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Sierra Wireless Reports First Quarter 2019 Results
Friday, May 10, 2019Company Profile | Careers | Follow Company
Richmond, BC, May 10, 2019--(T-Net)--Sierra Wireless, Inc. (NASDAQ: SWIR) (TSX: SW) today reported results for its first quarter ended March 31, 2019. All results are reported in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (GAAP), except as otherwise indicated below.
Revenue for the first quarter of 2019 was $173.8 million compared to $186.8 million in the first quarter of 2018. Our reporting segmentation has changed from those reported at December 31, 2018 when we previously reported three segments. Our new organizational structure clearly delineates our Device-to-Cloud solutions activities and we now have two reportable segments effective the first quarter of 2019: (i) the IoT Solutions segment and (ii) the Embedded Broadband segment. We have adjusted our comparative information.
Quarterly revenue for our two business segments was as follows:
(i) Revenue from IoT Solutions was $94.3 million in the first quarter of 2019, up 5.4% compared to $89.4 million in the first quarter of 2018 driven by strong sales of Airlink gateway products; and
(ii) Revenue from Embedded Broadband was $79.5 million in the first quarter of 2019, down 18.4% compared to $97.4 million in the first quarter of 2018 due to weaker demand from mobile computing and networking customers.
"We are making good progress driving improved efficiency throughout our operations to accelerate our transformation into a leading global IoT solutions provider," said Kent Thexton, President and CEO of Sierra Wireless. "At the same time, we are investing in innovative cellular technologies and capabilities to enhance our differentiated Device-To-Cloud offering and grow our recurring subscription-based revenue."
GAAP RESULTS
NON-GAAP RESULTS(1)
(1) See "Non-GAAP Financial Measures" and "Reconciliation of GAAP and Non-GAAP Results by Quarter" below.
Cash and cash equivalents at the end of the first quarter of 2019 were $74.1 million, representing a decrease of $15.0 million from the end of the fourth quarter of 2018. The net loss from operations, combined with working capital requirements, primarily to fund higher inventory, drove this reduction in cash.
Accounting Standard Adoption
We adopted the new accounting standard for lease accounting (ASC 842) effective January 1, 2019. Our first quarter 2019 financial results reflect the adoption of this new standard.
Financial Guidance - Full Year
For the year ended December 31, 2019, we expect revenue to be flat year-over-year and we expect Adjusted EBITDA to be approximately $35 million. We expect non-GAAP net earnings per share to be approximately $0.30 to $0.35 for the full year 2019. See "Non-GAAP Financial Measures" below.
This non-GAAP guidance constitutes "forward-looking statements" within the meaning of applicable securities laws and reflects current business indicators and expectations. These statements are based on management's current beliefs and assumptions, which could prove to be significantly incorrect. Forward-looking statements, particularly those that relate to longer periods of time, are subject to substantial known and unknown risks and uncertainties that could cause actual events or results to differ significantly from those expressed or implied by our forward-looking statements, including those described in our regulatory filings. See "Cautionary Note Regarding Forward-Looking Statements" below.
Subsequent Event
As part of the company's overall cost savings program, we announced internally two initiatives on April 30th:
i. to optimize the footprint of our design centers, we have launched a process to reduce the size of our development team in Paris and consolidate more of our R&D in both Canada and Asia; and
ii. to improve our administrative efficiency, we have decided to partner with a global outsourcing leader to provide certain transaction-based services. We expect to be fully transitioned by the end of the year.
These two initiatives will impact approximately 125 positions, including approximately 99 in France. Once completed, we expect to incur approximately $28 million in severance and transitional costs.
