Sierra Wireless Reports Second Quarter 2009 Results
Our results are reported in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles.
"In the second quarter of 2009 we experienced solid revenue, record unit volume shipments, strong cash flow, significant improvement in gross margin and we achieved positive non-GAAP earnings from operations earlier than expected" said Jason Cohenour, President and Chief Executive Officer. "Gross margin improved 720 basis points sequentially, driven by product cost reductions and early synergy returns from our acquisition of Wavecom. Our strong gross margin, combined with good cost management, drove better than expected non-GAAP earnings. Additionally, we have started to experience some of the diversification benefits expected from our acquisition of Wavecom. Customer concentration was reduced and our product line and geographical diversification improved during the quarter.
While executing on our business, we also completed our acquisition of 100% of the Wavecom shares and made good progress on our integration of the two companies. We have announced a new-look executive team, implemented organizational structure changes, took significant cost reduction steps, captured early product cost synergies and leveraged our combined resources to secure OEM design wins representing market share gains. Our integration is going well and is on track.
As we look forward, we are focused on continued strong business execution in a challenging environment and completing our successful integration with Wavecom. We remain confident that when the business environment strengthens, we will be well positioned with a broad and diversified product line, a long list of blue chip customers and partners, a strong global presence, a strong balance sheet and an excellent team."
Q2 2009 Financial Results - GAAP
Our revenue for the second quarter of 2009 was $135.3 million, gross margin was $47.1 million, or 34.8% of revenue, operating expenses were $63.3 million, loss from operations was $16.2 million and our net loss was $5.9 million, or loss per share of $0.19.
Q2 2009 Financial Results - Non-GAAP
Our non-GAAP results exclude transaction costs related to Wavecom, restructuring costs, integration costs, stock based compensation expense, acquisition related amortization, and foreign exchange gains and losses related to the Wavecom acquisition.
On a non-GAAP basis, results for the second quarter of 2009, relative to
guidance provided on April 30, 2009 are as follows:
Second quarter revenue for 2009 of $135.3 million was lower than our
guidance of $139.0 million. Our earnings from operations were $2.8
million, better than our guidance of a loss from operations of $2.0
million. Our net earnings of $1.5 million, or diluted earnings per
share of $0.05, were better than our guidance of a net loss of $2.0
million, or loss per share of $0.06.
On a non-GAAP basis, results for the second quarter of 2009, compared to
the second quarter of 2008 are as follows:
Second quarter revenue decreased by 13% to $135.3 million in 2009,
compared to $155.7 million for the same period in 2008. Gross margin
for the second quarter of 2009 was 34.9% of revenue, compared to
27.8% for the same period in 2008. Operating expenses were $44.5
million and earnings from operations were $2.8 million in the second
quarter of 2009, compared to $25.7 million and $17.7 million,
respectively, in the same period of 2008. Net earnings for the second
quarter of 2009 were $1.5 million, or diluted earnings per share of
$0.05, compared to net earnings of $13.3 million, or diluted earnings
per share of $0.42, in the same period of 2008. Our weighted average
shares outstanding used in calculating earnings per share decreased
to 31.1 million in the second quarter of 2009 from 31.5 million in
the prior year because we repurchased shares under our normal course
On a non-GAAP basis, results for the second quarter of 2009, compared to
the first quarter of 2009 are as follows:
Revenue for the second quarter of 2009 increased by 21% to $135.3
million, compared to $111.4 million in the first quarter of 2009.
Gross margin was 34.9% of revenue in the second quarter of 2009,
compared to 27.7% in the first quarter of 2009. Operating expenses
were $44.5 million and earnings from operations were $2.8 million in
the second quarter of 2009, compared to $28.6 million and $2.2
million, respectively, in the first quarter of 2009. Net earnings for
the second quarter of 2009 was $1.5 million, or diluted earnings per
share of $0.05, compared to $1.8 million, or diluted earnings per
share of $0.06 in the first quarter of 2009.
Our balance sheet remains strong, with $131.5 million of cash, cash equivalents and short-term investments at June 30, 2009. In the second quarter of 2009, we generated $18.5 million of cash from operations on a GAAP basis.
