Sierra Wireless' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Sierra Wireless, Inc. (SWIR)

Q2 2012 Earnings Call

August 2, 2012 5:30 p.m. EDT


Dave McClennan – CFO

Jason Cohenour – President and CEO


Matt Ramsay – Canaccord Genuity

Billy Kim – Jefferies & Co.

Todd Coupland – CIBC World Markets

Richard Tse – Cormark Securities

Gus Papageorgiou – Scotia Bank

Deepak Kaushal – GMP Securities

Josh Goldberg – G2 Investments

Cobb Sadler – Catamount Strategic Advisors



Good afternoon and welcome to the Sierra Wireless second quarter results conference call and webcast. [Operator Instructions]. I would now like to remind everyone that this call is being recorded today, Thursday, August 2, 2012 at 5:30 Eastern Time, 2:30 Pacific Time.

I'd now like to turn the meeting over to Mr. Jason Cohenour, Sierra Wireless Chief Executive Officer, and Mr. Dave McClennan, Sierra Wireless Chief Financial Officer. Please go ahead, gentlemen.

Dave McClennan

Thanks, Colin. Good afternoon, everyone. This is Dave McClennan speaking. Thank you for joining today's conference call and webcast. With me today on the call is Jason Cohenour, the company's President and CEO.

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. Jason will provide a general business overview, I will then cover second quarter 2012 financial performance in detail as well as guidance for the third quarter of 2012, and then Jason will return for some brief summary comments and some Q&A.

Before I get started, I would like to reference the company's Safe Harbor Statement. A summary of our Safe Harbor Statement can be found on page 2 of the webcast that is now being displayed.

Today's presentation contains certain statements and information that are not based on historical facts and constitute forward-looking statements. These statements include our financial guidance summary for the third quarter of 2012 and commentary on our outlook and business drivers. Our forward-looking statements are based on a number of material assumptions including those listed on page 2 of the webcast presentation which could prove to be significantly incorrect and our forward-looking statements are subject to substantial known and unknown material risks and uncertainties. I draw your attention to a longer discussion of our risk factors on our annual information form and management's discussion and analysis which may be found on SEDAR and EDGAR as well as our other regulatory filings.

This presentation webcast 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 will now turn the call over to Jason for the business overview.

Jason Cohenour

Thank you, Dave. I'll start with a high-level summary of our second quarter 2012 business highlights. Overall I'm very pleased to report that Q2 was an outstanding quarter for Sierra Wireless with operating results well above expectations.

Revenue grew by nearly 20% on a year-over-year basis to $167.4 million in the quarter. Driving this growth was a combination of exceptional sales of 4% AirCard products, another quarter of strong demand from PC OEM customers, and steady growth in our machine-to-machine business. Non-GAAP gross margin improved to 30.7% and non-GAAP operating expenses were lower than expected at $38.8 million. The combination of strong revenue, higher gross margin and lower OpEx led to better-than-expected non-GAAP earnings from operations of $12.7 million and non-GAAP EPS of $0.30.

While driving these great operational results, we were also busy on the strategic front, announcing and recently closing the acquisition of Sagemcom's M2M business, significantly bolstering our leadership position in the growing M2M market.

Keeping a closer look at our mobile computing line of business, Q2 was truly an exceptional quarter. Mobile computing revenue of $89.9 million represents 36% year-over-year growth compared to the second quarter of 2011 and gross margin was a very healthy 28.1%. AirCard and PC OEM sales each contributed significantly to the strong results.

Revenue from our AirCard mobile broadband devices was up 32% year over year, driven by new product launches such as our unique Tri-Fi Hotspot at Sprint, new channel launches such as Virgin Mobile, and continued solid demand for our 4G AirCard products from key operator customers including AT&T, Sprint, Telstra, Rogers and DNA.

Revenue from the sale of embedded modules to PC OEM customers continue to grow at a strong pace in Q2 and was up 50% on a year-over-year basis. During the quarter we experienced solid contribution from a broad range of PC OEM customers including HP, Fujitsu, Lenovo and Panasonic. Revenue contribution from Japan was once again exceptionally strong as we continue to benefit from large rollouts of LTE-enabled notebooks with enterprise customers in Japan.

We also expanded our PC OEM product portfolio during Q2. In June we announced the introduction of the world's thinnest 4G LTE embedded module, the AirPrime EM7700. At only 2.5 mm thick, the EM7700 is designed specifically for us in ultra-portable notebooks, Win8 tablets, and other devices with thinness as a critical design criteria. In Q2 we secured new design wins for the EM7700 as well as other embedded module products with tier 1 PC OEMs for platforms that we expect to launch later this year and into 2013.

Looking forward, we're optimistic about the continued growth prospects in our mobile computing business based on the strength of our channel position, our robust 4G product portfolio and pipeline, expanding LTE network deployments, and new pricing plans from operators.

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