SWIR

Sierra Wireless, Inc. (SWIR)

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Sierra Wireless Inc. (SWIR)

Q3 2010 Earnings Call

November 3, 2010 5:30 PM ET

Executives

Jason Cohenour – President and CEO

Dave McLennan – Chief Financial Officer

Analysts

Matt Ramsey – Canaccord Genuity

Amir Rozwadowski – Barclays Capital

Paul Coster – JP Morgan

Chris Umiastowski – TD Newcrest

Sera Kim – GMP Securities

Mike Abramsky – RBC Capital Markets

Todd Coupland – CIBS

James Moore – Morgan Joseph

Presentation

Operator

Thank you for participating in the Sierra Wireless Third Quarter 2010 Results Conference Call. I would like to introduce your speakers, Jason Cohenour; and Dave McLennan.

Jason Cohenour

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

Today’s agenda is as follows. I’ll first provide a general business update and then turn the call over to Dave who will cover third quarter financial performance, as well as, guidance for the fourth quarter. I will then return for some brief summary comments and questions-and-answers.

As a reminder, today’s webcast and call is subject to the company’s Safe Harbor statement. We’re not going to read the statement into the record today. The statement is currently being displayed on the webcast on slide number two. And I’ll now pause for a moment for everyone to read it.

This presentation should be viewed in conjunction with our press release and with the supplementary information on our website, which provides a complete reconciliation of our GAAP and non-GAAP results.

I’ll begin with a summary of third quarter highlights. Overall, I’m very pleased to announce that our business generated great results in the third quarter. Revenue in the quarter was $172.7 million, up 27% year-over-year and up 9% sequentially, and represented another record revenue quarter for the company. Our year-over-year revenue growth was broad-based with both M2M and mobile computing business lines delivering strong year-over-year gains.

Non-GAAP operating expenses were down again to $41.3 million as a result of continued focus on cost management. Together, our strong topline and lower costs resulted in higher than expected non-GAAP earnings of $0.21 per share in the third quarter, significantly above our guidance range of $0.15 to $0.17.

In M2M, our strategic investments over the past four years are paying off. We’ve achieved the number one market share position globally, we’re delivering new differentiated products and securing new design wins in key segments. And we’re also delivering on our promise to expand our position in the M2M value chain and to become a permanent M2M solutions and services player. In mobile commuting, we’re well-positioned to continue capturing 4G growth. We have strong channel positions, robust product portfolio on pipeline and important new design wins.

Finally, in Q3, we announced new business unit based organization structure designed to sharpen focus on customers and further accelerate profitable growth.

Looking at our M2M business results in more detail, which as a reminder includes, revenue from sales of our AirPrime embedded modules to M2M customers, sales of our AirLink Intelligent Gateways and revenue from our AirVantage Services Platform.

In Q3 M2M revenue was $76.1 million, representing 42% year-over-year growth. With this growth, we solidly hold the number one global market share position in M2M and we continue to build on that leadership in Q3. We were awarded multiple OEM design wins in the quarter, including large opportunities with key customers in the automotive, payment, networking, energy and consumer segments.

We launched the AR Series a new line of wireless modules, specifically designed for automotive applications, including telematics, infotainment and navigation. Developed from the ground up to the automotive grade, the AR Series meets rigorous automotive quality and reliability requirements, and includes broad support for 2G and 3G air interfaces. There is no other product line like it in the industry. And we just established a new standard for the market. Customer reception of the AR Series has been excellent and we have secured multiple design wins for the product line.

We had another record revenue quarter for our high margin AirLink M2M Intelligent Gateways and Routers, including growing sales in Europe and Asia. While winning more AirLink business we also stepped up our end-to-end solutions activity integrating and bundling AirLink Gateways with our AirVantage Solutions and Services Platform.

On the subject of AirVantage, we announced that TELUS here in Canada has selected our AirVantage Services Platform to help them provision, manage and deploy M2M solutions on their network. This win is a significant milestone for our solutions and services business, as it provides an important demonstration of the readiness of our M2M software as a service platform to support millions of connected devices.

Looking forward to the fourth quarter, we expect our M2M business to grow sequentially from the third quarter, driven by broad-based strength across our M2M segments and customers.

I will now move to our mobile computing business, which includes revenue from sales of our AirCard Mobile Broadband Devices, as well as revenue from sales of our AirPrime embedded modules to PC OEM’s. We had an exceptional quarter in mobile computing.

Our mobile computing revenue in the third quarter was $96.6 million, up 18% year-over-year. Our growth was driven by continued strong demand for our dual-mode EV-DO WiMAX products, including the overdrive Mobile Hotspot, as well as the AirCard 250U, which was launched by late in Q2 by Sprint and CLEAR. We also saw strong revenue contribution and significant new product launch activity in our HSPA plus product lines.

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