About Sierra Wireless
Sierra Wireless (NASDAQ: SWIR) (TSX: SW) is an IoT pioneer, empowering businesses and industries to transform and thrive in the connected economy. Customers start with Sierra because we offer a device to cloud solution, comprised of embedded and networking solutions seamlessly integrated with our secure cloud and connectivity services. OEMs and enterprises worldwide rely on our expertise in delivering fully integrated solutions to reduce complexity, turn data into intelligence and get their connected products and services to market faster. Sierra Wireless has more than 1,300 employees globally and operates R&D centers in North America, Europe and Asia. For more information, visit www.sierrawireless.com.
AirPrime, AirLink, AirVantage, mangOH and Legato are trademarks of Sierra Wireless. Other product or service names mentioned herein may be the trademarks of their respective owners.
SIERRA WIRELESS, INC. | ||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS) | ||||||||||
(In thousands of U.S. dollars, except where otherwise stated) |
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(unaudited) |
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Three months ended March 31, | ||||||||||
2019 | 2018 | |||||||||
Revenue | ||||||||||
Product | $ | 151,113 | $ | 162,931 | ||||||
Services and other | 22,700 | 23,947 | ||||||||
173,813 | 186,878 | |||||||||
Cost of sales | ||||||||||
Product | 108,444 | 113,900 | ||||||||
Services and other | 10,739 | 10,878 | ||||||||
119,183 | 124,778 | |||||||||
Gross margin | 54,630 | 62,100 | ||||||||
Expenses | ||||||||||
Sales and marketing | 22,506 | 22,425 | ||||||||
Research and development | 22,797 | 24,465 | ||||||||
Administration | 12,390 | 12,264 | ||||||||
Restructuring | 1,397 | 3,591 | ||||||||
Acquisition-related and integration | 95 | 1,765 | ||||||||
Loss on disposal of iTank business | 7 | — | ||||||||
Amortization | 5,244 | 7,466 | ||||||||
64,436 | 71,976 | |||||||||
Loss from operations | (9,806 | ) | (9,876 | ) | ||||||
Foreign exchange gain (loss) | (852 | ) | 1,115 | |||||||
Other income | 31 | 55 | ||||||||
Loss before income taxes | (10,627 | ) | (8,706 | ) | ||||||
Income tax expense (recovery) | 596 | (343 | ) | |||||||
Net loss | $ | (11,223 | ) | $ | (8,363 | ) | ||||
Other comprehensive loss: | ||||||||||
Foreign currency translation adjustments, net of taxes of $nil | (3,615 | ) | (767 | ) | ||||||
Comprehensive loss | $ | (14,838 | ) | $ | (9,130 | ) | ||||
Net loss per share (in dollars) | ||||||||||
Basic and diluted | $ | (0.31 | ) | $ | (0.23 | ) | ||||
Weighted average number of shares outstanding (in thousands) | ||||||||||
Basic and diluted | 36,106 | 35,912 | ||||||||
SIERRA WIRELESS, INC. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(In thousands of U.S. dollars, except where otherwise stated) |
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(unaudited) |
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March 31, 2019 | December 31, 2018 | |||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 74,143 | $ | 89,076 | ||||||
Restricted cash | 221 | 221 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $3,539 (December 31, 2018 - $2,968) | 151,686 | 171,725 | ||||||||
Inventories | 57,317 | 50,779 | ||||||||
Prepaids and other | 18,638 | 11,703 | ||||||||
