When Sierra Wireless Inc. (SWIR) reported better-than-expected second-quarter results last month, it might have been surprising at first to see shares fall nearly 18% the following day -- that is, until you realize the market was frowning upon cautious forward guidance from the Internet of Things (IoT) pure play.
But you can learn a lot about any given company by looking beyond its headline numbers. Now that the dust has settled, one of the best ways for investors to do so is by digging through Sierra Wireless' subsequent earnings conference call. To get you started, here are five of the most important points Sierra Wireless' management discussed during this quarter's call:
1. The drivers of Sierra Wireless' Q2 outperformance
As expected OEM revenue was up 10% sequentially as we saw stronger demand from established customers and programs as well as growing contribution from new programs. Market Segment drivers of the sequential growth included automotive, sales & payment, energy and mobile computing. [...] Revenue in our enterprise solutions business was $16.6 million in the second quarter, an increase of 10% compared to the same quarter last year. For the first half of 2016, Enterprise Solutions is up approximately 9.5% as this line of business continues to show healthy signs of a return to growth. -- Sierra Wireless CEO Jason Cohenour, (all quotes credited to Seeking Alpha)
For perspective -- and similar to recent quarters' performances -- this quarter marked more fulfilled promises from Sierra Wireless management to investors, including sustained momentum from its core OEM business unit and an expected return to year-over-year growth from its Enterprise unit as the company gears up to launch new enterprise gateways in the coming quarters. So far, so good.
2. Regarding light forward guidance
[O]ur view of growth in OEM solutions has become more cautious as our demand outlook for established customers and programs has weakened. And we see signs of customers managing inventory more tightly as we go out and look for established customers and programs is partially offset by expected continued growth from new programs. -- Jason Cohenour
However, Sierra Wireless investors were less than pleased with its full-year revenue and earnings expectations, which the company revised to be below the low end of guidance provided three months earlier when it called for 2016 revenue of $630 million to $670 million and adjusted earnings per share of $0.60 to $0.90.
But Sierra Wireless also insisted its long-term story remains intact and that the company is "well positioned to drive strong long-term growth" given impending contributions from new OEM programs in the coming quarters. So, while the market hates being effectively told to "hurry up and wait," I think patient investors should be content with where Sierra Wireless stands as it continues to secure new design wins.
3. On design win activity
During Q2 we experienced solid design win success including two new wins in the growing China OEM market as well as key wins in the transportation, smart metering, networking and industrial segments. Our pipeline of new customer programs continues to expand supporting our expectation of long term growth OEM solutions. -- Jason Cohenour
Speaking of which, investors should be encouraged new customers continue to offer their respective votes of confidence by choosing Sierra Wireless' connectivity solutions. To be fair, these design wins aren't necessarily followed by immediate purchase orders, so don't do much to offset Sierra Wireless' near-term uncertainty from existing programs. But again as long as Sierra Wireless products keep finding new homes in next-gen products, it's easier to embrace the validity of its long-term potential.
4. Expected contributions from GenX
We also see a natural bundling opportunity for GenX devices with our cloud and connectivity services. Furthermore, we believe that overtime there are opportunities to capture significant cost of goods and channel synergies. The acquisition of GenX. was completed yesterday for $7.8 million in cash, or $6 million net cash acquired. The company has 22 employees all of whom have joined our enterprise business unit team. In the first half of 2016 first half GenX recorded revenue of $6.7 million dollars and was roughly break even on a non-GAAP earnings from operations basis. -- Jason Cohenour
To that end, investors should also note that guidance does not include the aforementioned contributions from GenX Mobile, a small company that provides in-vehicle cellular devices for the fleet management, asset tracking, and transportation markets. For the time being, Cohenour makes it clear that GenX's contributions to its top and bottom lines will be minimal. But if Sierra Wireless is able to capitalize on incremental growth opportunities by bundling GenX devices with its own services, this acquisition could prove significantly more valuable than it currently appears.
5. Enabling the next generation of mobile connectivity
[O]ur core network platform is now fully upgraded to support LTE services, and we're continuing to expand our wholesale agreements with mobile network operators as we seek to expand our connectivity services globally. Demonstrated lead flow from existing and new device customers, differentiated cloud and connectivity capabilities, and global footprint expansion give us confidence in our ability to drive strong long-term growth in our recurring cloud and connectivity services revenue. -- Jason Cohenour
Recall Sierra Wireless' newer cloud and connectivity services business was included under enterprise solutions up until late last year. And in the second quarter, cloud and connectivity services saw revenue climb an impressive 46.8% year over year -- albeit from a small base to $4.8 million -- with broad-based customer wins across the automotive, industrial, security, and signage industries. But with Sierra Wireless' core network platform now fully upgraded to support LTE, that growth should prove sustainable as the company expands its wholesale mobile network agreements.
In fact, subsequent to the end of the quarter, Sierra Wireless announced that it's partnering with AT&T (NYSE: T) and "several technology leaders in the San Francisco Bay Area" to pilot next-generation LTE-M network technologies starting this November. LTE-M focuses specifically on offering lower-cost LTE connectivity with longer battery life for IoT devices such as smart meters and wearable devices. And AT&T plans to make the technology commercially available in the first half of 2017.
In the end, it's no surprise to see shares of Sierra Wireless pull back hard given its guidance reduction for this year. But while Sierra Wireless continues to ensure its technology plays a central role as connected devices become more ubiquitous, I think investors who can patiently watch its growth story unfold still stand to enjoy market-beating returns for years to come.