Acquisition Synergies and Cost Reduction Plans
We are implementing an action plan that we expect will capture significant product and operating cost savings independent of the acquisition of Wavecom, as well as revenue, product cost and operating expense synergies resulting from the acquisition of Wavecom.
With respect to operating expenses, we have already implemented several cost reduction activities which have been previously disclosed. We believe that our expense reduction plan will enable us to achieve quarterly non-GAAP operating expenses of approximately $40.0 million in Q1 2010. This cost structure target represents a quarterly reduction of $8.9 million from the pre-acquisition combined Q4 2008 non-GAAP operating expenses of Wavecom and Sierra Wireless of $48.9 million. The estimated $36.0 million annualized non-GAAP cost savings is driven by a combination of cost synergies resulting from the acquisition of Wavecom, as well as cost reduction activities that are independent of the combination.
With respect to product cost, we have already implemented synergy actions that have resulted in product cost savings. Such actions include staff rationalization and common component supplier price negotiations. We believe that additional product cost savings will be achieved over time through a combination of phased actions including manufacturing facility rationalization, consolidation of logistics activities, and product platform harmonization which increases component commonality. We believe that these synergy actions will result in a per unit product cost reduction of approximately 3% - 4% by the end of 2010.
With respect to revenue, we believe that the improved market position of the combined company will result in incremental revenue gains over time. As a combined company, we believe we have the broadest product portfolio and global technical support capability in our industry, as well as scale and product cost advantages relative to our peers. We believe that these enhanced market position advantages have already resulted in OEM design wins that represent market share gains.
In the second quarter of 2009, we incurred a pre-tax charge of approximately $8.9 million related to the cost reduction initiatives already implemented.
Second Quarter and Recent Highlights Included:
- Our Sierra Wireless USB 598 modem for EV-DO Rev A networks was launched with Telus, which is the first CDMA operator using our TRU- Update feature, a managed service providing automatic firmware, driver and application updates.
- Our AirCard 402 for EV-DO Rev A networks, a 2-in-1 mobile broadband card designed to fit both PC card and ExpressCard slots, commenced commercial shipments and was launched by Sprint.
- Our new Q26 Elite Wireless CPU(R) for CDMA 1X passed all regulatory and interoperability testing and was approved for use on the Verizon Wireless, Sprint and Aeris networks. The Q26 Elite is ruggedized for extreme environmental conditions and supports GPS which makes it suitable for fleet management and tracking applications.
- We announced the availability of our new MC5728V embedded module for EV-DO Rev A networks, designed for integrating mobile broadband connectivity into a variety of devices, including notebook computers, networking equipment and industrial handheld devices.
- We announced a collaboration initiative with Meta System Spa to provide a platform for automotive telematics, with a focus on emergency calls, stolen vehicle tracking, remote diagnostics and fleet management.
- We announced that our ALEOS embedded software platform will be available on our MP line of rugged in-vehicle mobile routers. With the addition of ALEOS, our MP product line will now share a common software platform with all of our AirLink gateways and routers, simplifying device management and support.
Acquisition of Wavecom S.A.
On December 2, 2008, we announced an all-cash offer to purchase all of the shares and OCEANE convertible bonds ("OCEANEs") of Wavecom S.A. ("Wavecom"), a global leader in wireless M2M solutions headquartered in Issy-les-Moulineaux, France. The total value of the transaction was approximately (euro)218 million, representing an enterprise value of approximately (euro)85.5 million. We made a cash offer of (euro)8.50 per share of Wavecom, and (euro)31.93 per OCEANE. The transaction was implemented by way of concurrent but separate public tender offers in both France and the United States for all Wavecom shares, all American Depository Shares ("ADSs") representing Wavecom's shares and all OCEANEs issued by Wavecom.
On February 27, 2009, we completed our acquisition of 90.57% of the voting rights of Wavecom. Following a statutory re-opening of the tender offer and our purchase of Wavecom shares on the market, we increased our ownership of the voting rights of Wavecom from 90.57% to 95.4% and, on April 29, 2009, completed our acquisition of all of the remaining Wavecom shares and OCEANEs by way of a squeeze-out. The Wavecom shares and OCEANEs have been delisted from the Euronext and the ADSs have been delisted from the Nasdaq.
