Sierra Wireless (SWIR) announced better-than-expected fourth-quarter 2017 results on Thursday after the market closed, highlighting particularly strong growth in its high-margin enterprise and Internet of Things (IoT) services segments. However, the wireless technology leader offered underwhelming guidance for the current quarter.

Let's dive in to see what Sierra Wireless accomplished over the past few months, and whether investors should be concerned over its outlook.

Blue-toned cityscape with wireless points connected

Image source: Getty Images.

Sierra Wireless' results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Growth

Revenue

$183.5 million

$163.0 million

12.6%

GAAP net income

($3.5 million)

$15.7 million

N/A

GAAP earnings per share

($0.11)

$0.49

N/A

Data source: Sierra Wireless. 

What happened with Sierra Wireless this quarter?

  • On an adjusted (non-GAAP) basis -- which excludes items like acquisition costs and stock-based compensation -- net income was $9.2 million, or $0.28 per share, up from $8.8 million, or $0.27 per share in the same year-ago period.
  • By comparison, Sierra Wireless' guidance provided last quarter called for lower revenue of $172 million to $180 million, and adjusted earnings per share in the range of $0.21 to $0.29.
  • On Dec. 7, 2017, the company closed on the stock-for-stock acquisition of Numerex for a total consideration of $97.5 million, including 3,580,832 newly issued Sierra Wireless shares, and $20.2 million in cash to retire outstanding Numerex debt.
  • By segment:
    • OEM solutions revenue grew 3.4% year over year to $135.2 million.
    • Enterprise solutions revenue climbed 52% to $31.8 million.
    • IoT services revenue (renamed from cloud and connectivity services last quarter) increased 73.5% to $11.9 million. This includes $3.1 million in partial-quarter sales from Numerex.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declined 10.3% year over year to $13.9 million. 
  • The company ended the year with cash and equivalents of $65.2 million.

What management had to say

"In the fourth quarter of 2017, we delivered year-over-year revenue increases in each of our three segments, with particularly strong growth in our high margin Enterprise and IoT Services lines of business," stated Sierra Wireless CEO Jason Cohenour. "We also significantly strengthened our IoT Services business with the addition of Numerex, and are now better positioned than ever before to expand our IoT services and scale our subscription based recurring revenue."

Looking forward

The market was less impressed, however, by Sierra Wireless' first-quarter 2018 outlook, which calls for revenue of $181 million to $189 million, and adjusted earnings per share of $0.04 to $0.10. By comparison -- and though we don't usually pay close attention to Wall Street's expectations -- consensus estimates predicted earnings of $0.20 per share on revenue of $188 million.

Sierra Wireless acknowledged the shortfall relative to expectations, explaining that the first quarter will be negatively impacted by higher one-time costs from a Numerex network upgrade and customer migration, as well as tight component supplies that will hold back revenue and increase its cost of goods sold at the start of the year. 

That said, Sierra Wireless is also implementing new efficiency initiatives focused on improving operations at the existing business, and realizing synergies with the integration of Numerex. After restructuring charges of roughly $4.5 million, Sierra Wireless is targeting roughly $10 million per year in operating expense savings by the end of 2018.

This might not seem like much, of course. But those costs will add up as Sierra Wireless builds from its small base in these early stages of its long-term growth. And considering the aforementioned acquisition headwinds should prove temporary, I think today presents a perfect opportunity for patient investors to open or add to their positions.