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Sierra Wireless Beats Expectations on Enterprise, IoT Strength

By Steve Symington – May 4, 2018 at 3:47PM

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The Internet of Things company's smaller high-margin segments are driving growth. Here's what investors need to know.

Sierra Wireless (SWIR -0.13%) announced first-quarter 2018 results on Thursday after the market closed, detailing exceptional growth from its lucrative Enterprise and Internet of Things (IoT) businesses. The IoT pure play also provided better-than-expected guidance for the current quarter -- though continued uncertainty surrounding component-supply constraints, however unmerited, tempered the market's enthusiasm in Friday's late trading.

Let's take a closer look at what Sierra Wireless had to say, as well as what investors should be watching in the coming months.

Sierra Wireless logo in red and gray.

Image source: Sierra Wireless.

Sierra Wireless' results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Growth

Revenue

$186.9 million

$161.2 million

15.9%

GAAP net income (loss)

($8.4 million)

($92,000)

N/A

GAAP earnings (loss) per share

($0.23)

$0.00

N/A

Data source: Sierra Wireless.

What happened with Sierra Wireless this quarter?

  • On an adjusted (non-GAAP) basis -- which excludes items like stock-based compensation and acquisition expenses -- net income was $3.3 million, or $0.09 per share, compared to $7.8 million, or $0.24 per share in the same year-ago period.
  • These results were near the high end of Sierra Wireless' guidance provided last quarter, which called for revenue of $181 million to $189 million, and adjusted earnings per share of $0.04 to $0.10.
  • By segment:
    • OEM Solutions revenue increased 2.1% to $135.2 million.
    • Enterprise Solutions revenue grew 34.5% to $29.2 million.
    • Internet of Things (IoT) Services revenue jumped 217.6% to $22.5 million, helped by a full-quarter contribution of just over $13 million from Sierra Wireless' recently closed acquisition of Numerex.
  • Adjusted EBITDA declined 28.6% year over year to $9 million.
  • Sierra Wireless ended the quarter with cash and equivalents of $70.6 million, up from $65.2 million last quarter.

What management had to say

Sierra Wireless CEO Jason Cohenour stated:

In the first quarter of 2018, we delivered strong year-over-year revenue growth in our higher margin Enterprise Solutions and IoT Services lines of business. With the acquisition of Numerex, we have added significant scale to our recurring revenue base and IoT services capabilities. We expect to leverage our stronger IoT Services business platform to expand our leadership position in Device to Cloud solutions for the IoT.

Looking forward

For the second quarter of 2018, Sierra Wireless anticipates revenue of $195 million to $203 million, and adjusted earnings per share of $0.17 to $0.25. By comparison, the midpoints of both ranges sit comfortably above consensus estimates for second-quarter earnings of $0.20 per share on revenue of $196.1 million.

During the subsequent conference call, CFO Dave McLennan added that while the industry's component supply environment has improved from the start of the year, the supply of certain components will likely remain tight in the near future.

More specifically, early in the current quarter Sierra Wireless experienced an issue with component reliability from one supplier that required the company to quarantine some embedded modules for commercial-viability testing. As such, depending on the outcome of those tests, the issue could potentially impact second-quarter earnings by as much as $0.03 per share.

To be clear, that impact has already been incorporated into Sierra Wireless' earnings guidance range, leaving room for potential upside if it ultimately becomes a non-issue. But it could explain why, after a modest pop in this morning's early trading, shares of Sierra Wireless pared their gains to trade down slightly this afternoon.

In any case, this was another strong showing from Sierra Wireless as it works to capture as much of the burgeoning IoT and wireless markets as possible. And I think investors should be pleased with its position today.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sierra Wireless. The Motley Fool has a disclosure policy.

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