Sierra Wireless (NASDAQ:SWIR) released weaker-than-expected third-quarter 2019 results late Tuesday. Though management attempted to frame the company's performance around progress in shifting toward its budding Internet of Things (IoT) solutions segment (where consolidated revenue still dropped modestly, nonetheless), that relative strength was all but overshadowed by the outsized weakness of Sierra Wireless' legacy embedded-broadband segment.

With shares down sharply in after-hours trading as the market absorbs the news, here's a closer look at how Sierra Wireless fared over the past few months:

Metric

Q3 2019

Q3 2018

Change

Revenue

$174.0 million

$203.4 million

(14.5%)

GAAP net income (loss)

($20.2 million)

($1.0 million)

N/A

GAAP earnings (loss) per share

($0.56)

($0.03)

N/A

DATA SOURCE: SIERRA WIRELESS. GAAP = generally accepted accounting principles.

View of Earth from space with wireless digital points connected.

IMAGE SOURCE: GETTY IMAGES.

On "strong progress" and cost reductions

Investors should note these GAAP results included the impact of unusual items like restructuring costs and acquisition expenses. Adjusted for those items, Sierra Wireless generated (non-GAAP) net income of $1 million, or $0.03 per share, down from $10.5 million, or $0.29 per share in the same year-ago period.

Sierra Wireless doesn't usually provide specific quarterly financial guidance. But most analysts were expecting significantly higher adjusted earnings of $0.11 per share on revenue closer to $191 million.

Within Sierra Wireless' top line, IoT solutions segment revenue declined 2.1%, to $93.4 million, as modest growth from recurring subscription revenue (up 6.7%) and enterprise gateway products were more than offset by lower integrated IoT solutions module sales.

To that end, Sierra Wireless also acquired Australia-based connectivity services and IoT cellular device company M2M Group for $19.8 million during the quarter. Just over half of M2M Group's revenue (or $9.2 million of its $17.9 million over the trailing 12 months) was recurring subscription-based revenue, and the deal should be accretive to earnings immediately after it closes early next year.

Meanwhile, embedded broadband segment revenue plunged 25.3% year over year, to $80.6 million, due to weakness from mobile computing, automotive, and networking customers.

Still, Sierra Wireless CEO Kent Thexton remained optimistic, stating:

We continue to make strong progress on our transformation to an integrated IoT Solutions company. We had a record quarter in new recurring services wins and our services pipeline is growing. In addition, we are continuing to drive greater efficiencies in our business under our two-year cost reduction program.

Tempering expectations

Given its underwhelming third quarter, Sierra Wireless now anticipates full-year 2019 revenue will be in the range of $708 million to $712 million -- or down around 10.5% from 2018 at the midpoint -- assuming a 3% to 4% increase from IoT solutions and a decline of 22% to 23% from the embedded-broadband side. On the bottom line, that should translate to 2019 adjusted earnings of $0.00 to $0.03 per share.

This new guidance marks a reduction from Sierra Wireless' previous outlook (provided in late July) for sales to be "down slightly" on a year-over-year basis, with adjusted earnings per share ranging from $0.30 to $0.35. Most analysts were modeling 2019 adjusted earnings of $0.32 per share on a more moderate 5% revenue decline.

In the end, although Sierra Wireless insists it remains on track in its IoT-centric transformation, there's no denying the contrast of that insistence with this quarterly miss and freshly lowered outlook. And Sierra Wireless shareholders are paying the price for it.