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Press release from Business Wire

Sierra Wireless Reports Third Quarter 2013 Results

Thursday, November 07, 2013

Sierra Wireless Reports Third Quarter 2013 Results

16:32 EST Thursday, November 07, 2013

VANCOUVER, British Columbia (Business Wire) -- Sierra Wireless (NASDAQ: SWIR) (TSX: SW):

Q3 highlights from continuing operations

  • Record revenue of $112.3 million, up 12.1% year-over-year
  • Adjusted EBITDA of $5.9 million, up 81.3% year-over-year
  • Non-GAAP earnings from operations of $2.4 million, compared to $0.3 million in Q3 2012
  • Non-GAAP diluted net earnings per share of $0.11, compared to diluted net earnings per share of $0.04 in Q3 2012


Sierra Wireless, Inc. today reported results for its third quarter ending September 30, 2013. 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.

“We delivered another quarter of record M2M revenue, driven by steady growth in OEM Solutions and a strong quarter in Enterprise Solutions,” said Jason Cohenour, President and Chief Executive Officer. “In addition, our third quarter results are highlighted by continued strong increases in our key profitability metrics, demonstrating the leverage in our operating model as we execute on our profitable growth plans.”

Revenue for the third quarter of 2013 was $112.3 million, an increase of 12.1% compared to $100.2 million in the third quarter of 2012, and an increase of 2.4% compared to $109.6 million in the second quarter of 2013. Revenue from OEM Solutions was $95.9 million in the third quarter of 2013, up 8.6% compared to $88.3 million in the third quarter of 2012. Revenue from Enterprise Solutions was $16.4 million in the third quarter of 2013, up 37.8% from $11.9 million in the third quarter of 2012.

GAAP

  • Gross margin was $37.3 million, or 33.3% of revenue, in the third quarter of 2013, compared to $31.1 million, or 31.0% of revenue, in the third quarter of 2012.
  • Operating expenses were $40.6 million and loss from operations was $3.3 million in the third quarter of 2013, compared to operating expenses of $37.8 million and a loss from operations of $6.7 million in the third quarter of 2012.
  • Net earnings from continuing operations were $1.1 million, or $0.03 per diluted share, in the third quarter of 2013, compared to a net loss of $3.6 million, or $0.12 per share, in the third quarter of 2012. Reorganization initiatives as we transition our business are favorably impacting our effective tax rate. Net earnings from continuing operations for the current quarter included a year-to-date tax recovery. A portion of the recovery, amounting to $0.5 million, or $0.02 per diluted share, relates to the first half of the year.
  • Net earnings for continuing and discontinued operations(1) combined were $0.6 million, or $0.02 per diluted share, in the third quarter of 2013, compared to net earnings of $3.7 million, or $0.12 per diluted share, in the third quarter of 2012.

NON-GAAP

  • Gross margin was 33.4% in the third quarter of 2013, compared to 31.1% in the third quarter of 2012.
  • Operating expenses were $35.1 million and earnings from operations were $2.4 million in the third quarter of 2013, compared to operating expenses of $30.8 million and earnings from operations of $0.3 million in the third quarter of 2012.
  • Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") were $5.9 million in the third quarter of 2013, compared to $3.2 million in the third quarter of 2012.
  • Net earnings from continuing operations were $3.5 million, or $0.11 per diluted share, in the third quarter of 2013, compared to net earnings of $1.3 million, or $0.04 per diluted share, in the third quarter of 2012. Reorganization initiatives as we transition our business are favorably impacting our effective tax rate. Net earnings from continuing operations for the current quarter included a year-to-date tax recovery. A portion of the recovery, amounting to $0.5 million, or $0.02 per diluted share, relates to the first half of the year.

Non-GAAP results exclude the impact of stock-based compensation expense, acquisition costs, gain on sale of the AirCard business, restructuring costs, integration costs, disposition costs, acquisition amortization, impairment, foreign exchange gains or losses on foreign currency contracts and translation of balance sheet accounts, and certain tax adjustments. We disclose non-GAAP amounts as we believe that these measures provide our shareholders with better information about actual operating results and assist in comparisons from one period to another.

