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Sierra Wireless, Inc. Demonstrates Continued Improvement

By Steve Symington - Nov 3, 2017 at 4:25PM

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And with the help of an impending merger, the Internet of Things pure play is about to get much bigger.

Sierra Wireless (SWIR 0.83%) announced slightly better-than-expected third-quarter 2017 results on Thursday after the market closed, including broad-based improvement from all three of its business segments. Sierra Wireless also updated investors on the status of its pending acquisition of Numerex Corp (NASDAQ: NMRX).

But despite following up with forward guidance that was roughly in line with investors' expectations, shares of the Internet of Things specialist fell nearly 5% on Friday in response. So let's take a closer look at what drove Sierra Wireless' business as it entered the second half, as well as what we can expect from the company in the coming months.

Cityscape with lit-up connected points, illustrating wireless connectivity, Internet of Things

IMAGE SOURCE: GETTY IMAGES

Sierra Wireless' results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Growth

Revenue

$173.2 million

$153.6 million

12.8%

GAAP net income (loss)

$1.2 million

($1.8 million)

N/A

GAAP earnings (loss) per share

$0.04

($0.06)

N/A

Data source: Sierra Wireless. GAAP = generally accepted accounting principles

What happened with Sierra Wireless this quarter?

  • On an adjusted (non-GAAP) basis -- which notably excludes acquisition costs and stock-based compensation -- net income was $7.6 million, or $0.23 per share, up from $4.1 million, or $0.13 per share in the same year-ago period.
  • Both figures were near the high ends of Sierra Wireless' guidance ranges from last quarter, which called for revenue of $167 million to $175 million and adjusted earnings per share of $0.17 to $0.25.
  • By segment:
    • OEM solutions revenue increased 8.4% year over year to $138.5 million.
    • Enterprise solutions revenue rose 38.8% to $26.3 million.
    • Cloud and connectivity services revenue climbed 23% to $8.4 million.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 35.1% to $13.1 million.
  • Recall that last quarter, Sierra Wireless entered into an agreement to merge with Numerex in a stock-for-stock transaction valued at roughly $107 million -- a move that should significantly increase its recurring subscription services revenue and bolster its position as an Internet of Things pure play.
    • Numerex shareholders are scheduled to vote to approve the deal on December 6, 2017, after which Sierra Wireless expects the transaction will close within several days. Numerex's board has unanimously recommended shareholders vote in favor of the merger, and the company has voting agreements in place with shareholders who owned roughly 27.2% of Numerex shares outstanding.
  • Sierra Wireless ended the quarter with cash and equivalents of $74.2 million.

What management had to say

"In the third quarter of 2017, we delivered strong revenue and profitability growth on a year-over-year basis, driven by performance improvements in each of our three business segments," stated Sierra Wireless CEO Jason Cohenour. "We continue to strengthen our leadership position in the Internet of Things with technology innovations, new product launches, new customer wins and strategic acquisitions."

Looking forward

In the fourth quarter, Sierra Wireless anticipates revenue will arrive in the range of $172 million to $180 million -- good for year-over-year growth of roughly 8% at the midpoint -- which should translate to adjusted earnings per share of $0.21 to $0.29. These figures exclude any potential contributions from Numerex.

By comparison, and though we normally don't pay close attention to Wall Street's demands, the midpoints of both ranges were almost exactly in line with consensus estimates.

So why the share price decline today? For one, while this quarter was slightly stronger than anticipated, Sierra Wireless' outperformance may not have been enough to whet the appetites of more short-term-oriented, growth-hungry investors. What's more, Sierra Wireless stock is still up nearly 40% so far in 2017, including a more than 30% single-day pop following the company's stellar fourth-quarter 2016 report in February.

Even so, Sierra Wireless deserves credit for once again delivering as promised, and its business still enjoys a massive runway for growth as the Internet of Things continues to gain momentum. This quarter was another solid step to that end, and I think long-term investors should be more than happy.

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