302,005 | 323,504 | |||||||||
Property and equipment | 39,298 | 39,842 | ||||||||
Operating lease right-of-use assets | 27,500 | — | ||||||||
Intangible assets | 80,741 | 84,890 | ||||||||
Goodwill | 207,895 | 211,074 | ||||||||
Deferred income taxes | 11,758 | 11,751 | ||||||||
Other assets | 13,311 | 12,855 | ||||||||
$ | 682,508 | $ | 683,916 | |||||||
Liabilities | ||||||||||
Current liabilities | ||||||||||
Accounts payable and accrued liabilities | $ | 171,383 | $ | 184,220 | ||||||
Deferred revenue | 7,548 | 6,213 | ||||||||
178,931 | 190,433 | |||||||||
Long-term obligations | 41,206 | 43,250 | ||||||||
Operating lease liabilities | 24,657 | — | ||||||||
Deferred income taxes | 5,840 | 6,103 | ||||||||
250,634 | 239,786 | |||||||||
Equity | ||||||||||
Shareholders' equity | ||||||||||
Common stock: no par value; unlimited shares authorized; issued and outstanding: 36,150,299 shares (December 31, 2018 - 36,067,415 shares) |
434,054 | 432,552 | ||||||||
Preferred stock: no par value; unlimited shares authorized; issued and outstanding: nil shares |
— | — | ||||||||
Treasury stock: at cost; 6,972 shares (December 31, 2018 - 119,584 shares) |
(118 | ) | (1,965 | ) | ||||||
Additional paid-in capital | 30,217 | 30,984 | ||||||||
Retained deficit | (19,518 | ) | (8,295 | ) | ||||||
Accumulated other comprehensive loss | (12,761 | ) | (9,146 | ) | ||||||
431,874 | 444,130 | |||||||||
$ | 682,508 | $ | 683,916 | |||||||
SIERRA WIRELESS, INC. | ||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(In thousands of U.S. dollars) |
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(unaudited) |
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Three months ended |
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2019 | 2018 | |||||||||
Cash flows provided by (used in): | ||||||||||
Operating activities | ||||||||||
Net loss | $ | (11,223 | ) | $ | (8,363 | ) | ||||
Items not requiring (providing) cash | ||||||||||
Amortization | 8,371 | 10,708 | ||||||||
Stock-based compensation | 3,158 | 2,814 | ||||||||
Deferred income taxes | 77 | 68 | ||||||||
Loss on disposal of iTank business | 7 | — | ||||||||
Unrealized foreign exchange loss (gain) | 254 | (1,562 | ) | |||||||
Other | 101 | 439 | ||||||||
Changes in non-cash working capital | ||||||||||
Accounts receivable | 16,814 | 2,757 | ||||||||
Inventories | (6,735 | ) | 6,624 | |||||||
Prepaids and other | (7,647 | ) | (5,564 | ) | ||||||
Accounts payable and accrued liabilities | (15,166 | ) | 1,986 | |||||||
Deferred revenue | 1,371 | 949 | ||||||||
Cash flows provided by (used in) operating activities | (10,618 | ) | 10,856 | |||||||
Investing activities | ||||||||||
Additions to property and equipment | (3,858 | ) | (4,064 | ) | ||||||
Additions to intangible assets | (488 | ) | (845 | ) | ||||||
Proceeds from sale of property and equipment | 57 | 17 | ||||||||
Proceeds from sale of iTank business | 500 | — | ||||||||
Cash flows used in investing activities | (3,789 | ) | (4,892 | ) | ||||||
Financing activities | ||||||||||
Issuance of common shares | 94 | 672 | ||||||||
Taxes paid related to net settlement of equity awards | (670 | ) | (665 | ) | ||||||
Decrease in other long-term obligations | (141 | ) | (199 | ) | ||||||
Cash flows used in financing activities | (717 | ) | (192 | ) | ||||||