Adjusted EBITDA as defined equates to earnings (loss) from operations plus stock-based compensation expense, acquisition costs, restructuring costs, integration costs, impairment, and amortization. The reconciliation between our GAAP and non-GAAP results is provided in the accompanying schedules.

(1) On April 2, 2013, we completed the sale of substantially all of the assets and operations related to our AirCard business. The results of operations and the gain on sale of the AirCard business have been presented as discontinued operations for the three and nine months ended September 30, 2013 and September 30, 2012.



Financial Guidance

The Company provides the following guidance for continuing operations for the fourth quarter of 2013, excluding any impact from the acquired M2M module and modem assets of AnyDATA:

In the fourth quarter of 2013, revenue is expected to increase sequentially and on a year-over-year basis. Gross margin and operating expenses are expected to remain similar to third quarter levels.

Q4 2013 Guidance  

Consolidated
Non-GAAP

 

 
Revenue $112.0 to $116.0 million
Earnings from operations $2.4 to $3.3 million
Net earnings $2.2 to $3.0 million
Earnings per share $0.07 to $0.10 per share


This non-GAAP guidance for the fourth quarter of 2013 reflects current business indicators and expectations. Inherent in this guidance are risk factors that are described in greater detail in our regulatory filings. Our actual results could differ materially from those presented above. All figures are approximations based on management's current beliefs and assumptions.

Conference call, webcast and instant replay details

Sierra Wireless President and CEO, Jason Cohenour, and CFO, David McLennan, will host a conference call and webcast with analysts and investors to review the results on Thursday, November 7, 2013, at 5:30 PM Eastern Time (2:30 PM PT). A live slide presentation will be available for viewing during the call from the link provided below.

To participate in this conference call, please dial the following number approximately ten minutes prior to the commencement of the call:

  • Toll-free (Canada and US): 1-877-201-0168
  • Alternate number: 1-647-788-4901
  • Conference ID: 7687072

For those unable to participate in the live call, a replay will be available until November 29, 2013. Dial 1-855-859-2056 or 1-800-585-8367 and enter the Conference ID number above to access the replay.

To access the webcast, please follow the link below:

Sierra Wireless Q3 2013 Financial Results Webcast

If the above link does not work, please copy and paste the following URL into your browser:

http://www.snwebcastcenter.com/webcast/sierrawireless/2013q3/

The webcast will remain available at the above link for one year following the call.

We look forward to having you participate in our call.


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”) including statements and information relating to our financial guidance for the fourth quarter of 2013 and our fiscal year 2013, our business outlook for the short and longer term and our strategy, plans and future operating performance. Forward-looking statements are provided to help you understand our views of our short and longer term prospects. We caution you that forward-looking statements may not be appropriate for other purposes. We will not update or revise our forward-looking statements unless we are required to do so by securities laws.

Forward-looking statements:

  • Typically include words and phrases about the future such as “outlook”, “may”, “estimates”, “intends”, “believes”, “plans”, “anticipates” and “expects”.
  • Are not promises or guarantees of future performance. They represent our current views and may change significantly.
  • Are based on a number of material assumptions, including those listed below, which could prove to be significantly incorrect:
  • Our ability to develop, manufacture and sell new products and services that meet the needs of our customers and gain commercial acceptance;
  • Our ability to continue to sell our products and services in the expected quantities at the expected prices and expected times;
  • Expected cost of goods sold;
  • Expected component supply constraints;
  • Our ability to “win” new business;
  • Expected deployment of next generation networks by wireless network operators;
  • Our operations are not adversely disrupted by component shortages or other development, operating or regulatory risks; and
  • Expected tax rates and foreign exchange rates.
  • Are subject to substantial known and unknown material risks and uncertainties. Many factors could cause our actual results, achievements and developments in our business to differ significantly from those expressed or implied by our forward-looking statements, including without limitation, the following factors. These risk factors and others are discussed in our Annual Information Form and Management's Discussion and Analysis of Financial Condition and Results of Operations, which may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov and in our other regulatory filings with the Securities and Exchange Commission in the United States and the Provincial Securities Commissions in Canada.
  • We may experience higher than anticipated costs; disruption of, and demands on, our ongoing business; diversion of management's time and attention; adverse effects on existing business relationships with suppliers and customers and employee issues in connection with the divestiture of the AirCard assets and operations;
  • Actual sales volumes or prices for our products and services may be lower than we expect for any reason including, without limitation, continuing uncertain economic conditions, price and product competition, different product mix, the loss of any of our significant customers, or competition from new or established wireless communication companies;
  • The cost of products sold may be higher than planned or necessary component supplies may not be available, are delayed or are not available on commercially reasonable terms;
  • We may be unable to enforce our intellectual property rights or may be subject to claims and litigation that had an adverse outcome;
  • The development and timing of the introduction of our new products may be later than we expect or may be indefinitely delayed; and
  • Transition periods associated with the migration to new technologies may be longer than we expect.

