Sierra Wireless, Inc. (SWIR)

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Sierra Wireless, Inc. (SWIR)

Q1 2010 Earnings Call Transcript

April 29, 2010 5:30 pm ET


Jason Cohenour – President and CEO

Dave McLennan – CFO and Secretary


Spencer Churchill – Westwind Partners

Bill Choi – Jefferies & Co.

Amir Rozwadowski – Barclays Capital

Matthew Hoffman – Cowen & Company

Chris Umiastowski – TD Newcrest/Waterhouse Securities

Todd Coupland – CIBC World Markets

Ilya Grozovsky – Morgan Joseph & Co.



Thank you for participating in the Sierra Wireless, Inc. first quarter 2010 results conference call. I would like to introduce your speakers, Jason Cohenour, President and CEO; and Dave McLennan, Chief Financial Officer.

Jason Cohenour

Thank you, Jessica, and good afternoon everyone. Thank you for joining today's call and web cast. With me on the call today is Dave McLennan, the company’s CFO. As a reminder, today's presentation is being web cast and will be available on our website following the call.

The agenda for today's call is as follows. I will first provide a general business update and then turn the call over to Dave, who will cover Q1 2010 financial performance and Q2 financial guidance. I will then return for some brief summary comments and questions and answers.

As a reminder, today's web cast and call is subject to the company's safe harbor statement. We are not going to read the statement into the record today. The statement is being displayed right now on the web cast on slide number two, and I will pause now for everybody to read it.

This presentation should also be viewed in conjunction with our press release and with the supplementary information on our website, where you will find complete reconciliation of GAAP and non-GAAP results.

I will begin with a brief financial summary. Overall, I'm very pleased with our performance in Q1. Our revenue of 151.3 million represents solid sequential growth of 5% and 36% growth on a year-over-year basis and was above our guidance of 150 million.

Our growth was driven by continued strength in our Machine-to-Machine business, including a 49% year-over-year increase in the revenue from the Wavecom business that we acquired in March of 2009. Non-GAAP gross margin was 30.7% in the quarter, in line with our target business model and consistent with our expectations and guidance.

Non-GAAP operating expenses were 42.3 million in the quarter, an improvement of $1.5 million over Q4 of 2009. This improvement is the result of our ongoing focus on cost reduction and our continued efforts to realize synergies from the integration of Wavecom. As we’ve stated on previous calls, we remain committed to reaching our target of 40 million in non-GAAP operating expenses per quarter.

The combination of revenue growth and operating expense reductions lead to improved non-GAAP earnings from operations of 4.1 million, and non-GAAP earnings per share of $0.13. During the quarterly we also achieved an important milestone in the acquired Wavecom business. Driven by the revenue growth I mentioned earlier plus higher gross margin and 28% reduction in operating expenses, the Wavecom business achieved breakeven results in the first quarter compared to a loss of 12.3 million one year ago.

Additionally, our balance sheet remains very strong. At the end of Q1, we had 122.4 million in cash and cash equivalents and no debt. And finally, we're quite pleased to see strong bookings and an improving sell through trend line during the quarter.

At this point, I'm going to take a moment to introduce how we will be presenting our segmented business results going forward. In the Wireless space, we are targeting two high growth segments, Machine-to-Machine and Mobile Computing. Machine-to-Machine, also known as M2M is probably familiar to most of you who follow the company. The M2M market represents an exciting growth opportunity for us, and as a segment that is receiving growing focus from operators and OEMs globally.

Our definition of M2M alliance with the majority of the industry analysts following the market. It includes a broad range of applications and connected devices, from emergency communication in the automotive sector to smart metering in the energy sector, to e-readers and personal navigation devices for consumers.

We are the global leader in the wireless M2M space and provide solutions across the value chain from embedded modules and fully integrated intelligent gateways to hosted end-to-end solutions and an M2M service delivery platform. Starting this quarter we will provide a revenue split for the M2M business to help investors better understand the size and scope of our M2M franchise, and its importance to the overall business.

Our M2M revenue includes AirPrime embedded modules, excluding sales to PC OEM customers, AirLink intelligent gateways and routers and our advantage solutions and service delivery platform. Our second line of businesses is mobile computing, which is focused on providing mobile broadband connectivity for notebooks and netbooks. We are a technology leader in this space often coming first to market with devices that support the latest high-speed services being deployed by operators around the world.

We have strong relationships with key operators such as AT&T, Sprint and Telstra and we supply them with AirCard mobile broadband devices including USB modems, mobile hotspots and PC cards. We also have strong relationships with leading PC OEMs such as HP, Lenovo, Panasonic, Fujitsu and others to whom we provide embedded mobile broadband solutions.

Going forward, the venues for our mobile computing business will include all sales of our AirCard mobile broadband devices, as well as sales of our AirPrime embedded modules to PC OEMs. In our M2M business we had a very strong start to the year. In Q1, M2M revenue was $88.7 million, up 15% over last quarter and up over 187% compared to the first quarter of 2009. The M2M revenue was broad-based, however we saw exceptionally strong growth in the consumer space where our embedded modules are used in e-readers, personal navigation devices, and other products.

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