Sierra Wireless (NASDAQ:SWIR) announced solid third-quarter 2018 results on Thursday after the market closed, highlighting broad-based growth and the sustained outperformance of its higher-margin Enterprise Solutions and Internet of Things (IoT) segments. 

But the company also said that growth will decelerate to end the year, and profits will suffer from the ongoing trade war between the U.S. and China. With shares down around 9% in after-hours trading as of this writing, let's take a closer look at the state of Sierra Wireless' business.

Time lapse of a city with connected points jumping from place to place. Internet of Things concept.

IMAGE SOURCE: GETTY IMAGES.

Sierra Wireless' results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Growth

Revenue

$203.4 million

$172.6 million

17.9%

GAAP net income (loss)

($1 million)

$1.4 million

N/A

GAAP earnings (loss) per share

($0.03)

$0.04

N/A

DATA SOURCE: SIERRA WIRELESS. 

What happened with Sierra Wireless this quarter?

  • Revenue arrived near the midpoint of Sierra Wireless' expected range of $198 million to $207 million.
  • On a non-GAAP basis, which adjusts for items like stock-based compensation and acquisition expenses, Sierra Wireless generated net income of $10.5 million, or $0.29 per share, up from $0.27 per share in the same year-ago period -- just above the midpoint of guidance for a range of $0.22 to $0.30.
  • Product revenue increased 11.1% year over year to $179.4 million, while "services and other" revenue climbed 117.8% to $24 million.
  • By segment:
    • OEM Solutions revenue climbed 7.6% to $148.3 million;
    • Enterprise Solutions revenue increased 22% to $32.1 million; and
    • Internet of Things services revenue rose 172.8% to $23 million, aided by last year's acquisition of Numerix and organic subscriber growth.
  • Adjusted EBITDA increased 21.2% to $16 million.

What management had to say

"We had strong growth in revenue and adjusted EBITDA on a year-over-year basis in the third quarter," stated Sierra Wireless CEO Kent Thexton. "We continued to strengthen our position as the leader in Device-to-Cloud IoT solutions and our two highest margin businesses -- namely Enterprise Solutions and IoT Services -- increased to 27% of total revenue in Q3."

Looking forward

Sierra Wireless further revealed that it's facing a "tight component supply environment," and so anticipates fourth-quarter 2018 revenue in the range of $200 million to $208 million. That's good for 11.2% year-over-year growth from the midpoint, and should translate to adjusted earnings per share of $0.22 to $0.30 -- a range the company says includes a $0.03-per-share negative impact from U.S. tariffs on goods imported from China.

For perspective -- and though we don't usually pay close attention to Wall Street's demands -- consensus predictions called for fourth-quarter earnings of $0.32 per share on revenue near the high end of Sierra Wireless' expected range.

To be clear, this doesn't mean Sierra Wireless is a broken business. To the contrary, the company remains perfectly positioned to benefit from the permeation of the world's fast-growing number of connected devices. But given the impact of Chinese tariffs and ongoing component shortages, it's no surprise to see the stock pulling back in the near term.

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.