About Sierra Wireless

Sierra Wireless (NASDAQ:SWIR) (TSX:SW) offers industry-leading products and solutions for connected devices and machine-to-machine (M2M) communications over cellular networks. Wireless service providers, equipment manufacturers, enterprises and government organizations around the world depend on us for reliable wireless technology. We offer 2G, 3G and 4G wireless modems, routers and gateways as well as a comprehensive suite of software, tools, and services that ensure our customers can successfully bring wireless applications to market. For more information about Sierra Wireless, visit www.sierrawireless.com.

"AirPrime," "AirLink," and "AirVantage" 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 INCOME
(In thousands of U.S. dollars, except where otherwise stated)
(unaudited)

   

Three months ended
September 30,

 

Nine months ended
September 30,

   

2013

   

2012

 

2013

   

2012

Revenue $ 112,262 $ 100,183 $ 323,252

$

287,916

Cost of goods sold   74,916   69,097   216,054  

198,875

Gross margin   37,346   31,086   107,198  

89,041

 
Expenses
Sales and marketing 10,452 8,572 31,489

26,891

Research and development 17,806 15,886 54,038

45,491

Administration 9,297 8,013 26,323

25,034

Restructuring 14 498 157

2,209

Integration

27

Acquisition 139 2,196 139

2,795

Amortization   2,939   2,649   9,142  

7,311

    40,647   37,814   121,315  

109,731

Loss from operations (3,301) (6,728) (14,117)

(20,690)

Foreign exchange gain 2,563 1,176 1,902

1,718

Other income (expense)   (26)   (70)   (124)  

(231)

Loss before income taxes (764) (5,622) (12,339)

(19,203)

Income tax expense (recovery)   (1,839)   (2,010)   1,266  

522

Net earnings (loss) from continuing operations 1,075 (3,612) (13,605)

(19,725)

Net earnings (loss) from discontinued operations   (505)   7,279   69,510  

27,318

Net earnings $ 570 $ 3,667 $ 55,905

$

7,593

Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $nil   693   1,203   425  

(138)

Comprehensive income $ 1,263 $ 4,870 $ 56,330

$

7,455

Basic and diluted net earnings (loss) per share attributable to the
Company's common shareholders (in dollars)

Continuing operations $ 0.03 $ (0.12) $ (0.44)

$

(0.64)

Discontinued operations   (0.01)   0.24   2.26  

0.89

$ 0.02 $ 0.12 $ 1.82

$

0.25

Weighted average number of shares outstanding (in thousands)
Basic 30,688 30,573 30,717

30,854

Diluted   31,176   30,573   30,717  

30,854



SIERRA WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
(unaudited)
     
  September 30, 2013 December 31, 2012
Assets
Current assets
Cash and cash equivalents $ 183,220 $ 63,646
Short-term investments 5,221

Accounts receivable, net of allowance for doubtful accounts of $2,531
(December 31, 2012 - $2,435)

94,090 108,624
Inventories 6,221 12,675
Deferred income taxes 4,200 22,199
Prepaids and other 37,235 24,252
Assets held for sale     54,340
330,187 285,736
Property and equipment 22,588 20,039
Intangible assets 45,107 56,357
Goodwill 99,365 97,961
Deferred income taxes 4,685 3,880
Other assets   811   790
  $ 502,743 $ 464,763
 
