SW Sierra Wireless Inc

Sierra Wireless, Inc. (NASDAQ:SWIR) (TSX:SW):

• Revenue of $154.6 million, an increase of 7.9% compared to Q3 2014
• Non-GAAP earnings from operations of $9.5 million compared to $8.4 million in Q3 2014
• Adjusted EBITDA of $12.1 million compared to $11.8 million in Q3 2014
• Non-GAAP diluted EPS of $0.23 compared to $0.24 in Q3 2014

Sierra Wireless, Inc. (NASDAQ:SWIR) (TSX:SW) today reported results for its third quarter, ending September 30, 2015. 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 solid year-over-year growth in revenue and operating profit in the third quarter of 2015,” said Jason Cohenour, President and Chief Executive Officer. “While our Q3 results were solid, revenue was slightly below our expectations, as demand for 4G enabled enterprise notebooks encountered temporary headwinds as the industry transitions to a new processor platform. We see the mobile computing segment moving back to normalized demand levels in the coming months. All of our other segments and lines of business performed as expected, and we delivered exceptional design win results. In addition, we closed the acquisition of MobiquiThings, significantly bolstering our Cloud and Connectivity offering, customer base and services team.”

Revenue for the third quarter of 2015 was $154.6 million, an increase of 7.9% compared to $143.3 million in the third quarter of 2014. Revenue from OEM Solutions was $130.7 million in the third quarter of 2015, up 5.1% compared to $124.3 million in the third quarter of 2014. Revenue from Enterprise Solutions was $23.9 million in the third quarter of 2015, up 26.3% compared to $19.0 million in the third quarter of 2014.

GAAP RESULTS

• Gross margin was $49.0 million, or 31.7% of revenue, in the third quarter of 2015, compared to $47.1 million, or 32.8% of revenue, in the third quarter of 2014.
• Operating expenses were $44.8 million and earnings from operations were $4.2 million in the third quarter of 2015, compared to operating expenses of $44.1 million and earnings from operations of $2.9 million in the third quarter of 2014.
• Net earnings were $3.3 million, or $0.10 per diluted share, in the third quarter of 2015, compared to a net loss of $2.9 million, or $0.09 per diluted share, in the third quarter of 2014.

NON-GAAP RESULTS

• Gross margin was 31.8% in the third quarter of 2015, compared to 32.9% in the third quarter of 2014.
• Operating expenses were $39.7 million and earnings from operations were $9.5 million in the third quarter of 2015, compared to operating expenses of $38.8 million and earnings from operations of $8.4 million in the third quarter of 2014.
• Net earnings were $7.4 million, or $0.23 per diluted share, in the third quarter of 2015, compared to net earnings of $7.7 million, or $0.24 per diluted share, in the third quarter of 2014. The non-GAAP tax rate in the third quarter of 2015 was 21.8%.
• Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") were $12.1 million in the third quarter of 2015, compared to $11.8 million in the third quarter of 2014.

Cash and cash equivalents at the end of the third quarter of 2015 were $88.4 million, representing a decrease of $8.1 million, compared to the end of the second quarter of 2015. The decrease was primarily due to the net payment of $14.9 million for the purchase of MobiquiThings SAS, and $3.6 million for capital expenditures, partially offset by $10.4 million generated from operations in the quarter.

We disclose non-GAAP financial measures as we believe they provide useful information on actual operating results and 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 results exclude the impact of stock-based compensation expense and related social taxes, acquisition costs, restructuring costs, integration costs, acquisition amortization, impairment, foreign exchange gains or losses on translation of balance sheet accounts, and certain tax adjustments.

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

Financial Guidance

In the fourth quarter of 2015, compared to the third quarter of 2015, we expect revenue to be down slightly, primarily reflecting a short term situation with an Automotive customer. We expect gross margin percentage to be slightly lower, resulting from a higher cost end of life component used in some of our legacy OEM products; and operating expenses to increase slightly, driven by targeted investment in Sales and R&D. This results in the following non-GAAP guidance for the fourth quarter of 2015:

Q4 2015 Guidance   Consolidated

Non-GAAP

  Revenue $148.0 to $151.0 million Earnings from operations $4.0 to $5.0 million Net earnings $3.0 to $3.7 million Earnings per share $0.09 to $0.11 per share

This non-GAAP guidance for the fourth quarter of 2015 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 and webcast 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 5, 2015, 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 start of the call:

• Toll-free (Canada and US): 1-877-201-0168
• Alternate number: 1-647-788-4901
• Conference ID: 27041795

To access the webcast, please follow the link below:

Sierra Wireless Q3 Conference Call and Webcast

The webcast will remain available at the above link for one year following the 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 2015 and our fiscal year 2015, our business outlook for the short and longer term and statements regarding our strategy, plans and future operating performance. Forward-looking statements are provided to help you understand our views of our short and longer 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:

