Sierra Wireless (SWIR) 10 Nov 212021 Q3 Earnings call transcript

Good day. And thank you for standing by. Welcome to the Sierra Wireless Third Quarter Earnings Conference Call and Q&A. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. advised conference be being Please Instructions] that is today's recorded. [Operator the now to like would call to I turn over Mr. David Climie, Vice President, Investor Relations. ahead. go Please

Thanks. you Thank and afternoon, today's good call webcast. for conference And joining everybody.

are Phil CFO. our On the call Brace, and Sam CEO; President Cochrane, and today

website today's statements our the and on that not the As the available regarding a and historical be call laws. for These goals, securities the strategies, and based constitute of within is information meaning presentation reminder, call. forward-looking facts webcast Today’s being business. will include on outlook following certain statements our expectations and contains are statements objectives, commentary

based to Our are on forward-looking prove number which be of statements material incorrect. could assumptions significantly a

risk expectations. statements, periods known of actual And we from implied Additionally, by results uncertainties statements to forward-looking are risks forward-looking caution expressed and to particularly or differ to could longer that that I current draw forward-looking our longer his our are of relate time unknown With material statements. substantial subject on update. cause are based and management's those or Analysis, those investors and quarterly events and significantly can found for corporate on to in the and I'll our Discussion that, discussion turn earnings which be of Information other & over well now Phil as to regulatory your as EDGAR SEDAR Management’s call Annual filings attention release. Form our factors the

was on the call quarter million third and gross David. $X.X you Thanks, joining XX.X%. Total today. was And thank in revenue for margin the everyone at us GAAP

continued to as COVID manufacturing in call, some the of issues our publicized well capacity supply as customs, XX QX availability pandemic As constraints was negatively QX Vietnam, and during and impacted shipping earnings we such chain tightness well components. as in by the due discussed

earnings how more financials, talk we're I to our current Sam the would call environment, turn changes details to I demand about which recent X-point I've plan outlined and the team, for I yesterday. announced operating Before to last the like the made we that on publicly call, quarter's doing executive over on third quarter our on

Regarding current and for customer continuing demand environment, to the we devices experience services. strong our very are

in for orders seeing are record to technologies And infrastructure new And from ramp IoT in are positive. and XXXX and customers the strongly more QX, had for to LPWA, industrial end markets private XXXX. and existing enterprise devices We these believe solutions. networks XG wanting of on based backlog customers. and macro expect at we trends the We we deploy

supply also And XXXX. to continue constraints, throughout we constraints expect We see to semiconductors. particularly continue in those

Regarding in each the on August, I you item. with let short plan early out a laid update provide me X-point

the as The in manufacturing with production first action as was work contract Vietnam, our of very possible. full partner soon resuming with item closely to goal

and gradually Over lowest progress continued City capacity restoring and manufacturing at capacity. are This July at full the the has the in its we at level quarter then. Minh now months, last X into Chi we It in was have facility. improved has made fourth improvement Ho since steady running

a done has their COVID-XX very the all in that employees thank excellent an partner Our work want location much job protocols. to And diligent I the through situation. managing for difficult

diversify The I'm manufacturing as our running X capacity now complexity to faster overseas Mexico. second of a customers our With at say and associated American in the some facility as while we the manufacturing. facility have we with resiliency. ship in production new production up have this quickly action lines can item global facility, in North router much to our ramping and increase was reestablished sites are China manufacturing glad and additional enterprise to U.S. reducing that geographic to possible

use to soon our were balance was parts customer's possible. in our as offense orders balance as made that to These The us to on see the you and third fulfill invest sheet. QX play sheet will item in as levels increased can investments enable and action inventory

back inventory our Now the to we're we undertake the costs converting to market. balanced been strategic in ramped we competitive manufacturing investments the goods. of capacity, to had finished need fourth material raw into price was some remain had offset up that and item making, increases The component with additional

be to our long-term, while to IoT meet that in Our we requirements experiencing. increases customers’ pricing, over on us approach as investment, we not be and allowing to is opportunistic strategic able the on recoup proper costs are return need the to earn

impact gradually item OpEx. was occur company's final the We in to of And and starting time, fourth to expect the the over fifth these the control pricing quarter. changes