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 121,606 $ 128,216
Deferred revenue and credits 1,807 1,312
Liabilities held for sale     10,353
123,413 139,881
Long-term obligations 22,074 26,526
Deferred income taxes   300   300
    145,787   166,707
Equity
Shareholders' equity

Common stock: no par value; unlimited shares authorized; issued and

outstanding 30,761,517 shares (December 31, 2012 - 30,592,423 shares)

324,975 322,770

Preferred stock: no par value; unlimited shares authorized;

issued and outstanding: nil shares

Treasury stock: at cost 538,439 shares (December 31, 2012 – 716,313 shares) (5,399) (5,172)
Additional paid-in capital 24,183 23,203
Retained earnings (deficit) 20,234 (35,283)
Accumulated other comprehensive loss   (7,037)   (7,462)
    356,956   298,056
  $ 502,743 $ 464,763




SIERRA WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(unaudited)
   

Three months ended
September 30,

 

Nine months ended
September 30,

    2013       2012   2013     2012
Cash flows provided by (used in):  
Operating activities
Net earnings $ 570 $ 3,667 55,905 $ 7,593
Items not requiring (providing) cash
Amortization 6,873 7,082 21,150 20,795
Stock-based compensation 2,481 1,695 7,170 5,010
Gain on sale of AirCard business 17 (94,078)
Deferred income taxes (770) (2,032) 17,194 (3,905)
Loss (gain) on disposal of property, equipment, and intangibles 10 57 (10) 183
Impairment of assets related to discontinued operations 1,012
Other (1,912) (1,226) (1,399) (1,226)
Taxes paid related to net settlement of equity awards (14) (4) (342) (4)
Changes in non-cash working capital
Accounts receivable 15,877 (6,970) 28,862 (11,384)
Inventories 51 (6,044) 12,604 (5,127)
Prepaid expenses and other (2,767) (17,596) (11,870) (20,557)
Accounts payable and accrued liabilities (824) 16,065 (15,079) 37,537
Deferred revenue and credits   (512)     513   485   (145)
Cash flows provided by (used in) operating activities   19,080     (4,793)   21,604   28,770
Investing activities
Additions to property and equipment (3,835) (3,290) (9,730) (11,850)
Proceeds from sale of property, equipment, and intangibles (8) 32 56
Increase in intangible assets (555) (596) (1,669) (1,934)
Net proceeds from sale of AirCard business (17) 119,978
Purchase of M2M business of Sagemcom (55,218) (55,218)
Net change in short-term investments   4,779     2,153   (5,221)   9,347
Cash flows provided by (used in) investing activities   372     (56,959)   103,390   (59,599)
Financing activities
Issuance of common shares 1,186 158 4,947 427
Repurchase of common shares for cancellation (5,772) (6,312)
Purchase of treasury shares for RSU distribution (3,433) (3,433) (2,489)
Decrease in other long-term obligations   (108)     (176)   (827)   (831)
Cash flows used in financing activities   (2,355)     (18)   (5,085)   (9,205)
Effect of foreign exchange rate changes on cash and cash equivalents   (450)     (1,861)   (335)   (1,813)
Cash and cash equivalents, increase (decrease) in the period 16,647 (63,631) 119,574 (41,847)
Cash and cash equivalents, beginning of period   166,573     123,159   63,646   101,375
Cash and cash equivalents, end of period $ 183,220  

$

59,528

$ 183,220

$

59,528




SIERRA WIRELESS, INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(Unaudited)

   
(in thousands of U.S. dollars, except where otherwise stated)                                            
 

2013

 

2012 (1)

 
Q3   Q2     Q1 Total   Q4   Q3   Q2   Q1
 
Gross margin - GAAP $ 37,346 $ 36,474 $ 33,378 $ 125,274 $ 36,233 $ 31,086 $ 30,081 $ 27,874
Stock-based compensation   117   95     75   304   61   82   78   83
Gross margin - Non-GAAP $ 37,463 $ 36,569   $ 33,453 $ 125,578 $ 36,294 $ 31,168 $ 30,159 $ 27,957
 