• Typically include words and phrases about the future such as “outlook”, “will”, “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;
  • our ability to integrate acquired businesses and realize expected benefits;
  • expected deployment of next generation networks by wireless network operators;
  • our operations not being 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:
  • competition from new or established service providers or from those with greater resources;
  • higher than anticipated costs; disruption of, and demands on, our ongoing business; and diversion of management’s time and attention in connection with acquisitions or divestitures;
  • we may experience difficulty responding to changing technology, industry standards and customer requirements;
  • the loss of any of our significant customers;
  • cyber-attacks or other breaches of our information technology security;
  • our reliance on single source suppliers for certain components used in our products;
  • failures of our products or services due to design flaws and errors, component quality issues, manufacturing defects or other quality issues;
  • we may be found to infringe on intellectual property rights of others;
  • we may be unable to enforce our intellectual property rights;
  • our ability to attract or retain key personnel;
  • risks related to contractual disputes with counterparties;
  • our financial results are subject to fluctuation;
  • difficult or uncertain global economic conditions;
  • unanticipated costs associated with litigation or settlements;
  • our dependence on a limited number of third party manufacturers;
  • our dependence on wireless network carriers to promote and offer acceptable wireless data services;
  • we are subject to governmental regulation;
  • the transmission, use and disclosure of user data and personal information could give rise to liability or additional costs;
  • we may not be able to obtain necessary rights to use software or components supplied by third parties; and
  • we have operations outside of North America and therefore are subject to risks inherent in foreign jurisdictions.

About Sierra Wireless

Sierra Wireless (NASDAQ: SWIR) (TSX: SW) is building the Internet of Things with intelligent wireless solutions that empower organizations to innovate in the connected world. We offer the industry’s most comprehensive portfolio of 2G, 3G and 4G embedded modules and gateways, seamlessly integrated with our secure cloud and connectivity services. OEMs and enterprises worldwide trust our innovative solutions to get their connected products and services to market faster. Sierra Wireless has more than 1000 employees globally and operates R&D centers in North America, Europe and Asia. For more information, 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 EARNINGS (LOSS)(In thousands of U.S. dollars, except where otherwise stated)(unaudited)

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  2015     2014   2015     2014 Revenue $   154,581   $   143,270 $   462,952   $   399,445 Cost of goods sold 105,572     96,215   314,160     270,472  

Gross margin

49,009     47,055   148,792     128,973     Expenses Sales and marketing 13,856 12,633 39,829 37,794 Research and development 17,987 19,887 55,481 59,925 Administration 9,416 9,006 30,928 28,019 Restructuring 39 71 750 1,058 Acquisition and integration 443 356 2,561 1,397 Impairment — — — 3,756 Amortization 3,066     2,159   8,455     7,017     44,807     44,112   138,004     138,966   Earnings (loss) from operations 4,202 2,943 10,788 (9,993 ) Foreign exchange loss (102 ) (8,039 ) (10,445 ) (8,538 ) Other income 13     317   131     608   Earnings (loss) before income taxes 4,113 (4,779 ) 474 (17,923 ) Income tax expense (recovery) 827     (1,875 ) 2,765     (2,771 ) Net earnings (loss) $   3,286     $   (2,904 ) $   (2,291 )   $   (15,152 ) Other comprehensive income (loss):

Foreign currency translation adjustments, net of taxes of $nil

(1,240 )   383   (190 )   339   Comprehensive earnings (loss) $   2,046     $   (2,521 ) $   (2,481 )   $   (14,813 )  

Net earnings (loss) per share (in dollars)

Basic $ 0.10 $ (0.09 ) $ (0.07 ) $ (0.48 ) Diluted 0.10 (0.09 ) (0.07 ) (0.48 ) Weighted average number of shares outstanding (in thousands) Basic 32,231 31,582 32,119 31,429 Diluted 32,823     31,582     32,119     31,429  

SIERRA WIRELESS, INC.CONSOLIDATED BALANCE SHEETS(In thousands of U.S. dollars, except where otherwise stated)(unaudited)

    September 30, 2015   December 31, 2014 Assets Current assets Cash and cash equivalents $ 88,369 $ 207,062

Accounts receivable, net of allowance for doubtful accounts of $2,906(December 31, 2014 - $2,275)

120,938 106,799 Inventories 37,508 17,445 Deferred income taxes 4,776 4,779 Prepaids and other 9,947   7,826   261,538 343,911 Property and equipment 25,579 20,717 Intangible assets 82,613 37,893 Goodwill 162,585 103,966 Deferred income taxes 3,560 3,898 Other assets 8,895   4,979     $ 544,770   $ 515,364    

