(By Kevin Donovan) As the rest of the market enjoyed the enthusiasm whipped up by the better-than-expected July jobs data, shares of mobile connectivity company Sierra Wireless (SWIR) were taken to the woodshed Friday, creating what we think is an attractive entry point.
At $8.84 per share, down some 5% Friday, Sierra Wireless now trades below book value of $8.95, a sign to us that the spanking was way out of line. We believe that the dip below book value set off alarm bells and brought in buyers late Friday, as SWIR shares bounced off their intraday lows and pared losses in half.
The culprit in the selloff was an earnings release that blew away expectations for second-quarter results but contained a tempered outlook going forward.
In a conference call following the earnings announcement, CEO Jason Cohenour struck a "let's not get carried away" note that unsettled investors.
"Without wavering in our mid to long-term optimism, we also acknowledge that Q2 was truly exceptional as nearly every growth and profitability driver in our mobile computing business aligned perfectly. In light of this acknowledgement, we expect Q3 mobile computing sales to normalize somewhat while still delivering strong year-over-year growth," Cohenour said.
Revenue for the second quarter was $167.4 million, compared with $139.9 million in year-ago period and $150.3 million in the first quarter of 2012. Mobile Computing revenue was $89.9 million, compared with $66.0 million in the second quarter of 2011, with most of that growth coming in 4G products. Machine-to-machine (M2M) revenue was $77.5 million, compared with $73.9 million in the 2011 period.
On a GAAP basis, gross margin was 30.7% compared with 28.0% last year. GAAP earnings per share were $0.11 versus a loss of $0.22 per diluted share in the second quarter of 2011. On a non-GAAP basis, the company earned $0.30 per diluted share compared with a loss of $0.03 in the second quarter of 2011.
On the balance sheet, cash, cash equivalents and short-term investments was $125.3 million at the end of the quarter, up $18.5 million from the end of the first quarter.
Non-GAAP results exclude the impact of stock-based compensation expense, acquisition costs, restructuring costs, integration costs, acquisition amortization, foreign exchange gains or losses on foreign currency contracts as well as translation of balance sheet accounts, and certain tax adjustments.
But it was Sierra Wireless' outlook for the third quarter that rankled the market. It said it expected revenue to drop to a range of $157-162 million and non-GAAP EPS to come in at $0.14-0.19. The company said in a statement that it expected "revenue and gross margin to decrease on a sequential basis driven primarily by normalizing sales patterns in our Mobile Computing business, following an exceptional Q2."
However, the company noted that it was not including any contribution from its just completed acquisition of Paris-based Sagemcom, an M2M company. Though it couldn't quantify Sagemcom results, management said in its conference call that it was a profitable enterprise.
Vancouver-based Sierra Wireless (SWIR) (SW.TO) offers mobile computing and machine-to-machine (M2M) communications products and solutions that connect people, devices, and applications over cellular networks.
We think its shares also offer a rare chance to buy into a growing company at a discount to its liquidation value.