Sierra Wireless Reports Fourth Quarter and Fiscal Year 2008 Results
TSX: SW NASDAQ: SWIR
VANCOUVER, Feb. 10 -- Sierra Wireless, Inc. (NASDAQ: SWIR)
(NASDAQ:TSX:)
(NASDAQ:SW)
is reporting fourth quarter and fiscal year 2008 results.
Our results are reported in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles.
"In the context of current economic conditions, we view our fourth quarter financial results as solid. Our fourth quarter revenue of $132.9 million was essentially flat year over year and drove solid earnings from operations of $9.0 million. In addition, we continued our recent track record of strong cash performance, delivering record quarterly cash flow from operations of $32.3 million. For the full year 2008, we are quite pleased that we were able to grow revenue by almost 30% over 2007 and deliver record earnings and cash flow in the face of stiff economic headwinds" said Jason Cohenour, President and Chief Executive Officer. "We also took a major step in executing on our corporate strategy of expanding aggressively into the M2M market with our offer to purchase Wavecom. We believe that this combination will establish Sierra Wireless as a uniquely positioned global leader in wireless for mobile computing and M2M.
As we look forward, we are focused on business execution in a challenging environment and a successful integration with Wavecom. We remain confident that when the business cycle 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 and an excellent team."
Q4 and Fiscal 2008 Financial Results - GAAP
Our revenue for the fourth quarter of 2008 amounted to $132.9 million, gross margin was $36.4 million, or 27.4% of revenue, operating expenses were $27.4 million and net earnings were $34.7 million, or diluted earnings per share of $1.12. Our results for Q4 2008 include $18.4 million of after-tax unrealized foreign exchange gains on Euros held in connection with the Wavecom transaction and a $6.5 million tax benefit resulting from the recognition of a tax asset. We generated a record $32.3 million of cash from operations during the fourth quarter.
Revenue for the year ended December 31, 2008 increased by 29% to $567.3 million, compared to $439.9 million in 2007. Gross margin was 27.6% of revenue in 2008, compared to 28.0% in 2007. Operating expenses were $112.1 million, or 19.8% of revenue, in 2008, compared to $84.6 million, or 19.2% of revenue, in 2007. Net earnings in 2008 were $62.6 million, or diluted earnings per share of $2.00, compared to net earnings of $32.5 million, or diluted earnings per share of $1.16 in 2007. Our results for 2008 include $18.4 million of after-tax unrealized foreign exchange gains on Euros held in connection with the Wavecom transaction and a $6.5 million tax benefit resulting from the recognition of a tax asset.
Q4 and Fiscal 2008 Financial Results - Non-GAAP
Our GAAP results include the unrealized foreign exchange gain, the tax benefit resulting from the recognition of a tax asset that reduces our income tax expense, stock-based compensation expense and amortization resulting from the acquisitions of AirPrime, Inc. in 2003 and AirLink in May 2007. Adjusting for these amounts, our non-GAAP results for Q4 2008 and fiscal 2008 are as follows:
(in millions
of U.S. dollars) Q4 2008 Q4 2007 2008 2007
------- ------- ---- ----
Earnings from
operations - GAAP $ 9.0 $ 13.3 $ 44.6 $ 38.6
Stock-based
compensation 1.5 1.6 6.4 5.2
Acquisition related
amortization 0.6 0.8 3.2 2.6
Transaction costs
related to
terminated
acquisition - - 0.7 -
---- ---- ---- ----
Earnings from
operations
- Non-GAAP $ 11.1 $ 15.7 $ 54.9 $ 46.4
Net earnings - GAAP $ 34.7 $ 11.5 $ 62.6 $ 32.5
Stock-based
compensation,
acquisition
amortization and
transaction costs,
net of tax 1.4 1.8 7.2 5.8
Unrealized FX gain (18.4) - (18.4) -
Tax benefit of
recognition of
tax asset (6.5) - (6.5) -
---- ---- ---- ----
Net earnings
- Non-GAAP 11.2 13.3 44.9 38.3
Diluted earnings
per share - GAAP $ 1.12 $ 0.37 $ 2.00 $ 1.16
Diluted earnings
per share - Non-GAAP 0.36 0.42 1.43 1.37
On a non-GAAP basis, results for the fourth quarter of 2008, relative to guidance provided on October 28, 2008 are as follows:
Fourth quarter revenue for 2008 of $132.9 million was lower than our
guidance of $140.0 million. Our earnings from operations were
$11.1 million, lower than our guidance of $12.2 million. Our net earnings
of $11.2 million, or diluted earnings per share of $0.36, were better
than our guidance of net earnings of $8.9 million, or diluted earnings
per share of $0.28.