Effect of foreign exchange rate changes on cash and cash equivalents | 191 | (187 | ) | |||||||
Cash, cash equivalents and restricted cash, increase (decrease) in the period | (14,933 | ) | 5,585 | |||||||
Cash, cash equivalents and restricted cash, beginning of period | 89,297 | 65,224 | ||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 74,364 | $ | 70,809 | ||||||
SIERRA WIRELESS, INC. | ||||||||||||||||||||||||||||||
RECONCILIATION OF GAAP AND NON-GAAP RESULTS BY QUARTER | ||||||||||||||||||||||||||||||
(in thousands of U.S. dollars, except where otherwise stated) | 2019 | 2018 | ||||||||||||||||||||||||||||
Q1 | Total | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||
Gross margin - GAAP | $ | 54,630 | $ | 264,571 | $ | 65,895 | $ | 67,267 | $ | 69,309 | $ | 62,100 | ||||||||||||||||||
Stock-based compensation and related social taxes | 59 | 479 | 58 | 57 | 57 | 307 | ||||||||||||||||||||||||
Realized losses on hedge contracts | (3 | ) | (30 | ) | (13 | ) | (11 | ) | — | (6 | ) | |||||||||||||||||||
Other nonrecurring costs | — | 5 | 5 | — | — | — | ||||||||||||||||||||||||
Gross margin - Non-GAAP | $ | 54,686 | $ | 265,025 | $ | 65,945 | $ | 67,313 | $ | 69,366 | $ | 62,401 | ||||||||||||||||||
Earnings (loss) from operations - GAAP | $ | (9,806 | ) | $ | (18,275 | ) | $ | (4,197 | ) | $ | 853 | $ | (5,055 | ) | $ | (9,876 | ) | |||||||||||||
Stock-based compensation and related social taxes | 3,414 | 13,006 | 2,743 | 3,473 | 3,950 | 2,840 | ||||||||||||||||||||||||
Acquisition-related and integration | 95 | 3,962 | 613 | 570 | 1,014 | 1,765 | ||||||||||||||||||||||||
Restructuring | 1,397 | 7,115 | 2,345 | 227 | 952 | 3,591 | ||||||||||||||||||||||||
Loss on disposal of iTank business | 7 | 2,064 | 2,064 | — | — | — | ||||||||||||||||||||||||
Other nonrecurring costs | 1,160 | 9,421 | 2,697 | 1,583 | 5,141 | — | ||||||||||||||||||||||||
Realized losses on hedge contracts | (109 | ) | (562 | ) | (296 | ) | (201 | ) | (14 | ) | (51 | ) | ||||||||||||||||||
Acquisition-related amortization | 3,687 | 18,575 | 4,261 | 4,354 | 4,426 | 5,534 | ||||||||||||||||||||||||
Earnings (loss) from operations - Non-GAAP | $ | (155 | ) | $ | 35,306 | $ | 10,230 | $ | 10,859 | $ | 10,414 | $ | 3,803 | |||||||||||||||||
Net earnings (loss) - GAAP | $ | (11,223 | ) | $ | (24,610 | ) | $ | (3,826 | ) | $ | (1,037 | ) | $ | (11,384 | ) | $ | (8,363 | ) | ||||||||||||
Stock-based compensation and related social taxes, restructuring, impairment, acquisition-related, integration, loss on disposal of iTank, and other non-recurring costs (recoveries) | 5,964 | 35,568 | 10,462 | 5,853 | 11,057 | 8,196 | ||||||||||||||||||||||||
Amortization | 8,371 | 39,150 | 9,308 | 9,483 | 9,651 | 10,708 | ||||||||||||||||||||||||
Interest and other, net | (31 | ) | (51 | ) | 19 | (7 | ) | (8 | ) | (55 | ) | |||||||||||||||||||
Foreign exchange loss (gain) | 852 | 4,908 | 2,082 | (42 | ) | 4,034 | (1,166 | ) | ||||||||||||||||||||||
Income tax expense (recovery) | 596 | 916 | (2,768 | ) | 1,738 | 2,289 | (343 | ) | ||||||||||||||||||||||
Adjusted EBITDA | 4,529 | 55,881 | 15,277 | 15,988 | 15,639 | 8,977 | ||||||||||||||||||||||||
Amortization (exclude acquisition-related amortization) | (4,684 | ) | (20,575 | ) | (5,047 | ) | (5,129 | ) | (5,225 | ) | (5,174 | ) | ||||||||||||||||||
Interest and other, net | 31 | 51 | (19 | ) | 7 | 8 | 55 | |||||||||||||||||||||||
