Sierra Wireless (SWIR) just reported strong first-quarter results, and once again followed with a lower-than-expected outlook. But unlike last quarter's post-earnings plunge on guidance, shares of the "Internet of Things" specialist are up modestly in after-hours trading as of this writing. So what gives?
The numbers
It could be that Sierra Wireless is showing a penchant for under promising and over delivering. Quarterly revenue climbed 24.1% year over year, to $150.4 million -- a new company record -- and adjusted earnings before interest, taxes, depreciation and amortization nearly tripled, to $11.3 million. That translated to adjusted earnings of $0.22 per share. By contrast, three months ago Sierra Wireless told investors to expect first-quarter revenue of $145 million to $149 million, and earnings per share of $0.15 to $0.18. Analysts, for their part, were only looking for revenue and earnings of $147.2 million and $0.17 per share, respectively.
Sierra Wireless CEO Jason Cohenour also reminded investors of their acquisition of machine-to-machine solutions specialist Maingate this past January, with the resulting product portfolio meaningfully expanding the company's position in the Internet of Things value chain. Cohenour repeated that the integration of Maingate is "well underway," and that their teams are still hard at work integrating AirVantage with Maingate's connectivity platform. Sierra Wireless has also secured its first wireless connectivity design wins with existing Sierra customers, helping validate its expectations for sales synergies.
On (new and old) acquisitions
"As we continue to strengthen our device-to-cloud offering," Cohenour added, "we remain focused on profitable growth and enhancing our leadership position with strategic acquisitions.
Sure enough, Sierra Wireless also announced it has agreed to acquire Accel Networks, a leading provider of 4G LTE managed connectivity services. Incidentally, Accel and Sierra Wireless have had a working relationship for years: The two companies even formalized a joint marketing agreement back in 2010 to promote the combination of Sierra's wireless gateways and routers with Accel's proprietary antenna and monitoring platforms. Now, Cohenhour expressed optimism that Accel's managed connectivity service and large client base should "accelerate our device-to-cloud strategy and add significant scale and capabilities to our services business."
The transaction is expected to close next month for $9.3 million in cash, with the potential for another $1.5 million in performance-based earnouts. Accel's revenue last year was roughly $8.5 million, of which roughly 80% is subscription based and recurring, and stems from a client base of more than 300 enterprise customers. Following the deal's close, Accel is expected to increase revenue to around $10 million during the next 12 months, and should be breakeven on an adjusted EBITDA basis during the same period.
On guidance
For the current quarter, however, Sierra Wireless anticipates revenue of $153 million to $156 million -- or 14.4% year-over-year growth at the midpoint -- and earnings per share of $0.21 to $0.24. Wall Street's models called for second-quarter earnings of $0.25 per share, and 16.5% growth in revenue, to $157 million. Of course, that's not an enormous shortfall by any means, and Sierra Wireless notes its ranges don't include the expected contribution of Accel Networks.
Given the promise of that acquisition, Sierra Wireless' solid top- and bottom-line beat, and its streak of outperformance, I think long-term investors should have more-than-enough reason to overlook today's light guidance.