Our in possible spending team declined ensuring are investment And been we we has absolutely in balancing our his that careful job to. has continued have allocating sequentially. production. much only as to managing very areas we the as for great been doing expenses, OpEx a with have where while need Sam

Moving the changes to Seagate and executive we joined LSI. Pravin have together worked including I that Desale Senior very multiple I'm Pravin say of yesterday, and us pleased companies that Engineering. at on has to as Veritas, management announced Vice President

consistently So solutions. software and hardware high we other quality delivered know has each well, he and

organization and In up on made reporting me have streamline as have each for quarter. we're the following changes. Operations, And here an So teams, President Roy to provide also the him is Senior to fourth he'll quickly I board. better to ramping key the and of MacLean manufacturing, effort of be focus Vice the quality. in procurement glad overseeing

to Steve chain of new at will Silicon with XX Valley, than so team and a and us with a Asian management of Sales. leadership, America Global be Harmon market be will Steve that new consolidated our and worldwide. supply Ryan his role more efforts will the together Chain, on moving his President the streamline Lumentum now experience Senior President, Marketing. will to be Supply Segate. Vice The team About prove Senior European take adding go including to of of Sierra and Jim years sales team Summit Product, of in Vice is comes as under regions who product to Partnerships President role Roy's Joining Vice

As the at to efficient, a Sierra service. and conclusion, lines. these And be demand to the to supply responsibilities. the like XXXX. more roles strong constrained our expect opportunity very take leadership in is our I their smaller, would with across we and of again contributions thank result new changes, for clear product those company leaving In remains

including significant America. made up back new facility have and geographic with lines getting North progress We increased manufacturing diversity, a in the running

the clearly that XXXX. responsibilities our on again focus a profitable a thank enables his third suppliers We employees, XX pandemic as supply Together, and our review have in defined structure of growth tight we challenges the new the leaner through clear over chain. work to and thrive. of With will our Sam would with call global once the COVID the I quarter turn roles to we for that collectively customers, I'll management results. like

Good that Thank U.S. dollars GAAP we our in everyone. you, report U.S. results financial and basis. Note Phil. afternoon, on a

the compared million results and $X.X A between on operating website. We to available performance. results to $XXX.X a GAAP non-GAAP our at Connectivity, lower $X.X the Gross million understanding third revenue by better million, the XX.X%, $XX.X of profit provide points. in our revenue third or last percentage up approximately software is full in our $XX.X Total in reconciliation year. QX, period and also present XX.X% was was quarter quarter non-GAAP or services X.X same in year-over-year. million sequentially was million

And reduced being in profits in the across production costs significantly significantly production primarily to revenue this absorption of as the quarter impacted manufacturing Our interruptions the due result continuing to chain by margin QX production lower gross was was performance quarter. the to the capacity constraints. our third and profit higher Gross costs related in in volumes our a of fixed Vietnam. spread COVID supply lower and due impacted XX interruptions due component

Our impairment expenses in non-GAAP been efficiency as compared managing that negative of areas tightly initiatives ago. reflects negative GAAP we've our quarter, quarter. the million negative third operating past several quarter year-over-year. or million an million OpEx This In been a decreased our XX.X% the was third you've charge in to reflect $XX.X intangible that Sequentially, down negative undertaking. were in cost million, Also note or X.X% EBITDA in $X.X adjusted year $X.X acquired this Sweden. EBITDA to $XX.X Maingate an $XX million, million in assets adjusted related OpEx XXXX $X.X was our QX the of expenses

including long-term was cash, from sheet, $XX.X Moving of third we attractive debt the expected negative obtained in quarter capital Cash million, flow spending QX. to during was $X.X million the and ended million $X.X $XX.X operations million balance we that quarter. the which in with that

components. of we the investment quarter, in of the secure continued During to supply inventory strategy our

year. increased of see this can $XX.X the million at you So that from inventory million to end $XX.X QX

Over QX. And normalize X shipping working in capital as we'll experienced we customers. production quarters, to be the more our next products expect to improved we

for our guidance COVID quarter, the to and business impact fourth Regarding on XX global the pandemic uncertain. of remain the continues

in adverse the While flows related the overall duration and and results XXXX this beyond, time. cash effects remainder operating evaluate estimated we and and impacts financial our of the on at our be business, experience continue for COVID-XX to of severity to business, cannot reasonably condition,