Liabilities

Current liabilities Accounts payable and accrued liabilities $ 132,156 $ 128,196 Deferred revenue and credits 4,231   3,245   136,387 131,441 Long-term obligations 39,614 26,608 Deferred income taxes 6,429   453     182,430   158,502   Equity Shareholders’ equity

Common stock: no par value; unlimited shares authorized; issued and outstanding: 32,262,768 shares (December 31, 2014 - 31,868,541 shares)

345,523

339,640

Preferred stock: no par value; unlimited shares authorized;

issued and outstanding: nil shares

— — Treasury stock: at cost: 3,123 shares (December 31, 2014 – 342,645 shares) (94 ) (6,236 ) Additional paid-in capital 22,843 26,909 Retained earnings 223 2,514 Accumulated other comprehensive loss (6,155 ) (5,965 )   362,340   356,862     $ 544,770   $ 515,364  

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

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  Nine months ended

September 30,

 

2015

  2014 2015   2014 Cash flows provided by (used in): Operating activities Net earnings (loss) $   3,286 $   (2,904 ) $   (2,291 ) $   (15,152 ) Items not requiring (providing) cash

Amortization

4,869 6,009 14,452 18,429

Stock-based compensation

2,539 2,395 7,273 6,972 Deferred income taxes — (2,373 ) — 592 Loss (gain) on disposal of property and equipment 8 (15 ) 85 7 Impairment — — — 3,756 Unrealized foreign exchange loss — 4,837 6,219 5,436 Other (59 ) (231 ) (104 ) (486 ) Changes in non-cash working capital Accounts receivable 8,407 (4,624 ) (12,438 ) (6,833 ) Inventories (11,294 ) (552 ) (20,530 ) (1,711 ) Prepaid expenses and other 1,521 14,501 (5,667 ) 22,948 Accounts payable and accrued liabilities 1,294 11,533 13,677 3,471 Deferred revenue and credits (127 ) 307   756   (75 ) Cash flows provided by operating activities 10,444   28,883   1,432   37,354   Investing activities Additions to property and equipment (3,397 ) (1,983 ) (9,214 ) (5,625 ) Proceeds from sale of property and equipment 5 25 5 62 Increase in intangible assets (242 ) (288 ) (829 ) (1,373 ) Net proceeds from sale of AirCard business — — — 13,800 Acquisition of In Motion Technology, net of cash acquired — (1,397 ) — (23,853 ) Acquisition of Wireless Maingate AB, net of cash acquired — — (88,449 ) — Acquisition of Accel Networks LLC — — (9,250 ) — Acquisition of MobiquiThings SAS, net of cash acquired (14,881 ) — (14,881 ) — Net change in short-term investments — — — 2,470 Increase in other assets —   (264 ) —   (3,554 ) Cash flows used in investing activities (18,515 ) (3,907 ) (122,618 ) (18,073 ) Financing activities Issuance of common shares 532 1,392 3,257 4,764 Purchase of treasury shares for RSU distribution (134 ) — (2,587 ) (5,955 ) Taxes paid related to net settlement of equity awards (63 ) (225 ) (2,257 ) (899 ) Excess tax benefits from equity awards 93 — 2,273 — Decrease in other long-term obligations (28 ) (46 ) (172 ) (317 ) Cash flows provided by (used in) financing activities 400   1,121   514   (2,407 ) Effect of foreign exchange rate changes on cash and cash equivalents (434 ) 1,571   1,979   1,796   Cash and cash equivalents, increase (decrease) in the period (8,105 ) 27,668 (118,693 ) 18,670 Cash and cash equivalents, beginning of period 96,474   168,418   207,062   177,416   Cash and cash equivalents, end of period $   88,369   $   196,086   $   88,369   $   196,086  

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

(in thousands of U.S. dollars, except where otherwise stated)   2015      

2014

Q3 Q2 Q1   Total Q4 Q3 Q2 Q1   Gross margin - GAAP $ 49,009 $ 50,947 $ 48,836 $ 178,979 $ 50,006 $ 47,055 $ 43,321 $ 38,597 Stock-based compensation and related social taxes   146   147   248   555   131   134   130   160  

Gross margin - Non-GAAP

$ 49,155 $ 51,094 $ 49,084 $ 179,534 $ 50,137 $ 47,189 $ 43,451 $ 38,757  

Earnings (loss) from operations - GAAP

$ 4,202 $ 4,112 $ 2,474 $ (6,594 ) $ 3,399 $ 2,943 $ (6,264 ) $ (6,672 ) Stock-based compensation and related social taxes 2,557 2,858 2,600 10,464 2,432 2,402 2,326 3,304 Acquisition and integration 443 1,015 1,103 2,670 1,273 356 71 970 Restructuring 39 711 — 1,598 540 71 987 — Impairment — — — 3,756 — — 3,756 — Acquisition related amortization   2,234   2,029   2,669   10,900   2,389   2,609   2,784   3,118   Earnings from operations - Non-GAAP $ 9,475 $ 10,725 $ 8,846 $ 22,794 $ 10,033 $ 8,381 $ 3,660 $ 720 Amortization (excluding acquisition related amortization)   2,635   2,423   2,462   12,617   2,699   3,400   3,153   3,365   Adjusted EBITDA $ 12,110 $ 13,148 $ 11,308 $ 35,411 $ 12,732 $ 11,781 $ 6,813 $ 4,085   Net earnings (loss) - GAAP $ 3,286 $ 4,076 $ (9,653 ) $ (16,853 ) $ (1,701 ) $ (2,904 ) $ (8,243 ) $ (4,005 )

