Shares of Sierra Wireless (SWIR +0.00%) popped nearly 15% on Friday after the Internet of Things pure play released better-than-expected third-quarter 2016 results. And according to Sierra Wireless management, the company should only get stronger going forward. Before we get there, however, let's dig deeper to see what Sierra Wireless achieved in its latest quarter.
IMAGE SOURCE: Sierra Wireless, Inc.
Sierra Wireless's results: The raw numbers
| Metric |
Q3 2016 Actual |
Q3 2015 Actual |
YOY Growth |
|---|---|---|---|
|
Revenue |
$153.6 million |
$154.6 million |
(0.7%) |
|
GAAP net income (loss) |
($1.8 million) |
$3.3 million |
N/A |
|
GAAP earnings (loss) per share |
($0.06) |
$0.10 |
N/A |
YOY = year over year. Data source: Sierra Wireless, Inc.
What happened with Sierra Wireless this quarter?
- On an adjusted basis, which excludes items like stock-based compensation and acquisition expenses, Sierra Wireless's net income was $4.1 million, or $0.13 per share, down from $7.4 million, or $0.23 per share in last year's third quarter.
- On a segment basis:
- OEM solutions revenue fell 2.2% year over year, to $127.8 million, as expected as growing contributions from new customers and programs was offset by softness at existing customers. OEM Solutions design-win activity during the quarter was the strongest so far this year in terms of both volume and lifetime value.
- Enterprise solutions revenue climbed 6.8% year over year, to $18.9 million, including $2.7 million from GenX Mobile, a provider of in-vehicle cellular devices for fleet management acquired by Sierra Wireless in early August. Excluding GenX revenue, Enterprise revenue would have been slightly lower from last year's "exceptionally strong" third quarter, which was driven by a large public safety customer deployment.
- Cloud and connectivity services revenue rose 10.7% year over year, to $6.9 million, driven primarily by recurring service contracts and a continued ramp in new customer acquisition in the industrial, transportation, and security segments
- Adjusted earnings before interest, taxes, depreciation and amortization declined 19.8% year over year, to $9.7 million.
- Sierra Wireless's guidance provided last quarter called for third-quarter revenue of $150 million to $160 million and adjusted earnings per share of $0.09 to $0.17. But investors should note those ranges excluded contributions from GenX, without which revenue would have fallen near the midpoint of guidance.
- Earlier this week, Sierra Wireless also closed on its $6.5 million (or $3 million, net of cash acquired) acquisition of Blue Creation, a U.K.-based company specializing in embedded wireless technologies including, but not limited to, Bluetooth, Bluetooth Low Energy, and Wi-Fi.
- The acquisition expands Sierra Wireless's short-range wireless capabilities, improving its strategic position with original equipment manufacturers.
- Blue Creation will be integrated into the OEM Solutions segment and should have minimal financial impact on Sierra Wireless's business over the short term.
- Announced a new partnership with AT&T to pilot next-gen LTE-M network technologies in the San Francisco Bay Area starting this month.
What management had to say
"In the third quarter of 2016, we delivered financial results that were in line with our expectations, while also strengthening our strategic position with new product launches, new design wins and the acquisition of Bluetooth innovator, Blue Creation," added Sierra Wireless CEO Jason Cohenour. "Looking forward, we expect stronger financial results in the fourth quarter, including sequential and year-over-year revenue growth."
Looking forward
More specifically, Sierra Wireless expects fourth-quarter revenue of $157 million to $166 million, or 11.5% year-over-year growth at the midpoint, and adjusted earnings per share of $0.13 to $0.19, up from $0.08 per share in last-year's fourth quarter. By comparison, Wall Street's consensus predicted Sierra Wireless would achieve roughly the same fourth-quarter revenue, with earnings slightly below the midpoint of Sierra Wireless's latest guidance.
All in all, this is a welcome step in the right direction as Sierra Wireless continues to gather new design wins, effectively positioning itself to capitalize on the massive long-term growth potential enabled by the proliferation of connected devices. And considering investors had to endure an 18% plunge the day after last quarter's report in August, when Sierra Wireless followed strong results with a cautious outlook as it weighed the impact of the aforementioned softness in OEM Solutions, I think Sierra Wireless shareholders have every reason to look forward to what management believes will be even better days ahead.