On a non-GAAP basis, results for the fourth quarter of 2008, compared to the fourth quarter of 2007 are as follows:
Fourth quarter revenue decreased by 2% to $132.9 million in 2008 from
$135.6 million for the same period in 2007. Gross margin for the fourth
quarter of 2008 was 27.5% of revenue, compared to 28.0% for the same
period in 2007. Operating expenses were $25.5 million and earnings from
operations were $11.1 million in the fourth quarter of 2008, compared to
$22.2 million and $15.7 million, respectively, in the same period of
2007. Net earnings for the fourth quarter of 2008 were $11.2 million, or
diluted earnings per share of $0.36, compared to net earnings of
$13.3 million, or diluted earnings per share of $0.42, in the same period
of 2007. Our weighted average shares outstanding used in calculating
earnings per share decreased to 31.0 million in the fourth quarter of
2008 from 31.4 million in the prior year because our options outstanding
did not have any dilutive impact and we had repurchased shares under our
normal course issuer bid.
On a non-GAAP basis, results for the fourth quarter of 2008, compared to the third quarter of 2008 are as follows:
Revenue for the fourth quarter of 2008 decreased by 3% to $132.9 million,
compared to $136.8 million in the third quarter of 2008. Gross margin was
27.5% of revenue in the fourth quarter of 2008, compared to 27.7% in the
third quarter of 2008. Operating expenses were $25.5 million and earnings
from operations were $11.1 million in the fourth quarter of 2008,
compared to $25.7 million and $12.1 million, respectively, in the third
quarter of 2008. Net earnings for the fourth quarter of 2008 were
$11.2 million, or diluted earnings per share of $0.36, compared to net
earnings of $8.9 million, or diluted earnings per share of $0.28, in the
third quarter of 2008.
On a non-GAAP basis, results for the fiscal year 2008, compared to the fiscal year 2007 are as follows:
Revenue for the year ended December 31, 2008 increased by 29% to
$567.3 million, compared to $439.9 million in 2007. Gross margin was
27.7% of revenue in 2008, compared to 28.1% in 2007. Operating expenses
were $102.4 million, or 18.0% of revenue, in 2008, compared to
$77.3 million, or 17.6% of revenue, in 2007. Net earnings in 2008 were
$44.9 million, or diluted earnings per share of $1.43, compared to net
earnings of $38.3 million, or diluted earnings per share of $1.37 in
2007.
Fourth Quarter and Recent Highlights Included:
- We announced the availability of our new AirLink(TM) Raven XE, an
intelligent 3G Ethernet gateway that provides powerful, intelligent,
high speed wireless connectivity in a compact, cost effective package.
- In collaboration with Telstra, Qualcomm, and Ericsson, we announced
that we are developing the world's first wireless data devices for
HSPA+. These new devices will offer peak download speeds of
21 megabits per second ("Mbps") over Telstra's super-fast Next G(TM)
network and are expected to be commercially available in the first
quarter of 2009.
- We introduced the Compass(TM) 888 and Compass 889 USB modems, each
with potential top speeds of 7.2 Mbps downlink and 5.76 Mbps uplink on
HSPA networks. The Compass 888 has also received technical approval
from operators in Europe and Asia.
