What happened
Shares of Sierra Wireless (SWIR) declined 24.6% in August, according to data from S&P Global Market Intelligence, after the Internet of Things pure play announced strong second-quarter 2017 results and reasonably solid forward guidance, but also announced a significant dilutive acquisition.
More specifically on the former, Sierra Wireless' quarterly revenue climbed 11.1% year over year to $173.5 million, and translated to adjusted net income of $9.7 million, or $0.30 per share. Both figures arrived at the high ends of Sierra Wireless' respective guidance ranges provided three months earlier, which called for revenue of $165 million to $175 million, and adjusted earnings per share in the range of $0.24 to $0.32.
IMAGE SOURCE: SIERRA WIRELESS
So what
Sierra Wireless CEO Jason Cohenouer rightly lauded his company's "strong revenue and profitability growth" to end the first half, as well as new product offerings and their acquisition of technology assets from data orchestration and rapid application development specialist FlowThings.
But FlowThings wasn't the purchase that left the market riled up. In a separate press release, Sierra Wireless also announced an agreement to acquire managed enterprise-solutions company Numerex Corp. (NASDAQ: NMRX) in a stock-for-stock deal valued at $107 million -- a significant sum considering Sierra Wireless' entire market capitalization stood at just $950 million at the start of last month.
Now what
Following the completion of the acquisition (expected this coming January), Numerex will become a subsidiary of Sierra Wireless within its cloud and connectivity segment, and Numerex investors will own roughly 10% of Sierra Wireless total fully diluted shares.
Sierra Wireless also provided guidance for third-quarter revenue in the range of $167 million to $175 million, and for adjusted earnings per share of $0.17 to $0.25. For perspective, consensus estimates at the time predicted roughly the same revenue would result in third-quarter earnings near the high end of that range.
Of course, that's not to say Sierra Wireless wasn't under-promising with the intention of over-delivering. And Sierra Wireless is particularly excited about its acquisition of Numerex, which it says will add "an established customer base, significant sales capacity, proven solutions, and recurring revenue scale" to its budding device-to-cloud operations. But between its mixed third-quarter outlook (at least relative to the market's expectations), and the dilution stemming from the Numerex purchase, investors shouldn't be shocked that Sierra Wireless stock suffered a near-term decline last month.
