Sierra Wireless Inc. (NASDAQ:SWIR) Q3 2018 Earnings Conference Call Transcript

Nov 08, 2018 • 05:30 pm ET

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Sierra Wireless Inc. (NASDAQ:SWIR) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good evening, ladies and gentlemen. My name is Denise, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Sierra Wireless Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

David Climie, Vice President, Investor Relations, you may begin your conference.

Executive
David Climie

Thanks Denise, and good afternoon everybody. Thank you for joining today's conference call and webcast. On the call, today is Kent Thexton, President and CEO; and Dave McLennan, our Chief Financial Officer. As a reminder, today's presentation is being webcast and will be available on our website following the call. Today's agenda will be as follows, Dave will provide a detailed overview of our quarterly results, as well as guidance for the fourth quarter. Kent will then provide his corporate update and we'll open up the call for Q&A.

(Cautionary Forward-Looking Statements) With that, I'll now turn the call over to Dave McLennan for his review of Q3.

Executive
Dave McLennan

Great. Thank you, David and good afternoon, everyone. Note that we report our financial results on a US GAAP basis. However, we also present non-GAAP results in order to provide a better understanding of our operating performance. As a reminder, a full reconciliation between our GAAP and non-GAAP results is available on our website.

We had strong financial performance in the third quarter. Overall consolidated revenue in the third quarter was $203.4 million, an increase of 17.9% compared to the same period last year. All three business units realized year-over-year growth and Enterprise Solutions was modestly ahead of our expectations due to some early demand fulfillment ahead of the implementation of US tariffs.

Product revenue, which includes all revenues associated with the sale of embedded modules, gateways, routers and other hardware devices was $179.4 million in Q3. That's up 11.1% on a year-over-year basis in a tight component supply environment. Services and other revenue, which includes revenue associated with our cloud and cellular connectivity services as well as engineering, support and warranty services was $24 million. That's up a 118% from Q3, 2017, driven both by organic subscriber growth and the acquisition of Numerex, which was not in the comparable period a year ago. Services and other revenue was approximately 12% of the company's total revenue.

Adjusted EBITDA was $16 million, a strong increase of 21.1% compared to a year ago. And based on our financial performance in the third quarter, revenue was slightly above the midpoint of our guidance range, and non-GAAP EPS at $0.29 per share was at the high end of our guidance range. Also worthy of noting Q3 gross -- related to gross margin, OEM Solutions gross margin was 27.3% in Q3 compared to 30.4% in the prior quarter, due to product and customer mix in the third quarter, including higher automotive volume.

Enterprise Solutions gross margin was 54% in Q3, compared to 49.9% in Q2, driven by