Sierra Wireless, Inc. (SWIR)

Q2 2010 Earnings Call

July 29, 2010 5:30 PM EST


Jason Cohenour – President and CEO

Dave McLennan – CFO and Secretary


Amir Rozwadowski – Barclays Capital

Mike Abramsky – RBC Capital Markets

Chris Umiastowski – TD Newcrest

Todd Coupland – CIBC

Gus Papageorgiou – Scotia Capital



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

Mr. Cohenour, please go ahead.

Jason Cohenour

Thank you, Steve, and good afternoon, everyone. Thank you for joining today's call and webcast. With me, today on the call, as Steve mentioned, 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.

The agenda for today's call is as follows. I’ll first provide a general business update and then turn the call over to Dave, who will cover Q2 2010 financial performance and Q3 financial guidance. I’ll then return for some brief summary comments and then go to Q&A.

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 being displayed on the webcast on slide number two at this time, and I’ll 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, which provides a complete reconciliation of our GAAP and non-GAAP results.

I’ll begin with a brief financial summary of our second quarter highlights. Overall, I’m very pleased with our results. Revenue of a $159.1 million was an all-time quarterly record and represents solid sequential growth of 5% and strong year-over-year growth of 18%, and we accomplished this in a very challenging component supply environment.

Our strong results were underpinned by continued broad based demand across both Machine-to-Machine and Mobile Computing. In M2M, we’re very pleased to report that our strategic investments are driving strong results and a leading market position. In the second quarter, M2M revenue was up 53% year-over-year and contributed more than half of our total sales.

We also launched important new products for key segments and geographies, while securing new design wins and continuing to expand our position in the M2M value chain. During the quarter, we also announced that we had achieved the number one global market share position in wireless M2M, a strong endorsement of our strategy and execution in this important and growing market.

In Mobile Computing, strong demand from new AirCard product launches and new customer wins drove revenue up 21% sequentially in the quarter. Our new AirCard products have gained excellent traction in the market and sell-through is strong. These trends combine with additional planned new product launches are driving our expectations for continued AirCard growth in the second half of 2010.

Furthermore, our efforts with PC OEMs continue to gain momentum with new strategic design wins that we expect will drive significant revenue growth in 2011.

During Q2, we also continued to make steady progress on managing cost. Lowering non-GAAP OpEx to $41.7 million, a 9% improvement compared to Q2 of 2009. Our strong revenue performance combined with good cost management led to better than expected non-GAAP earnings from operations of $4.7 million and non-GAAP EPS of $0.14.

And, while delivering strong results, we also continued to bolster our strategic position in our key markets with important investments, geographical expansion, new products, and new customer wins, all of which fuels our expectations for continued growth and expanding profitability.

Most of you know our Mobile Computing business quite well, while some of you are still [inaudible] the speed on our M2M business, which as I mentioned, now represents more than half of our revenue. So, at this point, I’m going to take a moment to share with you a little more color on our view of the strategic opportunity.

The M2M market includes a broad range of connected devices and solutions, covering consumer electronics, such as e-book readers, PNDs, cameras, and gaming devices, as well as industrial and enterprise solutions, such as automotive, telematics, smart metering, networking, payment, security systems, and healthcare.

We believe that these new connected devices and solutions will rapidly enable the emerging internet of things, which represents a massive opportunity and the next big thing in wireless. Most wireless analysts and ecosystem players agree, ABI Research predicts, the global market for connected devices will grow from 32 million units shipped in 2009 to a 146 million units in 2014, compound annual growth rate of 35%.

There are a number of catalysts underpinning this expectation of tremendous growth and I’ll touch on just a couple of them now. First, operators are strategically focused on M2M. Most operators see M2M as the next growth wave and are investing aggressively to provide competitive services and access to a broader range of solutions, while also lowering their service delivery costs with a goal to rapidly increase the number of connected devices on their networks.

In fact, for many operators, tracking the number of connected devices on their networks has become a key metric for measuring corporate performance, a metric that was largely ignored just a year-ago.

Second, our customers including OEMs, solution providers and system integrators are incorporating wireless communications into their products and services at a rapid pace, while at the same time creating sometimes game-changing business models. This adoption of wireless is happening across almost every vertical segment from connected cars to smart-meters to advertising.

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