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VANCOUVER, British Columbia–(BUSINESS WIRE)–Sierra Wireless, Inc. (NASDAQ: SWIR) (TSX: SW) today reported results
for its first quarter ended March 31, 2019. All results are reported in
U.S. dollars and are prepared in accordance with United States generally
accepted accounting principles (GAAP), except as otherwise indicated
below.

Revenue for the first quarter of 2019 was $173.8 million compared to
$186.8 million in the first quarter of 2018. Our reporting segmentation
has changed from those reported at December 31, 2018 when we previously
reported three segments. Our new organizational structure clearly
delineates our Device-to-Cloud solutions activities and we now have two
reportable segments effective the first quarter of 2019: (i) the IoT
Solutions segment and (ii) the Embedded Broadband segment. We have
adjusted our comparative information.

Quarterly revenue for our two business segments was as follows: (i)
Revenue from IoT Solutions was $94.3 million in the first quarter of
2019, up 5.4% compared to $89.4 million in the first quarter of 2018
driven by strong sales of Airlink gateway products; and (ii) Revenue
from Embedded Broadband was $79.5 million in the first quarter of 2019,
down 18.4% compared to $97.4 million in the first quarter of 2018 due to
weaker demand from mobile computing and networking customers.

“We are making good progress driving improved efficiency throughout our
operations to accelerate our transformation into a leading global IoT
solutions provider,” said Kent Thexton, President and CEO of Sierra
Wireless. “At the same time, we are investing in innovative cellular
technologies and capabilities to enhance our differentiated
Device-To-Cloud offering and grow our recurring subscription-based
revenue.”

GAAP RESULTS

  • Gross margin was $54.6 million, or 31.4% of revenue, in the first
    quarter of 2019 compared to $62.1 million, or 33.2% of revenue, in the
    first quarter of 2018.
  • Operating expenses were $64.4 million and loss from operations was
    $9.8 million in the first quarter of 2019 compared to operating
    expenses of $72.0 million and loss from operations of $9.9 million in
    the first quarter of 2018.
  • Net loss was $11.2 million, or $0.31 per diluted share, in the first
    quarter of 2019 compared to net loss of $8.4 million, or $0.23 per
    diluted share, in the first quarter of 2018.

NON-GAAP RESULTS(1)

  • Gross margin was 31.5% in the first quarter of 2019 compared to 33.4%
    in the first quarter of 2018.
  • Operating expenses were $54.8 million and loss from operations was
    $0.2 million in the first quarter of 2019 compared to operating
    expenses of $58.6 million and earnings from operations of $3.8 million
    in the first quarter of 2018.
  • Net loss was $0.9 million, or $0.02 per diluted share, in the first
    quarter of 2019 compared to net earnings of $3.3 million, or $0.09 per
    diluted share, in the first quarter of 2018.
  • Adjusted earnings before interest, taxes, depreciation and
    amortization (“Adjusted EBITDA”) was $4.5 million in the first quarter
    of 2019 compared to $9.0 million in the first quarter of 2018.

(1) See “Non-GAAP Financial Measures” and “Reconciliation of GAAP
and Non-GAAP Results by Quarter” below.

Cash and cash equivalents at the end of the first quarter of 2019 were
$74.1 million, representing a decrease of $15.0 million from the end of
the fourth quarter of 2018. The net loss from operations, combined with
working capital requirements, primarily to fund higher inventory, drove
this reduction in cash.

Accounting Standard Adoption

We adopted the new accounting standard for lease accounting (ASC 842)
effective January 1, 2019. Our first quarter 2019 financial results
reflect the adoption of this new standard.

Financial Guidance – Full Year

For the year ended December 31, 2019, we expect revenue to be flat
year-over-year and we expect Adjusted EBITDA to be approximately $35
million. We expect non-GAAP net earnings per share to be approximately
$0.30 to $0.35 for the full year 2019. See “Non-GAAP Financial Measures”
below.

This non-GAAP guidance constitutes “forward-looking statements” within
the meaning of applicable securities laws and reflects current business
indicators and expectations. These statements are based on management’s
current beliefs and assumptions, which could prove to be significantly
incorrect. Forward-looking statements, particularly those that relate to
longer periods of time, are subject to substantial known and unknown
risks and uncertainties that could cause actual events or results to
differ significantly from those expressed or implied by our
forward-looking statements, including those described in our regulatory
filings. See “Cautionary Note Regarding Forward-Looking Statements”
below.

Subsequent Event

As part of the company’s overall cost savings program, we announced
internally two initiatives on April 30th:

i. to optimize the footprint of our design centers, we have launched a
process to reduce the size of our development team in Paris and
consolidate more of our R&D in both Canada and Asia; and

ii. to improve our administrative efficiency, we have decided to partner
with a global outsourcing leader to provide certain transaction-based
services. We expect to be fully transitioned by the end of the year.

These two initiatives will impact approximately 125 positions, including
approximately 99 in France. Once completed, we expect to incur
approximately $28 million in severance and transitional costs.

Non-GAAP Financial Measures

We disclose these non-GAAP financial measures as we believe they provide
useful information to investors and analysts to assist them in their
evaluation of our operating results and to assist in comparisons from
one period to another. Readers are cautioned that non-GAAP financial
measures do not have any standardized meaning prescribed by U.S. GAAP
and therefore may not be comparable to similar measures presented by
other companies.

Non-GAAP gross margin excludes the impact of stock-based compensation
expense and related social taxes and certain other nonrecurring costs or
recoveries.

Non-GAAP earnings (loss) from operations includes allocation of realized
gains or losses on forward contracts and excludes the impact of
stock-based compensation expense and related social taxes,
acquisition-related amortization, acquisition-related and integration
costs, restructuring costs, impairment and certain other non-recurring
costs or recoveries.