Income tax expense - Non-GAAP | (730 | ) | (2,930 | ) | (1,245 | ) | (352 | ) | (769 | ) | (564 | ) | ||||||||||||||||||
Net earnings (loss) - Non-GAAP | $ | (854 | ) | $ | 32,427 | $ | 8,966 | $ | 10,514 | $ | 9,653 | $ | 3,294 | |||||||||||||||||
Diluted net earnings (loss) per share | ||||||||||||||||||||||||||||||
GAAP - (in dollars per share) | $ | (0.31 | ) | $ | (0.68 | ) | $ | (0.11 | ) | $ | (0.03 | ) | $ | (0.32 | ) | $ | (0.23 | ) | ||||||||||||
Non-GAAP - (in dollars per share) | $ | (0.02 | ) | $ | 0.90 | $ | 0.25 | $ | 0.29 | $ | 0.27 | $ | 0.09 | |||||||||||||||||
SIERRA WIRELESS, INC. | ||||||||||||||||||||||||||||||
SEGMENTED RESULTS | ||||||||||||||||||||||||||||||
(In thousands of U.S. dollars, except where otherwise stated) | 2019 | 2018 | ||||||||||||||||||||||||||||
Q1 | Total | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||
IoT Solutions | ||||||||||||||||||||||||||||||
Revenue | $ | 94,287 | $ | 373,937 | $ | 95,728 | $ | 95,487 | $ | 93,274 | $ | 89,448 | ||||||||||||||||||
Gross margin | ||||||||||||||||||||||||||||||
- GAAP | $ | 34,479 | $ | 139,602 | $ | 36,651 | $ | 36,059 | $ | 34,282 | $ | 32,610 | ||||||||||||||||||
- Non-GAAP | $ | 34,510 | $ | 139,818 | $ | 36,675 | $ | 36,081 | $ | 34,308 | $ | 32,754 | ||||||||||||||||||
Gross margin % | ||||||||||||||||||||||||||||||
- GAAP | 36.6 | % | 37.3 | % | 38.3 | % | 37.8 | % | 36.8 | % | 36.5 | % | ||||||||||||||||||
- Non-GAAP | 36.6 | % | 37.4 | % | 38.3 | % | 37.8 | % | 36.8 | % | 36.6 | % | ||||||||||||||||||
Embedded Broadband | ||||||||||||||||||||||||||||||
Revenue | $ | 79,526 | $ | 419,665 | $ | 105,667 | $ | 107,939 | $ | 108,629 | $ | 97,430 | ||||||||||||||||||
Gross margin | ||||||||||||||||||||||||||||||
- GAAP | $ | 20,151 | $ | 124,969 | $ | 29,244 | $ | 31,208 | $ | 35,027 | $ | 29,490 | ||||||||||||||||||
- Non-GAAP | $ | 20,176 | $ | 125,207 | $ | 29,270 | $ | 31,232 | $ | 35,058 | $ | 29,647 | ||||||||||||||||||
Gross margin % | ||||||||||||||||||||||||||||||
- GAAP | 25.3 | % | 29.8 | % | 27.7 | % | 28.9 | % | 32.2 | % | 30.3 | % | ||||||||||||||||||
- Non-GAAP | 25.4 | % | 29.8 | % | 27.7 | % | 28.9 | % | 32.3 | % | 30.4 | % | ||||||||||||||||||
Total | ||||||||||||||||||||||||||||||
Revenue | $ | 173,813 | $ | 793,602 | $ | 201,395 | $ | 203,426 | $ | 201,903 | $ | 186,878 | ||||||||||||||||||
Gross margin | ||||||||||||||||||||||||||||||
- GAAP | $ | 54,630 | $ | 264,571 | $ | 65,895 | $ | 67,267 | $ | 69,309 | $ | 62,100 | ||||||||||||||||||
- Non-GAAP | $ | 54,686 | $ | 265,025 | $ | 65,945 | $ | 67,313 | $ | 69,366 | $ | 62,401 | ||||||||||||||||||
Gross margin % | ||||||||||||||||||||||||||||||
- GAAP | 31.4 | % | 33.3 | % | 32.7 | % | 33.1 | % | 34.3 | % | 33.2 | % | ||||||||||||||||||
- Non-GAAP | 31.5 | % | 33.4 | % | 32.7 | % | 33.1 | % | 34.4 | % | 33.4 | % | ||||||||||||||||||
Non-GAAP Financial Measures
We disclose these non-GAAP financial measures as we believe they provide useful information to investors and analysts to assist them in their evaluation of our operating results and to assist in comparisons from one period to another. Readers are cautioned that non-GAAP financial measures do not have any standardized meaning prescribed by U.S. GAAP and therefore may not be comparable to similar measures presented by other companies.