As Phil strong. remains mentioned, global products our demand for very

midpoint we for $XXX with million million. to this QX of $XXX guidance of are a Given providing revenue million, landscape, $XXX.X

we believe questions. demand and products will over the our and turn open trends private of orders call experiencing the And are networks We now customer macro With lines. Operator, strong please are the solutions. for XG and very that I accelerating. IoT, to

with Securities. Please first question Nichols Sure, Instructions] from of sir. Your Riley the go B. Josh line [Operator ahead. comes

better quarter [ph] This is Josh. on expected here. But guys. congratulations Hey, a in jumping actually Aman for than

the First will company in Xg type for on have -- when question a that high favorable margin ramp when demand And what impact products of is, experiencing? gross you think margin? is

demand products. is XG this strong for seeing very We're our Phil. Hello, actually

half I historically of a our in see of and say good have and mean, they're enough think strong, overall towards an on of that but ramping expect not what ramped we ramping suffice probably impact, But second volume, to to really we're very is to percentage. I traction the getting terms we're XXXX. very it's percentage big we XXXX said still customers.

then, backlog potentially out flushing as in helpful. with that strong growth? anticipate end you demand, XXXX Would improves? production That's do And the market

from it side. we've seen frankly, we continue Right isn't Yeah. can going think I backlog, now, as I our -- And it. to that work strong as ever to mean,

all demand we a can As certainly a into constraints we be to expect to also strong the mentioned, that not that's of but chain of I function well our XXXX our supply continue more semiconductor side. demand, on And if of XXXX. fulfill function

question Last me. Got it. from

you are max your And close progressing? that's facility ramping how about you capacity? up So you've to been where production that talk Mexico. in Can getting

Yeah, started we've products. ramping production actually up enterprise for

month, this to quarter. this into earlier line the that think the I off came we're fourth so ramp continuing products first the that. of Some And

So pleased fact think I three are of And been at shipping now, sorts globe. various level we've ramp of up. production in this out with facilities units the around different we point that

on. Thank it you I'll pass

Okay.

Thank you.

BMO next ahead. Thanos Your from Markets. line question up go Moschopoulos Capital comes the Please with

margins? even a revenue supply Would profile looks the gross think would different example, rebound should constraints the recovers? be at How to associated there levels, with the would kind guess are afternoon. to with good margin about I profile Hi, revenue margin the or of were gross So which gross end. dynamics similar, to QX lead some that if for QX upper

recover quarter. we Phil. And effects the -- fourth we'll Hi, some this that we to second see X some margin volume think is Yeah, I we Look, increases to the of price Thanos, into the to start increase. our made. expect Really do factors, the is one, expect of gross

Offsetting module furthest it'll So we expect some bit of on because issues, we're side. of a little is mix that. do the that be related to see behind

continued might So module to backlog recover additional then cost also from and you try us the and increases. expect

the expect margins net, kind quarter. fourth improvement the guiding headwinds would the some of bit and But should fourth I some improve got we tailwinds to quarter. that, in offsetting We're gross So little in see that there. not we've a

would seasonal seasonality dynamic normally, year, asked, Okay. constraints better given may have these thoughts different that? the in as the time be around, a if as dip what you this be on just your in And just supply QX, the but backlog so but far maybe

seasonality And we're good this from mean point. see QX guiding Yeah, at some not that's do historically, a question. QX. I obviously, QX we into

be component a it's I we I I will hear long. but bit say So I think mean, to Again, -- soon before little expect premature, constrained. fairly

sheet. that bit component I constrained the the that likely And inventory here burning probably So we're going first we be QX back be the of here bounce quarter. quarter, think is through going to some supply of on a balance had just again in a to

it far cost that? Or as QX to then sequentially about actions, bit finally, think given OpEx the think versus a some being of in fair do And would of little OpEx and done as Okay. QX? we how be

-- I it can we it Yeah, everything doing may it. mean, think be I We're may be to up. slightly control

timeframe, around delayed need be done the was make not we perspective. some of there but I QX that of bit, think lot really a but we're We obviously, to It's we expecting in hard certification really get it at. in that not situation. to I'm pretty little from kind challenging that guiding sure a stuff may worked up there. a movement,

