Shares of Sierra Wireless (SWIR +0.00%) have fallen nearly 50% so far in 2015, so you can bet the market will be looking for signs of life when the Internet of Things pure play reports third-quarter results Thursday after the bell. So what, exactly, are we to expect when that happens?
Let's start with the headline numbers. Three months ago, Sierra Wireless offered guidance for third-quarter revenue of $157 million to $160 million (up about 10.6% at the midpoint), and earnings per share in the range of $0.23 to $0.27. By comparison, analysts' consensus estimates predict revenue of $158.7 million, and earnings of $0.25 per share.
Under-promise, over-deliver?
But don't be surprised if Sierra Wireless' results come in ahead of those expectations; the company has effectively under-promised and over-delivered relative to its own guidance for each of the past three quarters. And each time, the market has driven down Sierra Wireless stock the following day in response.
That's not to say there haven't been points of concern. Early this year, RF component supply shortages in Sierra Wireless' core OEM Solutions segment not only negatively affected revenue, but also drove up costs as Sierra Wireless was forced to design out parts in short supply and replace them with more expensive components. And though those shortages persisted through the second quarter -- which in turn caused some customers to move to secure supplies ahead of schedule -- the supply situation improved faster than expected. This allowed Sierra Wireless to meet more of this early demand than anticipated, and pulled some orders forward into Q2 that were originally slated for the third quarter. So unless Sierra Wireless has found new orders to replace those which propelled last quarter's top-line beat, perhaps its light guidance will finally prove merited.
On Enterprise improvement
Outside of OEM Solutions, investors should also watch for continued sequential improvement in Sierra Wireless' Enterprise segment. In part, that should be driven by the segment's first full-quarter contribution of sales from Accel Networks, an enterprise-centric managed connectivity products provider Sierra Wireless formally acquired this past June.
In addition, to help further accelerate enterprise sales, Sierra Wireless implemented significant changes to its enterprise organizational structure and management team last quarter. These changes notably included the formation of a new "Cloud and Connectivity Services" business, whose primary aim will be to integrate Sierra Wireless' various enterprise-centric acquisitions and, consequently, grow enterprise services by creating a unified platform for the Internet of Things.
On organic growth and guidance
Next, look for Sierra Wireless' year-to-date organic growth -- that is, growth excluding contributions from acquisitions -- to remain within its stated long-term organic growth target in the range of 10% to 15%. Keeping in mind the orders pulled forward from Q3 into Q2, the midpoint of Q3 guidance assumes organic growth for the quarter of 6.2%, which would bring organic growth through the first nine months of the year to roughly 13.1%.
Finally, Sierra Wireless should offer guidance for the fourth quarter. Analysts, on average, expect fourth-quarter revenue to grow 10.8% year-over-year to $165.2 million, and translate to earnings of $0.29 per share. Of course, I won't be surprised if Sierra Wireless once again issues a conservative outlook. But if it manages to put together a decent quarter and guidance portends early signs the company is truly beginning to capitalize on its massive addressable market, Sierra Wireless investors could be set to enjoy a much stronger end to the year.
