Sierra Wireless, Inc. :SWIR-US: Earnings Analysis: Q4, 2016 By the Numbers : February 14, 2017

Sierra Wireless, Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Sierra Wireless, Inc. – NETGEAR, Inc., CalAmp Corp., LM Ericsson Telefon AB Sponsored ADR Class B, Rogers Communications Inc. Class B and Digi International Inc. (NTGR-US, CAMP-US, ERIC-US, RCI-US and DGII-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 163.02 million, Net Earnings of USD 15.72 million.
  • Gross margins widened from 28.28% to 39.52% compared to the same period last year, operating (EBITDA) margins now 16.36% from 3.23%.
  • Year-on-year change in operating cash flow of -120.34% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 163.02 153.56 156.23 142.8 144.85
Revenue Growth (%YOY) 12.55 -0.66 -1.1 -5.06 -2.84
Earnings (mil) 15.72 -1.77 0.72 0.72 -0.38
Earnings Growth (%YOY) 4203.92 -153.83 -82.38 107.44 77.48
Net Margin (%) 9.64 -1.15 0.46 0.5 -0.26
EPS 0.49 -0.06 0.02 0.02 -0.01
Return on Equity (%) 17.57 -2 0.81 0.8 -0.43
Return on Assets (%) 11.02 -1.27 0.53 0.53 -0.28

Access our Ratings and Scores for Sierra Wireless, Inc.

Market Share Versus Profits

Revenues History
Earnings History

SWIR-US‘s change in revenue this period compared to the same period last year of 12.55% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SWIR-US is holding onto its market share. Also, for comparison purposes, revenues changed by 6.16% and earnings by 988.52% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 28.28% to 39.52% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 3.23% to 16.36% compared to the same period last year. For comparison, gross margins were 29.21% and EBITDA margins were 4.27% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SWIR-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 68.22 days from 80.12 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SWIR-US‘s change in operating cash flow of -120.34% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -0.75% to 12.04% and (2) one-time items. The company’s pretax margins are now 9.63% compared to -1.44% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Sierra Wireless, Inc.

Company Profile

Sierra Wireless, Inc. engages in the development of device-to-cloud products and services for the Internet of Things. It offers second generation, third generation, and fourth generation embedded wireless modules, and gateways. it operates through the following segments: Original Equipment Manufacturers (OEM) Solutions, Enterprise Solutions, and Cloud and Connectivity Services. The OEM Solutions segment includes embedded cellular modules, software and tools for OEM customers who integrate cellular connectivity into their products and solutions across a broad range of industries, including automotive, transportation, energy, enterprise networking, sales and payment, mobile computing, security, industrial monitoring, field services, residential, healthcare and others. The Enterprise Solutions segment comprises of intelligent routers and gateways along with management tools and applications that enable cellular connectivity for mobile, industrial, and enterprise customers. The Cloud and Connectivity Services consists of cloud services, global cellular connectivity services, and broadband cellular services. The company was founded on May 31, 1993 and is headquartered in Richmond, Canada.

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