- Together with SoftBank Mobile, we announced that the new Sierra
Wireless Compass 888 USB Modem is available in Japan to SoftBank
Mobile customers. The Compass 888 is the first Sierra Wireless PC
adapter to be launched in Japan.
- We introduced the AirCard(R) 501 and AirCard 502 ExpressCard modems
for HSPA mobile broadband networks, providing fast, reliable Internet
and intranet access for mobile professionals working away from the
office. The AirCard 501 and AirCard 502 ExpressCards offer top
download speeds of up to 7.2 Mbps and upload speeds of up to
5.76 Mbps.
- During Q4 2008, we began commercial shipments of the new Sierra
Wireless USB 598 for EV-DO Rev A networks and in January 2009 launched
the product with Sprint for use on the Sprint Mobile Broadband
Network.
- We introduced EMConnect(TM), a robust set of firmware features used in
conjunction with our 3G embedded modules, enabling original equipment
manufacturers (OEMs) to reduce development time, platform costs and
dependence on host processors.
- We announced the availability of a new software development kit (SDK)
supporting OEMs using the Linux operating system. This addition
expands the company's suite of available SDKs for developers working
on applications utilizing Sierra Wireless products.
- We announced that the latest generation of Sierra Wireless devices for
HSPA and EV-DO networks support Microsoft Windows 7 Mobile Broadband,
which simplifies the customer experience by enabling users to connect
to their mobile broadband service using the View Available Networks
feature within Windows, a process similar to connecting to a WiFi
network.
Tender Offer to Acquire Wavecom S.A.
On December 2, 2008, we announced an all cash offer to purchase the common shares and OCEANE convertible bonds ("OCEANEs") of Wavecom S.A. ("Wavecom"), a global leader in wireless M2M solutions. The total value of the transaction is approximately (euro)218 million, representing an enterprise value of approximately (euro)85.5 million. Pursuant to and subject to the terms of a Memorandum of Understanding ("MOU") that provides for a business combination, we made a cash offer of (euro)8.50 per ordinary share of Wavecom, and (euro)31.93 per OCEANE. The transaction is being 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 representing Wavecom's ordinary shares and all OCEANEs issued by Wavecom. We expect the combination to establish Sierra Wireless as a uniquely positioned global leader in wireless for mobile computing and M2M. We expect the acquisition to significantly expand our position in the global M2M market and increase our scale and capabilities in Europe and Asia. The transaction is expected to close in the first quarter of 2009.
Expense Reduction Program
Subsequent to year end, on January 29, 2009, we implemented an expense reduction program that is expected to reduce labor costs by approximately $5.5 million on an annualized basis. The program included the elimination of approximately 56 positions, representing 10% of our workforce. The actions related to this program are expected to be completed during the first quarter of 2009. We expect to incur a pre-tax charge of approximately $1.3 million in the first quarter of 2009 for severance and other costs related to this program. The organizational changes included the resignation of Mr. Trent Punnett, Senior Vice-President, Marketing and Corporate Development.
Financial Guidance
The following guidance for the first quarter of 2009 reflects our current business indicators and expectations. This guidance is presented on a non-GAAP basis, which excludes the impact of Wavecom results, transaction and integration costs, restructuring costs, stock compensation expense and acquisition amortization.
Our guidance for the first 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.
Non-
Q1 2009 Guidance GAAP
---------------- ----
Revenue $93.0 million
Loss from operations $(0.5) million
Net earnings $0.0 million
Diluted earnings per share $0.00/share
Conference Call, Webcast and Instant Replay
We will host a conference call to review our results on Tuesday, February 10, 2009 at 2:30 pm PST, 5:30 pm EST. 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:
1-800-733-7560 Passcode: Not required
or
1-416-644-3414 Passcode: Not required
Webcast (to listen):
The Company will also broadcast its conference call over the
Internet. To access the web broadcast, click on this URL or enter:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2503820
This webcast event will be optimized for Microsoft Windows Media
Player version 9. To download go to:
http://www.microsoft.com/windows/windowsmedia/download.