All Okay. right, so thanks much.

you. Thank

line the at Coupland Your go comes with Todd next Please question CIBC. ahead. from

And expected burn you're what will go as color not you that is be on some into quarter? Yeah, in inventory to helpful. inventory, going evening, burn make the rate the investments picks unwind good further you fourth curious I Thanks lot. have up if XXXX on so So a everyone. the again? the was cash to would

timing of It’s go quarter down try in sheet, the that. on finished the -- inventory with of next do additional we bit. bunch a continue and as kind to Cash I the a fourth thanks. balance excuse of expect other a result of color the working And quarters. I'll working factors number And want you go expect quarter. couple [ph] a it details. depends Sam, that? to over the we goods. we inventory like our expect dig Yeah, in really and APAR I to on our and me, inventory -- And make of things on as terms maybe of then to burn to mean, our normalize here make Phil. finish the that component little in capital do But capital do fourth down you any in of Sam,

Yeah, sure.

If you guidance cash it's look provided, we at flattish be to the going from operations. revenue

bit restructuring capital So then offset by a costs. working really have little you should improve some

You CapEx. yesterday, bit of by saw changes a the announcement management offset also little of

range. So will good or would be be $X a I flattish plus million minus cash think to

your about Okay. How lot. in supply then, XXXX, dip But you burn Thanks if to drive throughout a you XXXX? and should in the we back up constraint start to and components think that? have do inventory

happening with elevated at a Well, previously interrupted with an Vietnam, disclosed. Todd, I mean, we're in level factory was which being right was what now

relative I factories continue XXXX. the So it will our think because high being see our we'll you'll size. a we we've on. throughout in supply quicker turning just these quite That seen think obviously, invest be levels, with into inventory levels, don't it given constraints to our said, at I

the capital. So those that side. this overall, we'll will inventory investment make have continue. working see to in closer investments But close to And on I the ceiling

lot. a Thanks it. appreciate Great,

you. Thank

ahead. next Your from Craig-Hallum. comes Stoss up question go line Please with the Anthony

here. Couple Hey, questions of guys. Hey, Sam. and Phil

in component the the basis you've quarter. you Vietnam. but And facilities of right won't component in orders? influx the kind you gate in additional December secondly, QX a standpoint, COVID production. coming And of hit know, changes. were to in X significant got got I you online understand I from then in you probably if with shortages, operational capable pretty to out production I terms in handle Phil, really issues of production So Are from a with know make brought of some so the

And year a can might ground OpEx from new operation maybe on look of the now? sense like, give and say to running With those now hit a team, management you us start focus the issues? what

of on just quick Tony. comments well Thanks. Hi, a I couple that. a couple Yeah. mean

stranded. keep tried of that, have knew to terms actually bring things output want we and capacity manufacturing We mind, what things increase one it constrained. is and of manufacturing do like to the the in our In we're enough we've to to relatively component be with going do on Because resiliency.

So tech components what things that. like doing we've fixtures, been actually doing moving moving supply, is

increase sites to general, ability with may bit little our been while us to extra more a different up So resiliency. manufacture is we what some do capacity, just end trying give some and we've in

So triple capacity like the online. I've got it's not

keep So that's to one in thing mind.

think organization, of of in operational I of roles, In seen changes, responsibilities. the I've the terms terms pretty terms clarifying change their of staff in taken big you've some a the

kind see You manufacturing and us of turning getting around the recovered.

You're going but in think point, that in at to And margins. would you significantly into start -- not results and this the we're certainly expect I XXXX. XXXX, should improved strong. backlog the to gross to it see expect to financial getting recovering where be conditions And goes to continue this company see business I

if ask more. one just And Okay. I then could

you you visibility continuing customers. they're from a commented and willing about think Are call improving? hopefully like the wants your gross quarterly Everybody of and to this last with good conference shortages. might XXXX customers, pay of I kind what in into up margins have just your ASPs to and of component sense look ahead get increasing your what you

across yet. the into mix, to think that Yeah, XXXX. what drive probably are of component, And, gross the -- we and XXXX can not to going we out do of increase, would factors to obviously multiple going try QX that, it. board. we're that into rest be say the margin There's price improve all I question increases I we're is,

and elements is are So of I team I think keenly all that P&L. on management the the rest what focused myself that assured would my improving say

you. Thank luck, Okay. Best of guys.