Non-GAAP gross margin excludes the impact of stock-based compensation expense and related social taxes and certain other nonrecurring costs or recoveries.
Non-GAAP earnings (loss) from operations includes allocation of realized gains or losses on forward contracts and excludes the impact of stock-based compensation expense and related social taxes, acquisition-related amortization, acquisition-related and integration costs, restructuring costs, impairment and certain other non-recurring costs or recoveries.
Non-GAAP income tax expense includes certain tax adjustments and taxes on acquisition-related amortization, acquisition-related and integration costs, restructuring costs, other non-recurring costs and foreign exchange.
In addition to the above, Non-GAAP net earnings (loss) and non-GAAP net earnings (loss) per share exclude the impact of foreign exchange gains or losses on translation of certain balance sheet accounts, foreign exchange gains or losses on forward contracts and certain tax adjustments.
We use the above-noted non-GAAP financial measures for planning purposes and to allow us to assess the performance of our business before including the impacts of the items noted above as they affect the comparability of our financial results. These non-GAAP measures are reviewed regularly by management and the Board of Directors as part of the ongoing internal assessment of our operating performance. We also use non-GAAP earnings from operations as one component in determining short-term incentive compensation for management employees.
Adjusted EBITDA is defined as net earnings (loss) plus stock-based compensation expense and related social taxes, acquisition-related and integration costs, restructuring cost, impairment, certain other nonrecurring costs or recoveries, amortization, foreign exchange gains or losses on translation of certain balance sheet accounts, unrealized foreign exchange gains or losses on forward contracts, interest and income tax expense. Adjusted EBITDA is a metric used by investors and analysts for valuation purposes and is an important indicator of our operating performance and our ability to generate liquidity through operating cash flow that will fund future working capital needs and fund future capital expenditures.
Cautionary Note Regarding Forward-Looking Statements
Certain statements and information in this press release are not based on historical facts and constitute forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws ("forward-looking statements") and may include statements and information relating to our Q1 2019 corporate update; financial guidance for our fiscal year 2019, expectations regarding the Company's cost savings initiatives, our business outlook for the short and longer term, statements regarding our strategy, plans, goals, objectives, expectations and future operating performance; the Company's liquidity and capital resources; the Company's financial and operating objectives and strategies to achieve them; general economic conditions; estimates of our expenses, future revenues, non-GAAP earnings per share and capital requirements; our expectations regarding the legal proceedings we are involved in; statements with respect to the Company's estimated working capital; expectations with respect to the adoption of IoT solutions; expectations regarding trends in the IoT market and wireless module market; expectations regarding product and price competition from other wireless device manufacturers and solution providers; and our ability to implement effective control procedures. Forward-looking statements are provided to help you understand our views of our short and long term plans, expectations and prospects. We caution you that forward-looking statements may not be appropriate for other purposes. We do not intend to update or revise our forward-looking statements unless we are required to do so by securities laws.
Forward-looking statements
Company Snapshot |
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Sierra Wireless (a Semtech Company)
Richmond, BC (Wireless)
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