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: 21290177 followed by the number sign
The webcast will be available at the above link for 90 days following the call.
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 first 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.
About Sierra Wireless
Sierra Wireless (NASDAQ:SWIR)
(NASDAQ:-)
(NASDAQ:TSX:)
(NASDAQ:SW)
modems and software connect people and systems to mobile broadband networks around the world. The Company offers a diverse product portfolio addressing enterprise, consumer, original equipment manufacturer, specialized vertical industry, and machine-to-machine markets, and provides professional services to customers requiring expertise in wireless design, integration and carrier certification. For more information about Sierra Wireless, visit www.sierrawireless.com.
"AirCard" is a registered trademark of Sierra Wireless. Other product or service names mentioned herein may be the trademarks of their respective owners.
SIERRA WIRELESS, INC.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(Expressed in thousands of United States dollars, except per share
amounts)
(Prepared in accordance with United States generally accepted accounting
principles ("GAAP"))
(Unaudited)
Three months ended Year ended
------------------ ----------
December 31, December 31,
------------ ------------
2008 2007 2008 2007
---- ---- ---- ----
Revenue................. $ 132,867 $ 135,581 $ 567,308 $ 439,903
Cost of goods sold...... 96,482 97,821 410,611 316,761
----------- ----------- ----------- -----------
Gross margin............ 36,385 37,760 156,697 123,142
----------- ----------- ----------- -----------
Expenses:
Sales and marketing... 8,204 7,237 32,684 22,220
Research and
development.......... 13,166 11,865 54,060 43,048
Administration........ 4,871 4,281 20,567 15,378
Amortization.......... 1,186 1,092 4,814 3,920
----------- ----------- ----------- -----------
27,427 24,475 112,125 84,566
----------- ----------- ----------- -----------
Earnings from
operations............. 8,958 13,285 44,572 38,576
Other income............ 21,912 2,045 26,162 4,795
----------- ----------- ----------- -----------
Earnings before income
taxes.................. 30,870 15,330 70,734 43,371
Income tax expense
(recovery)............. (3,809) 3,833 8,151 10,912
----------- ----------- ----------- -----------
Net earnings............ 34,679 11,497 62,583 32,459
Deficit, beginning of
period................. (13,406) (52,099) (40,602) (73,061)
Excess of purchase price
over assigned value of
common shares.......... - - (708) -
----------- ----------- ----------- -----------
Retained earnings
(deficit), end of
period................. $ 21,273 $ (40,602) $ 21,273 $ (40,602)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share for
the period:
Basic................. $ 1.12 $ 0.37 $ 2.00 $ 1.17
Diluted............... $ 1.12 $ 0.37 $ 2.00 $ 1.16
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number
of shares (in
thousands):
Basic................. 31,032 31,217 31,254 27,696
Diluted............... 31,032 31,389 31,323 27,956
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SIERRA WIRELESS, INC.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars)
(Prepared in accordance with United States GAAP)
December 31, 2007 2008
---- ----
Assets
Current assets:
Cash and cash equivalents.................... $ 83,624 $ 63,258
Restricted cash.............................. - 191,473
Short-term investments....................... 92,980 18,003
Accounts receivable.......................... 83,015 67,058
Inventories.................................. 24,989 33,031
Deferred income taxes........................ 3,556 5,565
Prepaid expenses............................. 9,229 6,233
----------- -----------
297,393 384,621
Long-term investments.......................... 19,757 -
Fixed assets................................... 15,274 22,935
Intangible assets.............................. 17,418 15,291
Goodwill....................................... 32,541 33,013
Deferred income taxes.......................... 1,156 2,296
