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Sierra Wireless Lays the Foundation for Return to Growth

Steve Symington, The Motley Fool

Sierra Wireless (NASDAQ: SWIR) announced second-quarter 2019 results on Wednesday after the market closed. The company showed sustained growth in its key Internet of Things (IoT) segment as it works to offset the relative weakness of its now-smaller embedded systems business.

With six months of 2019 in the bag, the wireless communications equipment company also revised its full-year guidance to reflect its mixed performance in this transitional year.

Sierra Wireless results: The raw numbers

Metric

Q2 2019

Q2 2018

Change

Revenue

$191.4 million

$201.9 million

(5.2%)

GAAP net income (loss)

($28.2 million)

($11.4 million)

N/A

GAAP earnings (loss) per share

($0.78)

($0.32)

N/A

DATA SOURCE: SIERRA WIRELESS. GAAP = generally accepted accounting principles.

Aerial view of a city with various wirelessly connected points.

IMAGE SOURCE: GETTY IMAGES.

What happened with Sierra Wireless this quarter?

  • This quarter's results included $14.9 million in severance and $3.1 million in transitional costs related to initiatives announced in late April to accelerate Sierra Wireless' transformation into primarily a "device-to-cloud IoT solutions company."
  • Adjusting for one-time items, Sierra Wireless generated adjusted (non-GAAP) net income of $2.5 million, or $0.07 per share, down from $9.7 million, or $0.27 per share, a year ago.
  • Sierra Wireless did not provide specific second-quarter guidance along with its Q1 report in May. So for perspective -- and though we don't usually pay close attention to Wall Street's demands -- most analysts were modeling lower adjusted earnings of $0.05 per share on slightly higher revenue of $192 million.
  • Revenue in the Internet of Things (IoT) solutions segment climbed 6.3% year over year to $99.2 million, helped by strong sales of AirLink gateway products and managed-connectivity services.
  • Revenue in the embedded broadband segment fell 15.1% year over year to $92.2 million on lower demand from the mobile computing market.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 49.4% to $7.9 million.

What management had to say

"I'm pleased that we delivered solid earnings results in the second quarter," stated Sierra Wireless CEO Kent Thexton. "We are building a strong and growing funnel of customer opportunities in IoT Solutions and are continuing to make good progress as we transform the business."

Looking forward

In view of its performance through the first half, Sierra Wireless now expects full-year 2019 revenue to be down slightly from 2018. This is a modest reduction from its previous target for flat sales this year, as strength in higher-margin IoT solutions was offset by weaker automotive demand and delayed automotive program launches.

That said, Sierra Wireless also reaffirmed its outlook for 2019 adjusted EBITDA to be roughly $35 million, and for adjusted net income per share to be in the range of $0.30 to $0.35.

Given today's modest jump, it seems the market is more than willing to forgive that slight top-line guidance shortfall, perhaps encouraged by the fact that Sierra Wireless is making progress where it counts -- in the key IoT solutions market.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sierra Wireless. The Motley Fool has a disclosure policy.