $ 61,814 $ 57,294 $ 59,636 $ 55,495
Stock-based compensation and related social taxes 57 57 307 461 122 123 108 108
Realized gains (losses) on hedge contracts (11 )           (6 )     23       11       12              
Gross margin – Non-GAAP $ 67,313 $ 69,366 $ 62,401 $ 234,723 $ 61,947 $ 57,429 $ 59,744 $ 55,603
 
Earnings (loss) from operations – GAAP $ 853 $ (5,055 ) $ (9,876 ) $ 100 $ (2,939 ) $ 390 $ 3,994 $ (1,345 )
Stock-based compensation and related social taxes 3,473 3,950 2,840 10,374 2,869 2,780 2,577 2,148
Acquisition-related and integration 570 1,014 1,765 8,195 4,792 2,077 875 451
Restructuring 227 952 3,591 1,076 245 199 259 373
Other nonrecurring costs 1,583 5,141 318 42 276
Realized gains (losses) on hedge contracts (201 ) (14 ) (51 ) 419 209 210
Impairment 3,668 3,668
Acquisition-related amortization 4,354       4,426       5,534       15,486       4,306       3,845       3,694       3,641  
Earnings from operations – Non-GAAP $ 10,859 $ 10,414 $ 3,803 $ 39,636 $ 9,482 $ 9,501 $ 11,441 $ 9,212
 
Net earnings (loss) – GAAP $ (1,037 ) $ (11,384 ) $ (8,363 ) $ 4,518 $ (3,514 ) $ 1,354 $ 6,770 $ (92 )
Stock-based compensation and related social taxes, restructuring,
impairment, acquisition-related, integration and other nonrecurring
costs (recoveries)
5,853 11,057 8,196 23,631 7,906 5,056 3,753 6,916
Amortization 9,483 9,651 10,708 30,503 8,764 7,548 7,194 6,997
Interest and other, net (7 ) (8 ) (55 ) (67 ) (38 ) (32 ) 12 (9 )
Foreign exchange loss (gain) (42 ) 4,034 (1,166 ) (7,131 ) (1,058 ) (1,457 ) (3,517 ) (1,099 )
Income tax expense (recovery) 1,738       2,289       (343 )     3,199       1,880       735       729       (145 )
Adjusted EBITDA 15,988 15,639 8,977 54,653 13,940 13,204 14,941 12,568
Amortization (exclude acquisition-related amortization) (5,129 ) (5,225 ) (5,174 ) (15,017 ) (4,458 ) (3,703 ) (3,500 ) (3,356 )
Interest and other, net 7 8 55 67 38 32 (12 ) 9
Income tax expense – Non-GAAP (352 )     (769 )     (564 )     (5,184 )     (312 )     (1,816 )     (1,615 )     (1,441 )
Net earnings – Non-GAAP $ 10,514 $ 9,653 $ 3,294 $ 34,519 $ 9,208 $ 7,717 $ 9,814 $ 7,780
 
Diluted net earnings (loss) per share
GAAP – (in dollars per share) $ (0.03 ) $ (0.32 ) $ (0.23 ) $ 0.14 $ (0.11 ) $ 0.04 $ 0.21 $
Non-GAAP – (in dollars per share)     $ 0.29       $ 0.27       $ 0.09       $ 1.05       $ 0.28       $ 0.24       $ 0.30       $ 0.24  

Contacts

Sierra Wireless, Inc.
Investor and Media Contact:
David
Climie, +1 (604) 231-1137
Vice President, Investor Relations
dclimie@sierrawireless.com
or
Investor
Contact:

David G. McLennan, +1 (604) 231-1181
Chief
Financial Officer
investor@sierrawireless.com

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