Sierra Wireless (NASDAQ: SWIR) announced disappointing fourth-quarter 2018 results on Thursday after the market closed, as last quarter's macro-economic concerns and weakness across several end markets persisted. The Internet of Things (IoT) specialist also offered tepid forward guidance and a cost-savings program that left the market wanting more.
With shares down 25% Friday afternoon as of this writing, let's dig deeper to see how Sierra Wireless ended 2018 and what investors should be watching in the coming year.
Sierra Wireless' results: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Growth|
|Revenue||$201.4 million||$183.5 million||9.7%|
|GAAP net income (loss)||($3.8 million)||($3.5 million)||N/A|
|GAAP earnings (loss) per share||($0.11)||($0.11)||N/A|
DATA SOURCE: SIERRA WIRELESS. GAAP = generally accepted accounting principles.
What happened with Sierra Wireless this quarter?
- Revenue was near the low end of Sierra Wireless' guidance provided in November for a range of $200 million to $208 million.
- Adjusted for items like stock-based compensation and acquisition expenses, Sierra Wireless generated (non- GAAP ) earnings of $9 million, or $0.25 per share, slightly below the midpoint of its outlook for $0.22 to $0.30, and down from $0.28 per share in the same year-ago period.
- Product revenue grew 5.3% year over year, to $178.2 million.
- Services and other revenue rose 63%, to $23.2 million.
- By segment:
- OEM Solutions revenue grew 6.4%, to $148.7 million.
- Enterprise Solutions revenue declined 5.1%, to $30.3 million.
- Internet of Things (IoT) services revenue soared 89.1%, to $22.4 million, driven by the acquisition of Numerix and organic subscriber growth.
- Adjusted EBITDA increased 10%, to $15.3 million.
What management had to say
Sierra Wireless CEO Kent Thexton stated:
We are accelerating the transformation of the company into a global IoT solutions and services provider. We are centralizing our R&D, combining our global sales team and driving efficiency programs throughout our operations. As we deliver cost savings, we are investing today in innovative cellular technologies to enhance our Device To Cloud offering and drive recurring subscription-based revenue. To accomplish this, we are developing innovative technologies such as edge network software, soft-SIM capabilities, LPWA and 5G embedded modules, as well as advanced security for data management. We plan to leverage our strong device position into the mass deployment of LPWA Cat M1/NB1 this year and the roll-out of high-speed 5G technology over the next couple of years. We have much to accomplish in 2019 and I believe the company is making the right investments as we enter the next phase of global growth in the Internet of Things.
Noting it continues to face a difficult macro environment and "some weakness [...] in the automotive, enterprise networking and mobile computing markets," Sierra Wireless is implementing a new cost-reduction program over the next 18 to 24 months -- though it also plans to continue investment in innovative new products to drive longer-term growth.
In the meantime, Sierra Wireless expects first-quarter 2019 revenue of $170 million to $174 million (down from $186.9 million in the same year-ago period), adjusted EBITDA of $2 million to $4 million, and adjusted earnings per share of $0.02 to $0.06. Though we don't usually pay close attention to Wall Street's demands, both the top and bottom lines of this outlook are far below consensus estimates for first-quarter adjusted earnings of $0.21 per share on revenue of $198.2 million.
Looking further ahead, Sierra Wireless expects roughly flat revenue in 2019, which should translate to adjusted earnings per share of $0.30. Here again, most analysts were modeling significantly higher earnings of $1.20 per share on revenue growth of roughly 7%.
In the end, Sierra Wireless might well be taking the right steps to turn the business around and once again achieve sustained, profitable growth over the long term. But our market hates being told to hurry up and wait, and the stock is responding accordingly.
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