Sierra Wireless Reports First Quarter 2011 Results

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Sierra Wireless Reports First Quarter 2011 Results

  • Revenue in the first quarter 2011 of $144.3 million, in-line with guidance
  • Mobile Computing well positioned in 4G to drive growth in second half
  • M2M represented 50% of sales in the first quarter of 2011 and core M2M revenue grew 16% year-over-year, excluding Barnes & Noble


Sierra Wireless, Inc. today reported first quarter 2011 results. 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 2011 was $144.3 million, a decrease of 5% compared to $151.3 million in the first quarter of 2010. Mobile Computing revenue was $71.6 million, up 14% compared to $62.6 million in the first quarter of 2010. Machine-to-Machine (“M2M”) revenue was $72.7 million, down 18% compared to $88.7 million in the first quarter of 2010.  The year-over-year revenue decrease in M2M was driven by significantly lower sales to Barnes & Noble, declining from $26.7 million in the first quarter of 2010 to $0.7 million in the first quarter of 2011, offset by solid year-over-year revenue growth of 16% in the remainder of the M2M business.

While we are experiencing some weakness in the first half of 2011, we believe this is a short-term situation and expect to return to year-over-year growth and profitability in the second half,” said Jason Cohenour, President and Chief Executive Officer.  “The company continues to execute on our strategy and make good progress on a number of business initiatives. In Mobile Computing, we have a strong pipeline of 4G products and anticipate numerous launches with leading operators and PC OEMs during the year.  In M2M, we continue to build on our market leadership position and expand our role in the value chain.

On a GAAP basis, gross margin was $39.5 million, or 27.4% of revenue, in the first quarter of 2011 compared to $46.3 million, or 30.6% of revenue, in the first quarter of 2010.  Operating expenses were $48.9 million and loss from operations was $9.4 million in the first quarter of 2011, compared to operating expenses of $50.8 million and a loss from operations of $4.5 million in the first quarter of 2010.  Net loss was $7.8 million, or $0.25 per diluted share, in the first quarter of 2011 compared to a net loss of $7.5 million, or $0.24 per diluted share, in the first quarter of 2010.

On a non-GAAP basis, gross margin was 27.4% in the first quarter of 2011, compared to 30.7% in the first quarter of 2010. Operating expenses were $43.2 million and loss from operations was $3.6 million in the first quarter of 2011, compared to operating expenses of $42.3 million and earnings from operations of $4.1 million in the first quarter of 2010. Net loss was $2.4 million, or $0.08 per diluted share, in the first quarter of 2011 compared to net earnings of $4.1 million, or $0.13 per diluted share, in the first quarter of 2010.

Non-GAAP results exclude the impact of stock-based compensation expense, acquisition amortization, integration costs, restructuring costs, foreign exchange gains or losses on translation of balance sheet accounts, and tax adjustments.  We disclose these non-GAAP amounts as we believe that these measures provide our shareholders with better information on actual operating results and assist in comparisons from one period to another.  The reconciliation between our GAAP and non-GAAP results of operations is provided in the accompanying schedules.

Financial Guidance

The following guidance for the second quarter of 2011 reflects current business indicators and expectations.  In the second quarter of 2011, we expect revenue to remain relatively flat sequentially from the first quarter and we expect Non-GAAP gross margin percentage to increase modestly compared to the first quarter of 2011 as we realize targeted product cost reductions.  Primarily due to unfavourable foreign exchange created by a strengthening euro and Canadian dollar, we expect Non-GAAP operating expense to increase modestly compared to the first quarter of 2011.

With respect to the recent natural disaster in Japan, we expect to see some modest impact on our business in the second quarter of 2011.  We are experiencing some component supply constraints and, in the second quarter, we expect the impact to be approximately $2 million in revenue.

For the second half of 2011, we expect year-over-year revenue and earnings growth.

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 below. All figures are approximations based on management’s current beliefs and assumptions.

Q2 2011 Guidance Consolidated
Non-GAAP
Revenue $140.0 to $145.0 million
Earnings (loss) from operations ($5.0) to ($3.0) million
Net earnings (loss) ($3.8) to ($2.2) million
Earnings (loss) per share ($0.12) to ($0.07) per share

About Sierra Wireless

Sierra Wireless (NASDAQ: SWIR) (TSX: SW) offers industry-leading mobile computing and machine-to-machine (M2M) communications products and solutions that connect people, devices, and applications 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.

“AirCard” is a registered trademark of Sierra Wireless. “AirPrime,” “AirLink,” and “AirVantage” are also 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
(Expressed in thousands of United States (“U.S.”) dollars, except per share amounts)
(Unaudited)

Three months ended March 31, 2011 2010
Revenue $ 144,275 $ 151,317
Cost of goods sold 104,811 104,983
Gross margin 39,464 46,334
Expenses:
Sales and marketing 12,268 14,156
Research and development 23,512 20,541
Administration 9,385 9,584
Restructuring 325 1,611
Integration 540 1,846
Amortization 2,848 3,106
48,878 50,844
Loss from operations (9,414) (4,510)
Foreign exchange gain (loss) 422 (3,658)
Other expense (40) (130)
Loss before income taxes (9,032) (8,298)
Income tax recovery (1,199) (689)
Net loss (7,833) (7,609)
Net loss attributable to the non-controlling interest (44) (88)
Net loss attributable to the Company $ (7,789) $ (7,521)
Loss per share attributable to the Company:
Basic $ (0.25) $ (0.24)
Diluted $ (0.25) $ (0.24)
Weighted average number of shares (in thousands):
Basic 31,237 31,050
Diluted 31,237 31,050

SIERRA WIRELESS, INC.

Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars)

March 31,
2011
December  31,
2010
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 86,197 $ 85,443
Short-term investments 24,559 26,405
Accounts receivable, net of allowance for
doubtful accounts of $3,998 (2010 – $4,606)
106,135 117,397
Inventories 20,889 22,134
Deferred income taxes 9,583 9,577
Prepaid expenses and other 26,772 24,542
274,135 285,498
Property, plant and equipment 20,679 22,635
Intangible assets 68,261 69,024
Goodwill 92,541 90,953
Deferred income taxes 635 836
Other assets 661 622
$ 456,912 $ 469,568
Liabilities
Current liabilities:
Accounts payable $ 49,148 $ 63,451
Accrued liabilities 73,989 74,019
Deferred revenue and credits 970 987
Current portion of long-term obligations 1,287 1,470
Current portion of obligations under capital leases 284 324
125,678 140,251
Long-term obligations 27,884 24,724
Obligations under capital leases 270 263
Deferred income taxes 942 1,143
154,774 166,381
Equity
Shareholders’ equity:
Share capital 327,981 327,668
Shares held for restricted share unit (“RSU”) distribution, at cost (1,896) (3,908)
Additional paid-in capital 16,438 16,926
Deficit (40,956) (33,167)
Accumulated other comprehensive loss (525) (5,471)
301,042 302,048
Non-controlling interest 1,096 1,139
302,138 303,187
$ 456,912 $ 469,568

SIERRA WIRELESS, INC.

Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(Unaudited)

Three months ended March 31, 2011 2010
Cash flows from operating activities:
Net loss $ (7,833) $ (7,609)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Amortization 8,612 8,721
Stock-based compensation 1,631 1,694
Non-cash restructuring and other 4
Deferred income tax (8)
Gain on disposal of property, plant and equipment (8)
Changes in operating assets and liabilities
Accounts receivable 12,220 (12,327)
Inventories 1,334 595
Prepaid expenses and other assets (1,121) (49)
Accounts payable (14,998) 3,463
Accrued liabilities 1,681 (2,462)
Deferred revenue and credits (42) 70
Net cash provided by (used in) operating activities 1,476 (7,908)
Cash flows from investing activities:
Proceeds on disposal of property, plant and equipment 13
Purchase of property, plant and equipment (1,963) (1,915)
Increase in intangible assets (741) (977)
Purchase of short-term investments (20,437) (7,090)
Proceeds on maturity of short-term investments 22,284 22,886
Net cash (used in) provided by investing activities (844) 12,904
Cash flows from financing activities:
Issuance of common shares, net of share issue costs 206 21
Decrease in long-term liabilities (638) (422)
Net cash used in financing activities (432) (401)
Effect of foreign exchange changes on cash and cash equivalents 554 (829)
Net increase in cash and cash equivalents 754 3,766
Cash and cash equivalents, beginning of period 85,443 107,491
Cash and cash equivalents, end of period $ 86,197 $ 111,257

SIERRA WIRELESS, INC.

Reconciliation of GAAP and Non-GAAP Results
(Unaudited)

Three months ended March 31,
(in thousands of U.S. dollars) 2011 2010
Revenue – GAAP and Non-GAAP $ 144,275 $ 151,317
Gross margin – GAAP $ 39,464 $ 46,334
Stock-based compensation 113 135
Gross margin – Non-GAAP $ 39,577 $ 46,469
Loss from operations – GAAP $ (9,414) $ (4,510)
Stock-based compensation 1,632 1,695
Restructuring and other costs 325 1,611
Integration costs 540 1,846
Acquisition related amortization 3,288 3,485
Earnings (loss) from operations  – Non-GAAP $ ( 3,629) $ 4,127
Net loss – GAAP $ (7,789) $ (7,521)
Stock-based compensation, transaction, restructuring,
integration and acquisition amortization costs,
net of tax
5,725 8,076
Unrealized foreign exchange loss (gain) (335) 3,658
Non-controlling interest (32) (85)
Net earnings – Non-GAAP $ (2,431) $ 4,128
Loss per share – GAAP $ (0.25) $ (0.24)
Diluted earnings (loss) per share – Non-GAAP $ ( 0.08) $ 0.13

SIERRA WIRELESS, INC.
REVENUE BY SEGMENT
(Expressed as a percentage of revenue)

Three months ended March 31,
2011 2010
M2M 50% 59%
Mobile computing 50 41
100% 100%

SIERRA WIRELESS, INC.
REVENUE BY PRODUCT LINE
(Expressed as a percentage of revenue)

Three months ended
March 31,
2011 2010
AirPrime Wireless Embedded Modules 46% 53%
AirCard Mobile Broadband Devices 44 38
AirLink Intelligent Gateways and Routers 7 7
AirVantage M2M Cloud Platform and Other 3 2
100% 100%

SOURCE Sierra Wireless, Inc.

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