We announced changes to our leadership team that included the appointment of former Wavecom executives to our combined executive team. The appointments include Didier Dutronc as Senior Vice President, Marketing, Philippe Guillemette as Senior Vice President, Advanced Technology, Pierre Teyssier as Senior Vice President, Engineering and Emmanuel Walckenaer as Senior Vice President and General Manager, Solutions and Services.
The following guidance for the third quarter of 2009 reflects our current business indicators and expectations. This guidance is presented on a non-GAAP basis, which excludes Wavecom transaction and integration costs, restructuring costs, stock-based compensation expense, acquisition amortization and foreign exchange on amounts related to the Wavecom acquisition.
Our guidance for the third quarter of 2009 reflects the uncertain macro economic environment. Our guidance also includes some revenue contribution from expected new product launches and the uncertainties associated with these launches could affect our ability to achieve guidance.
Inherent in this guidance are risk factors that are described in greater detail in our regulatory filings. Our actual results could differ materially from those presented below. All figures are approximations based on management's current beliefs and assumptions.
Conference Call, Webcast and Instant Replay
We will host a conference call to review our results on Thursday, July 30, 2009 at 3:00 pm PDT, 6:00 pm EDT. You can participate in the conference call either via telephone or webcast. To participate in this conference call, please connect approximately ten minutes prior to the commencement of the call.
Telephone participation: Please dial the following number: 1-800-732-9303 Passcode: Not required or 1-416-644-3414 Passcode: Not required
Webcast: We will also broadcast our conference call over the Internet. To access the web broadcast, click on this URL or enter: http://w.on24.com/... webcast event will be optimized for Microsoft Windows Media Player version 9. To download go to: http://www.microsoft.com/...
The webcast will be available at the above link for 90 days following the call. Should you be unable to participate, Instant Replay (audio) will be available following the conference call for 7 business days. Audio only dial: 1-877-289-8525 or 1-416-640-1917 Passcode: 21309445 followed by the number sign. We look forward to having you participate in our call.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this press release that are not based on historical facts constitute forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws ("forward-looking statements"). These forward-looking statements are not promises or guarantees of future performance but are only predictions that relate to future events, conditions or circumstances or our future results, performance, achievements or developments and are subject to substantial known and unknown risks, assumptions, uncertainties and other factors that could cause our actual results, performance, achievements or developments in our business or in our industry to differ materially from those expressed, anticipated or implied by such forward-looking statements. Forward-looking statements in this press release include all financial guidance for the third quarter of 2009, and all other disclosure regarding possible events, conditions, circumstances or results of operations that are based on assumptions about future economic conditions, courses of action and other future events. We caution you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. These forward-looking statements appear in a number of different places in this press release and can be identified by words such as "may", "estimates", "projects", "expects", "intends", "believes", "plans", "anticipates", "continue", "growing", "expanding", or their negatives or other comparable words. Forward-looking statements include statements regarding the outlook for our future operations, plans and timing for the introduction or enhancement of our services and products, statements concerning strategies or developments, statements about future market conditions, supply conditions, end customer demand conditions, channel inventory and sell through, revenue, gross margin, operating expenses, profits, forecasts of future costs and expenditures, the outcome of legal proceedings, and other expectations, intentions and plans that are not historical fact. The risk factors and uncertainties that may affect our actual results, performance, achievements or developments are many and include, amongst others, our ability to develop, manufacture, supply and market new products that we do not produce today that meet the needs of customers and gain commercial acceptance, our reliance on the deployment of next generation networks by major wireless operators, the continuous commitment of our customers, and increased competition. These risk factors and others are discussed in our Annual Information Form and Management's Discussion and Analysis of Financial Condition and Results of Operations, which may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov and in our other regulatory filings with the Securities and Exchange Commission in the United States and the Provincial Securities Commissions in Canada. Many of these factors and uncertainties are beyond our control. Consequently, all forward-looking statements in this press release are qualified by this cautionary statement and we cannot assure you that actual results, performance, achievements or developments that we anticipate will be realized. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions and we do not undertake any obligation to update forward-looking statements should the assumptions related to these plans, estimates, projections, beliefs and opinions change, except as required by law.