Thank you.

you. Thank

of question Derek Please Your Securities. ahead. Soderberg the go line comes next from Colliers with

why month-to-month fluctuations. you software explain want for conductivity rates guys start on that'd questions. monthly as of I understand great. quarter-over-quarter. sort relates that's again was revenue, I some How my it taking maybe flat that trending Thanks can if bit And more your with guys. of hoping explain recurring case? Hey, have to you that's and of devices. it a to sort attach be the I

it's question. I I came Phil. is kind of we And a Yeah, that's guided mean, This that guess. be to I Thanks. good kind there. of do flattish, a -- relatively in good that, we think

has production to the growth. turn of XXXX which delay and that affected year-over-year. from deployment, caused And delay expect of both of I think would nicely routers and modules that in It into in is that terms grow has a I bit side. grown

So I point. think that where we're at that's looking

make fact there's a attachment that. parts today, prepared how I think key to out the should frankly, manufacturing we've in grow into moving answer lot of a I to your the I'm think the get away in not up sure I'm and we I you it out on part question good business. figure And running. We one. as to walk and think on because growing that just of the But XXXX. entire company is, well. expect been is do And frankly focused with to of trying what

guys And it. for Got sort then market have the to components. you of gray going been

broadly, support You're components market the of constraints pretty gray a market of ability side of component Has the a navigated has serve well gray sort of still in as but on supply in additional the changed deteriorated, component for level has the that market use can to You decent all? at constrained environment not XXXX? your sort or throughout COVID. sort

the you market might -- daily. spot gray imagine, As changes market

of of that have case we in constrained to the I be been components we so get the see gray some on market. XXXX. cases, out premiums there components our satisfied way certain reach. the expect out frankly, not in And are And, for all to don't And price that able

work our is best and partners. So what is, try we we with can as do

situation the when we situations, kits build market. last we'll to if price on And available we to reasonable it. depending get And can. what's down depending look gray And various we we see very it won’t. trying comes to enough minute, the can then are the different We on all do and the that on that

in daily. case-by-case And So situation it's basis we will I through that likely that be would manage XXXX. say a

Got it. guys. Very helpful. Thanks,

you. Thank

Treiber of Your Paul Please RBC Markets. the line next question ahead. comes go from with Capital

very afternoon. Thanks much. good And

products? changes that you're there in the to what Just mitigate opportunity chain an like your timeframe footprint, supply your changes of do as see on do an terms opportunity the seeing, you following -- some what think try supply reengineering manufacturing of constraints to what's with up that's Over to in timeframe your is you constraints the possible? make or

actually is, to actually lot approach of doing been redesign what got of from that continuing really get products and we're a there that use reuse increase of the the XXXX, that an and try dogma historically we XXXX has we've actually engineering to increase take components. multiple of perspective an capacity What's engineering versus diversity same front. Most in spent to try on to been And and do components for sure place. use has we going different make components out to trying and diversity interesting

focused do capacity to I half XXXX. kind through the that the certain continuing have we're first expect that doing of we percentage So engineering on be of certainly that. will development, of

mean, supplies? be over diversifying or environment can engineering if if challenges to a components don't you products I likely know think of proportion point, -- to mitigate can is throw I it's those you some what from extent like through you improved XX%, Yeah. But be To whatnot. helpful. numbers just challenging. Do rough the

In cases, mean, some trying that. Yeah. definitely obviously, easier. it's we are I

to painful it's and really some Because passive it's things. which other to complicated easier you to be When a got situation. with -- operators components and is requires careful. easier firmware can some network For of changes, some memories usually example, swap it we swap a or that recall you've involves want logic out obviously more software our do out

that impact start compatible. hard replacements to can. a minimize pin-for-pin it's to and are amount blanket try we not of get the to these we Oftentimes, that. answer So, downstream Obviously,

takes more do so. work it to little a so And

one me. then And just for one last

and cash cash of flow. terms in the Just the

it the operations of is or of business? you On the either some sort have sheet, that cash. for or of amount on much of the restrictions How need the stranded in you reasonable geographies balance it certain

one cash. terms let of that in I’ll answer Sam, restricted you

we have global obviously don't Asia-Pacific, of Yeah. a do Yeah, we a and ton America. restricted But cash. EMEA company, as operate in Sam in North here.

