Sierra Wireless (SWIR, Financial) reported healthy numbers for the second quarter, driven by a combination of few potential factors such as strong organic growth of 17% year-on-year basis and solid contribution from its recent acquisitions such as In Motion and AnyDATA that continue to enhance its profitability. In addition, Jason Cohenour, president and chief executive officer at Sierra Wireless said that Sierra is planning to acquire additional acquisitions in the second half in order to gain a stronghold in machine to machine market that should drive its growth in future.
Second-quarter results and impressive prospects
Sierra Wireless, for the second quarter, posted revenue of $135 million, an increase of 23.2% as compared to $109.6 million in the same quarter last year, beating consensus estimates of $129.42 million in revenue for the quarter. Its net income from came in at $2.6 million or earnings of $0.08 per share as against net income of $1.0 million or earnings of $0.03 per share in the second-quarter last year that also outpaced consensus estimates of $0.07 earnings per share for the second-quarter 2014.
Looking ahead, the company released quite an impressive guidance for the third quarter for both the top as well as the bottom lines that demonstrates significant growth on year-over-year and sequential basis. Sierra expects its revenue for the third quarter to be in the range of $137.0 to $140 million, while its net income is forecast to range between $3.8 million or earnings of $0.12 per share to $4.7 million or earnings of $0.15 per share.
OEM and enterprise business solutions to drive its growth ahead
Sierra Wireless continues to experience solid market traction in 3G, and 4G-embeded wireless modules for various market opportunities such as automotive, mobile computing, energy, sales and payment and networking, due to significant large high-volume customers across the world for its M2M embedded module solutions. Sierra has at its folds strong design wins for these opportunistic markets and its innovative solution in 3G and 4G continue to advance its growth as the market is gradually shifting away from 2G embedded wireless modules.
The company has recently secured significant 4G design wins with one of the leaders in Metering and Insurance Telematics, a domestic Chinese car OEM. Sierra sees strong growth and networking opportunities in these markets that should certainly assist the company in acquiring extra market share and accelerating its profit and operating margins in the future as the company remains on track to attain various new potential opportunities and RFP responses in these markets.
Further, the company has newly launched HL line of essential products that is creating a competitive advantage for the company and is expected not only to strengthen its position in key segments and geographies but also to play a significant role in its revenue growth going forward.
In addition, Sierra is expected to benefit tremendously from its next generation smart module product line, which is effectively developed exploiting its new Legato-embedded software platforms. This smart module product line has duel factor of new high powered multi-core hardware platform and its Legato-embedded software platform that will certainly assist the company winning many customers in both small developers and large OEMs. Its revenue for OEMs business solutions had increased 22.6% to $116.6 million during the second-quarter 2014.
Additionally, the company is witnessing noteworthy designs win in the crucial market such as Automotive and continues to make progress in its "Internet of things" solutions as growing developer community continue to avail its Legato and AirVantage solutions due to its smart platform that helps the developers increase time to revenue while minimizing general solution costs and lower program cost and risk. The developers are exploiting these embedded and cloud software platforms of Sierra to further develop fascinating new "Internet of Things" solutions.
Some more positives
Furthermore, its enterprise business now looks quite fascinating as the company is effectively leveraging In Motion technology solutions to its enterprise business solutions. Sierra Wireless is experiencing strong traction for 4G embedded ‘In Motion mobile gateway and AirLink GX440 that continue to win additional design wins for Sierra. The company is also believed to be obtaining a large share from continuous expansion and roll outs of strategic devices to cloud customers in Europe like Expresso and Atlas Cut Go who are aggressively engaged in expanding the deployment of connected machines.
In addition, the company has recently announced ES440 enterprise gateway that has received relatively fair response from the market. The ES440 is particularly designed in order to support the branch office and retail business continuity applications that should assist the company in obtaining value chain in these markets. The company expects tremendous growth for its 4G enabled rugged gateway that will certainly help the company to maintain its leading position in the future as customers are gradually moving to 3G and 4G technologies. Its enterprise business solution had yearly growth of 27% to $18.4 million.
Sierra at the same time is making significant progress with its AirVantage M2M cloud subscriber and customers base and expects this momentum to continue in the second half as existing customers continue to expand their subscription for its AirVantage M2M cloud solutions. Further, the company is expanding its value chain as it remains on track to add new capabilities to its AirVantage cloud offerings that should help the company to effectively secure many new clients in the future. Sierra has recently added new clients like a large U.S. gas and electric utility and a large digital billboard operator also based in the United States for its AirVantage M2M cloud offerings.
Conclusion
Sierra Wireless, no doubt, looks very aggressive to capture further market share from the underlying growth opportunities it has at its folds with robust design wins and effective new product lines such as Legato-enabled smart modules and its HL series that should certainly help the company to gain market traction and drive its growth in the future. Sierra is currently trading at the trailing P/E multiple of 15.86 that makes the stock cheap and it has strong balance sheet, with $168.42 million of cash and has no debt.
Besides, the company has operating cash flow of $23.14 million and free cash flow of $32.29 million. Moreover, the analysts have estimated CAGR of 5.60% for the next five years, with this year 21.20% annual growth and 110.0% for next year, reflecting strong return for the investors in short as well as in the long-run.
