Sierra Wireless (SWIR, Financial) provides cellular wireless solutions to the machine-to-machine (M2M) and connected device markets in North America, Europe and the Asia Pacific. The company operates through two broad segments – OEM solutions and Enterprise solutions. After the first quarter fiscal 2015 results, the stock took a beating on the Street losing close to 7.2%, having lost around 28% year to date. Let’s take a look at the results and see what the future holds.
First quarter 2015
First quarter revenue was strong and came in at a record level of $150.4 million, representing a year-over-year growth of over 24%. This was on the back of strong organic growth of 19% and also contributions from acquired business. Analysts were expecting $3.2 million less so the company beat the analyst’s expectations on revenues.
On the back of a robust top-line growth, the company’s operating leverage and profitability continued to improve on a year-over-year basis. Adjusted EBITDA moved up by177% to clock $11.3 million and earnings from operations increased significantly to $8.8 million almost 12 times higher than year-ago quarter. Earnings per share came in at $0.22, beating analysts’ expectations by $0.02.
Despite beating expectations on top and bottom line, the stock plunged over 7% after the results and year-to-date loss on the Street has been well over 28%. However, the stock still trades above the 200-day SMA, but below 20-day SMA. The stock got hammered, despite the earnings beat, due to weak guidance for the second quarter, which I shall detail later in the article.
Looking ahead
During the first quarter, Sierra completed the acquisition of Sweden-based provider of machine-to-machine (M2M) connectivity and data management services –Â Wireless Maingate. Maingate provides managed M2M connectivity and information management services to more than 500 customers across Europe, reaching a subscriber base of more than 500,000 connected devices. According to Jason Cohenour, president and chief executive officer,
“This acquisition represents a significant step forward for the company as we expand our device-to-cloud solutions to include wireless connectivity services for the Internet of Things. Our OEM, enterprise and services sales teams are actively collaborating and sharing leads. We have also secured our first connectivity design wins with existing Sierra Wireless customers providing early validation of our expectation for sales synergies.”
Once the integration of Maingate manager platform with AirVantage is completed, customers will have the single elegant UI from which they can manage devices, connectivity, subscriptions, SIM cards and machine data. Hence, this acquisition can prove to be a long-term growth driver for Sierra, going forward.
Additionally, Sierra announced the acquisition of Accel Networks to expand its managed connectivity services offering. This transaction is expected to close in June 2015. Jason Cohenour, president and CEO of Sierra Wireless, is very excited about this acquisition and said:
“With a proven managed connectivity service adopted by hundreds of enterprises in the U.S., the addition of Accel will accelerate our device-to-Cloud strategy and add significant scale and capabilities to our services business.”
Once this acquisition is fully integrated into Sierra operations, it will bolster the Enterprise segment of the company. During the first quarter 2015, the Enterprise segment revenue grew 16% year over year, and this acquisition will surely be a growth driver for the company in the long run. The market potential in enterprise solutions for the Internet of Things, or IoT, is huge and Sierra is committed to make the most of this opportunity, going forward.
The balance sheet still remains strong with $99 million cash, despite having consumed over $107 million and the company has zero debt.
Second quarter outlook
Sierra expects the second quarter revenue to be in the range of $153 million to $156 million, excluding Accel Networks, but including $4.1 million from Wireless Maingate integration. At the midpoint of the guided range this represents year-over-year growth of 14.4%
Earnings per share are expected to be in the range of $0.21 to $0.24 versus $0.08 in the year-ago period.
Wrapping up
M2M market potential is huge. Sierra’s acquisition of Accel networks will bolster its Enterprise segment. In addition, the company beat analysts’ expectation on top- and bottom-line. With the stock having lost around 28% year to date, this presents the right opportunity to buy more and hold for long term.