there's certain out. China, cash those automotive move cash get operate which when instance, no we're and no of any amount an Like, we had area. those cash difficult cash But any But in jurisdictions. longer had restricted or a So we regions. stuck is in to in to is needed of very for in

So can our cash move relatively freely.

thank the I'll line. you. Okay, pass

Instructions] Thank Your question from Scott line Searle you. comes Roth the go Capital. [Operator ahead. next of Please with

got wondering level quarter my of in? problem. fourth Hey, you ups? address questions. where good on what that availability to couple also start the standpoint maybe are that the guidance real supply the in to And the for doesn't gate afternoon. supply and outlook? the I'm front, Thanks component from the follow got current constraints at -- like Nice job I’ve And you've time XXX. of quickly if could taking then quarter. at fourth of out dig demand to in the backlog a outlook Hey, revenue into XXX covered what Phil a into just sound kick It

Scott. the build Look, have supply that think high didn't guidance you last it's about. I that the reasonable I confidence the imagine guide all of that. have, uncertainty in the we to given I the talk certain products range we degree we a -- confidence of the range degree quarter, that that to a I assume right might Yeah, Thanks. range And think for have

Okay. Maybe ---

forward? a going had question you second Sorry,

start Well, constraints where kick just those supply really in. of to in terms

are But depending of or understand constrained. et quickly where just Vietnam, next this think move you about production vary the on from talked you gateways, move of year? of if And year as us being kind half could are and being modules the it's into I'm going where to wondering we we and constrained what And between kind help fixing you cetera. revenue kind of You’ve mix level? supply roughly this we I first know, to today,

mean, production probably quarter, is, environment. Yeah, say point way in fourth constrained that's kind about to to by I guess of a we back ramped nominally end be the one And -- think to you component want in a I what it in to we've the full answer, up November at the kind of of early tricky will this we the quarter supply did. I'd

where it's we build still can't we then to missed one of So them, something, parts of we XX kind build. situation XX need get and you

would answer lead say, it's times are decreasing. semiconductors with difficult So not I But to that question.

increasing. good they're And job our possible, procurement managing as team I doing all fact, think In is as situations. these

And be I component into and expect supply would so constrained again -- to exceeds QX. us even supply far demand

second figure, rest that's I low-XXs. revenue little a looking to the and out that. could. also of of look business. if around in the it's to know have early. of I margins if there's through look half year? what margin traffic, next unprofitable been in front connectivity could out give of you to categories the that shifted And traditionally the data lot Okay, but ahead that But thoughts at helpful. I'm it's maybe gross I that’s an your start goes we that gross I software on I to a should And It's guess, the bit, services of terms of that wondering kind think Relative comps as know mid there. like, a low business us

I Well, we better. it's think assume fair can that do to

business And I results. side, not better, other multiple on comparisons businesses. the businesses expect different profitability but of are and to satisfied just that margin gross multiple on us think with not the there the overall where I'd on do I'm

might specific any to here. that want things leaving I'm not you area. that get I stone But don't So into that imagine unturned in

of some for on more been the model a the and unfair. recurring been margin you your standpoint. industry, and But, front. that with push a I if a And more of revenue falls last whether business moves one been you're category to base more on are push premature into there guys. could recently, early Fair It's Cradlepoint, and within to business good Okay. it's from I'm wondering Digi or have what's business, if enough. a gross Ventus. a kind the probably thoughts it's and one, of customer your Ericsson There enterprise profitability Thanks. -- seeing from nice

Yeah. of a good the a the and is our line. infrastructure connectivity I oil think safety, We've at the on mean, very enterprise look, I some services gas portfolio. attach we business and got looking feedback strong manage presence different very think including industrial, strong are in business product first can conductivity to I ways like And part we responders, markets, public yes, that like. things that very in

focused So that are on would be growing. an that definitely we area

so much. Great. Thanks

Thank you.

And question Instructions] we call. for Thank conference at Ladies gentlemen, no participating. this have this you [Operator time. you. today's Thank further concludes and

disconnect. now may You