Stock-based compensation andrelated social taxes, restructuring,impairment, acquisition,integration, and acquisition relatedamortization, net of tax

5,232 6,443 6,372 29,337 6,618 5,414 9,916 7,389 Foreign exchange loss (gain) (51 ) (1,581 ) 11,835 12,285 3,798 7,953 916 (382 ) Income tax adjustments   (1,048 ) (301 ) (1,372 ) (4,921 ) 378   (2,781 ) 1   (2,519 ) Net earnings - Non-GAAP $ 7,419 $ 8,637 $ 7,182 $ 19,848 $ 9,093 $ 7,682 $ 2,590 $ 483   Diluted net earnings (loss) per share GAAP - (in dollars) $ 0.10 $ 0.12 $ (0.30 ) $ (0.53 ) $ (0.05 ) $ (0.09 ) $ (0.26 ) $ (0.13 ) Non-GAAP - (in dollars)   $ 0.23   $ 0.26   $ 0.22         $ 0.63   $ 0.29   $ 0.24   $ 0.08   $ 0.02  

Q3 2015 RECONCILIATION OF GAAP AND NON-GAAP RESULTS

   

Acquisition Related Amortization

 

Acquisition, Integration & Restructuring

 

Stock-based Compensation & Related Social Taxes

 

Foreign Exchange Loss

 

Tax Adjustments

 

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

GAAP Non GAAP   Q3 2015 Q3 2015   Revenue 154,581 154,581 Cost of goods sold 105,572             146             105,426   Gross margin 49,009 — — (146 ) — — 49,155 GM% 31.7 % 31.8 %   Sales and marketing 13,856 733 13,123 Research and development 17,987 130 386 17,471 Administration 9,416 1,292 8,124 Acquisition and integration 443 443 — Restructuring 39 39 — Amortization 3,066     2,104                     962   Total operating expenses 44,807 2,234 482 2,411 — — 39,680                           Earnings from operations 4,202 (2,234 ) (482 ) (2,557 ) — — 9,475   Foreign exchange loss (102 ) (102 ) — Other income 13                         13   Total other income (expense) (89 ) — — — (102 ) — 13                           Earnings before income taxes 4,113 (2,234 ) (482 ) (2,557 ) (102 ) — 9,488   Income tax expense 827 (41 ) (153 ) (1,048 ) 2,069                           Net earnings 3,286     (2,234 )   (441 )   (2,557 )   51     1,048     7,419     Diluted earnings per share 0.10 0.23   Weighted average diluted shares 32,823 32,823

SIERRA WIRELESS, INC.SEGMENTED RESULTS

  (In thousands of U.S. dollars, except where otherwise stated)   2015     2014 Q3     Q2     Q1 Total     Q4     Q3     Q2     Q1 OEM Solutions                         Revenue $ 130,653 $ 138,133 $ 133,040 $ 476,650 $ 129,580 $ 124,329 $ 116,579 $ 106,162 Cost of goods sold 93,213       97,142       93,079   336,133       90,136       87,453       82,910       75,634   Gross margin $ 37,440 $ 40,991 $ 39,961 $ 140,517 $ 39,444 $ 36,876 $ 33,669 $ 30,528 Gross margin % 28.7 % 29.7 % 30.0 % 29.5 % 30.4 % 29.7 % 28.9 % 28.8 %   Enterprise Solutions Revenue $ 23,928 $ 19,832 $ 17,366 $ 71,873 $ 19,498 $ 18,941 $ 18,433 $ 15,001 Cost of goods sold 12,359       9,876       8,491   33,411       8,936       8,762       8,781       6,932   Gross margin $ 11,569 $ 9,956 $ 8,875 $ 38,462 $ 10,562 $ 10,179 $ 9,652 $ 8,069 Gross margin %   48.3 %     50.2 %     51.1 %     53.5 %     54.2 %     53.7 %     52.4 %     53.8 %

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Sierra WirelessInvestor and Media Contact:David Climie, +1-604-231-1137Vice President, Investor Relationsdclimie@sierrawireless.comorInvestor Contact:David G. McLennan, +1-604-231-1181Chief Financial Officerinvestor@sierrawireless.com