Loss from operations - GAAP $ (3,301) $ (3,932) $ (6,884) $ (22,206) $ (1,516) $ (6,728) $ (6,558) $ (7,404)
Stock-based compensation 2,145 2,013 1,655 5,781 1,470 1,462 1,403 1,446
Acquisition 139 3,182 387 2,196 599
Restructuring 14 26 117 2,251 42 498 1,531 180
Integration 27
Impairment of an asset in R&D 280
Acquisition related amortization   3,405   3,363     3,393   11,890   3,338   2,906   2,665   2,981
Earnings (loss) from operations - Non-GAAP $ 2,402 $ 1,470 $ (1,412) $ 898 $ 3,721 $ 334 $ (360) $ (2,797)
Amortization (excluding acquisition related amortization)   3,468   3,403     3,212   11,747   3,293   2,904   2,717   2,833
Adjusted EBITDA $ 5,870 $ 4,873   $ 1,800 $ 12,645 $ 7,014 $ 3,238 $ 2,357 $ 36
 
Net earnings (loss) from continuing operations - GAAP $ 1,075 $ (6,742) $ (7,938) $ (4,202) $ 15,523 $ (3,612) $ (8,868) $ (7,245)

Stock-based compensation, restructuring and other, integration,
and acquisition related amortization, net of tax

5,760 5,393 5,355 22,241 5,162 6,885 5,658 4,536
Unrealized foreign exchange loss (gain) (2,457) (1,359) 1,874 (3,139) (1,655) (1,218) (165) (101)
Income tax adjustments   (895)   3,754       (15,344)   (14,540)   (804)    
Net earnings (loss) from continuing operations - Non-GAAP $ 3,483 $ 1,046   $ (709) $ (444) $ 4,490 $ 1,251 $ (3,375) $ (2,810)
 
Net earnings (loss) from discontinued operations - GAAP $ (505) $ 68,152 $ 1,863 $ 31,401 $ 4,083 $ 7,279 $ 12,449 $ 7,590
Stock-based compensation and disposition costs 1,402 876 1,733 2,395 1,696 233 233 233
Gain on sale of AirCard business   (49)   (69,077)              
Net earnings (loss) from discontinued operations - Non-GAAP $ 848 $ (49)   $ 3,596 $ 33,796 $ 5,779 $ 7,512 $ 12,682 $ 7,823
 
Net earnings (loss) - GAAP $ 570 $ 61,410 $ (6,075) $ 27,199 $ 19,606 $ 3,667 $ 3,581 $ 345
Net earnings (loss) - Non-GAAP 4,331 997 2,887 33,352 10,269 8,763 9,307 5,013
 
Diluted earnings (loss) from continuing operations per share
GAAP - (in dollars) $ 0.03 $ (0.22) $ (0.26) $ (0.14) $ 0.50 $ (0.12) $ (0.29) $ (0.23)
Non-GAAP - (in dollars) $ 0.11 $ 0.03 $ (0.02) $ (0.01) $ 0.15 $ 0.04 $ (0.11) $ (0.09)
 
Net earnings (loss) per share - diluted
GAAP - (in dollars) $ 0.02 $ 2.00 $ (0.20) $ 0.88 $ 0.64 $ 0.12 $ 0.12 $ 0.01
Non-GAAP - (in dollars) $ 0.14 $ 0.03   $ 0.09 $ 1.08 $ 0.33 $ 0.29 $ 0.30 $ 0.16
(1) Financial information has been retrospectively adjusted to reflect the presentation of the AirCard business as discontinued operations.




SIERRA WIRELESS, INC.
REVENUE BY PRODUCT LINES

(In thousands of U.S. dollars)
(Unaudited)

Three months ended September 30,

 

Nine months ended September 30,

2013

 

2012(1)

2013

 

2012(1)

 
OEM Solutions $ 95,850 $ 88,270 $ 280,158 $ 251,669
Enterprise Solutions   16,412   11,913   43,094   36,247
$ 112,262 $ 100,183 $ 323,252 $ 287,916
                 
(1) Comparative information has been reclassified to conform to current period presentation.

Media Contact:
Sharlene Myers, +1 (604) 232-1445
Manager, Global Public Relations
smyers@sierrawireless.com
or
Investor Contact:
David G. McLennan, +1 (604) 231-1181
Chief Financial Officer
investor@sierrawireless.com

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