Sierra Wireless (NASDAQ:SWIR) announced first-quarter 2016 results Thursday after the bell. And though revenue declined as expected from the same year-ago period, you won't find the Internet of Things pure play complaining about where it stands today.
More specifically, quarterly revenue fell 5.1% year over year, to $142.8 million, or slightly above the midpoint of Sierra Wireless' guidance for $135 million to $145 million. Adjusted earnings before interest, taxes, depreciation, and amortization fell 40.8% year over year, to $6.7 million.
Based on generally accepted accounting principles (GAAP), that translated to net income of $0.7 million, or $0.02 per diluted share compared to a net loss of $9.7 million, or $0.30 per share in last year's first quarter. In addition, Sierra Wireless began to utilize its recently approved "Notice of Intention to Make a Normal Course Issuer Bid" -- think of it as a sort of controlled share-repurchase program -- using $6.1 million to repurchase and cancel 549,583 shares during the quarter.
On an adjusted (non-GAAP) basis, which means excluding items like stock-based compensation and acquisition expenses, net income declined 63.9%, to $2.6 million, or $0.08 per diluted share. This, too, came in above guidance for adjusted earnings to be "slightly positive to slightly negative."
Sierra Wireless' profitability was also positively affected by its receipt during the quarter of a $2.3 million legal settlement with a supplier related to a component-quality issue. Excluding that settlement, adjusted EBITDA would have been $4.4 million, and adjusted earnings would have been $0.03 per share. But even then, Sierra Wireless would have still exceeded its earnings guidance.
"Revenue and non-GAAP earnings in the first quarter were slightly better than expected," explained Sierra Wireless CEO Jason Cohenour, "and we continue to expect our business to gain strength over the course of the year as new customer programs move into production and we introduce new leading-edge IoT products and solutions."
Sierra Wireless' three reportable segments each continued to demonstrate relative strength and stability. Within its OEM solutions segment, revenue declined 9.1%, to $120.9 million, as expected softness from certain automotive customers was only partially offset by contributions from new programs. Meanwhile, OEM continued to rack up new design wins, including its new LTE Cat-1 embedded module being selected by Sagemcom for smart-meter deployments in the Netherlands, while its HL Series embedded modules were chosen by Parkeon for use in global smart-parking deployments.
Next, enterprise solutions revenue climbed 9%, to $15 million, helped by increased traction for Sierra Wireless' new AirLink RV50 LTE gateway, and new customer wins across the public safety, energy, and transit sector. The company also offered a solid base preceding plans for additional gateway launches during the next three quarters.
Meanwhile, Sierra Wireless enjoyed a 92% increase in sales from the new cloud and connectivity services segment, to $6.9 million, driven by new customer wins in the payment, energy, and industrial sectors across the EMEA, U.S., and Latin American geographies. Cloud and connectivity services successfully launched a new Smart SIM for QoS and global network coverage during the quarter, and commenced the upgrade of its LTE core network to boost its global footprint and service capability for wholesale operators.
Looking ahead -- and in keeping with management's previous hope -- demand from Sierra Wireless' existing customers is starting to normalize, and contributions from new customers are still expected to increase as the year progresses, with more than 40 customer programs set to launch. Sierra Wireless is also poised to introduce new gateway models to round out its portfolio.
Sierra Wireless anticipates revenue in the current quarter of $150 million to $160 million, with adjusted earnings per share of $0.09 to $0.17. Both ranges are roughly in line with analysts' consensus estimates (although we don't lend much credence to Wall Street's near-term demands).
Finally, for the full year 2016, Sierra Wireless reiterated its previous guidance for revenue of $630 million to $670 million, and adjusted earnings per share of $0.60 to $0.90. And that's fair enough, especially as Sierra Wireless' first-quarter performance was "only" slightly better than its original prediction.
In the end, even putting aside the slight bottom-line boost it received from its supplier settlement, Sierra Wireless performed just as management said it would. Assuming Sierra Wireless continues to do so as its business gains strength as the year wears on, I think patient investors willing to watch this growth story play out will be more than happy they held on.