Other.......................................... 1,482 4,230
----------- -----------
$ 385,021 $ 462,386
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................. $ 31,163 $ 38,631
Accrued liabilities.......................... 51,835 56,960
Deferred revenue and credits................. 534 683
Current portion of long-term liabilities..... 277 193
----------- -----------
83,809 96,467
Long-term liabilities.......................... 2,437 5,713
Deferred income taxes.......................... 3,451 2,758
Shareholders' equity:
Share capital................................ 328,323 325,893
Treasury shares, at cost..................... - (1,487)
Additional paid-in capital................... 6,374 12,518
Warrants..................................... 1,538 -
Retained earnings (deficit).................. (40,602) 21,273
Accumulated other comprehensive loss......... (309) (749)
----------- -----------
295,324 357,448
----------- -----------
$ 385,021 $ 462,386
----------- -----------
----------- -----------
SIERRA WIRELESS, INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
(Prepared in accordance with United States GAAP)
(Unaudited)
Three months ended Year ended
------------------ ----------
December 31, December 31,
------------ ------------
2008 2007 2008 2007
---- ---- ---- ----
Cash flows from operating
activities:
Net earnings for the
period............... $ 34,679 $ 11,497 $ 62,583 $ 32,459
Adjustments to
reconcile net earnings
to net cash provided
by operating
activities
Amortization........ 4,434 3,346 16,309 13,791
Stock-based
compensation........... 1,468 1,568 6,381 5,182
Tax benefit related
to stock option
deduction.......... 57 657 57 1,292
Loss (gain) on
disposal........... 304 7 377 (13)
Gain on sale of
investments........ (565) - (565) -
Utilization of pre-
acquisition tax
losses............. - - - 802
Unrealized foreign
exchange gain on
restricted cash.... (18,416) - (18,416) -
Deferred income
taxes.............. (4,944) (236) (3,842) 178
Changes in operating
assets and
liabilities
Accounts
receivable......... 21,840 (11,748) 14,759 (21,067)
Inventories......... 252 3,413 (8,043) (2,493)
Prepaid expenses and
other assets....... (4,675) (7,853) 248 (4,212)
Accounts payable.... (817) 4,710 7,468 11,347
Accrued
liabilities........ (1,471) 12,524 8,668 11,816
Deferred revenue and
credits............ 140 (220) 149 (244)
----------- ----------- ----------- -----------
Net cash provided by
operating
activities........... 32,286 17,665 86,133 48,838
Cash flows from investing
activities:
Business
acquisition.......... - 64 (35) (12,093)
Proceeds on
disposal............. - 31 2 52
Purchase of fixed
assets............... (4,663) (3,494) (19,653) (10,286)
Increase in intangible
assets............... (447) (546) (3,025) (1,307)
Increase in restricted
cash................. (173,057) - (173,057) -
Purchase of long-term
investments.......... (14,962) (23,743) (20,131) (28,053)
Proceeds on sale of
long-term
investments.......... 39,797 - 39,797 -
Purchase of short-term
investments.......... (94,595) (70,546) (237,366) (171,182)
Proceeds on maturity of
short-term
investments.......... 159,641 26,030 313,775 126,826
----------- ----------- ----------- -----------
Net cash used in investing
activities............. (88,286) (72,204) (99,693) (96,043)
Cash flows from financing
activities:
Issue of common shares,
net of share issue
costs................ - 82,232 1,023 85,525
Purchase of shares for
restricted share unit
plans................ - - (2,498) -
Repurchase of common
shares............... - - (4,982) -
Decrease in long-term
liabilities.......... (127) (653) (349) (1,134)
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. (127) 81,579 (6,806) 84,391
----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (56,127) 27,040 (20,366) 37,186
Cash and cash equivalents,
beginning of period.... 119,385 56,584 83,624 46,438
----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period.......... $ 63,258 $ 83,624 $ 63,258 $ 83,624
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