Non-GAAP income tax expense includes certain tax adjustments and taxes
on acquisition-related amortization, acquisition-related and integration
costs, restructuring costs, other non-recurring costs and foreign
exchange.

In addition to the above, Non-GAAP net earnings (loss) and non-GAAP net
earnings (loss) per share exclude the impact of foreign exchange gains
or losses on translation of certain balance sheet accounts, foreign
exchange gains or losses on forward contracts and certain tax
adjustments.

We use the above-noted non-GAAP financial measures for planning purposes
and to allow us to assess the performance of our business before
including the impacts of the items noted above as they affect the
comparability of our financial results. These non-GAAP measures are
reviewed regularly by management and the Board of Directors as part of
the ongoing internal assessment of our operating performance. We also
use non-GAAP earnings from operations as one component in determining
short-term incentive compensation for management employees.

Adjusted EBITDA is defined as net earnings (loss) plus stock-based
compensation expense and related social taxes, acquisition-related and
integration costs, restructuring cost, impairment, certain other
nonrecurring costs or recoveries, amortization, foreign exchange gains
or losses on translation of certain balance sheet accounts, unrealized
foreign exchange gains or losses on forward contracts, interest and
income tax expense. Adjusted EBITDA is a metric used by investors and
analysts for valuation purposes and is an important indicator of our
operating performance and our ability to generate liquidity through
operating cash flow that will fund future working capital needs and fund
future capital expenditures.

Conference call and webcast details

Sierra Wireless President and CEO, Kent Thexton, and CFO, David
McLennan, will host a conference call and webcast with analysts and
investors to review the results on Thursday, May 9, 2019, at 5:30 PM
Eastern Time (2:30 PM PT). A live slide presentation will be available
for viewing during the call from the link provided below.

To participate in this conference call, please dial the following number
approximately ten minutes prior to the start of the call:

  • Toll-free (Canada and US): 1-877-201-0168
  • Alternate number: 1-647-788-4901
  • Conference ID: 9060546

To access the webcast, please follow the link below:

Sierra
Wireless Q1 2019 Conference Call and Webcast

If the above link does not work, please copy and paste the following URL
into your browser:

http://event.on24.com/r.htm?e=1956137&s=1&k=378F474A63B205DDA60A9C021FBD9C9F

The webcast will remain available at the above link for one year
following the call.

Cautionary Note Regarding Forward-Looking Statements

Certain statements and information in this press release are not based
on historical facts and constitute forward-looking statements or
forward-looking information within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 and Canadian securities laws
(“forward-looking statements”) and may include statements and
information relating to our Q1 2019 corporate update; financial guidance
for our fiscal year 2019, expectations regarding the Company’s cost
savings initiatives, our business outlook for the short and longer term,
statements regarding our strategy, plans, goals, objectives,
expectations and future operating performance; the Company’s liquidity
and capital resources; the Company’s financial and operating objectives
and strategies to achieve them; general economic conditions; estimates
of our expenses, future revenues, non-GAAP earnings per share and
capital requirements; our expectations regarding the legal proceedings
we are involved in; statements with respect to the Company’s estimated
working capital; expectations with respect to the adoption of IoT
solutions; expectations regarding trends in the IoT market and wireless
module market; expectations regarding product and price competition from
other wireless device manufacturers and solution providers; and our
ability to implement effective control procedures. Forward-looking
statements are provided to help you understand our views of our short
and long term plans, expectations and prospects. We caution you that
forward-looking statements may not be appropriate for other purposes. We
do not intend to update or revise our forward-looking statements unless
we are required to do so by securities laws.

Forward-looking statements:

  • Typically include words and phrases about the future such as
    “outlook”, “will”, “may”, “expects”, “is expected”, “anticipates”,
    “believes”, “plans”, “projects”, “estimates”, “assumes”, “intends”,
    “strategy”, “goals”, “objectives”, “potential”, “possible”, or
    variations thereof.
  • Are not promises or guarantees of future performance. They represent
    our current views and may change significantly.
  • Are based on a number of material assumptions, including, but not
    limited to, those listed below, which could prove to be significantly
    incorrect:

    • our ability to develop, manufacture and sell new products and
      services that meet the needs of our customers and gain commercial
      acceptance;
    • our ability to continue to sell our products and services in
      the expected quantities at the expected prices and expected times;
    • expected macro-economic business conditions;
    • expected cost of sales;
    • expected component supply constraints;
    • our ability to win new business;
    • our ability to fully integrate the business, operations and
      workforce of Numerex Corp. (“Numerex”) and to return the Numerex
      business to profitable growth and realize the expected benefits of
      the acquisition;
    • our ability to integrate other acquired businesses and realize
      expected benefits;
    • expected deployment of next generation networks by wireless
      network operators;
    • our operations not being adversely disrupted by other
      developments, operating, cyber security, litigation, or regulatory
      risks; and
    • expected tax and foreign exchange rates.
  • Are based on our management’s current expectations and we caution
    investors that forward-looking statements, particularly those that
    relate to longer periods of time, are subject to substantial known and
    unknown material risks and uncertainties. Many factors could cause our
    actual results, achievements and developments in our business to
    differ significantly from those expressed or implied by our
    forward-looking statements, including without limitation, the
    following factors. 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:

    • competition from new or established competitors or from those
      with greater resources;
    • the loss of, or significant demand fluctuations from, any of
      our significant customers;
    • our business transformation initiatives may result in
      disruptions to our business and may not achieve the anticipated
      benefits;
    • our ability to attract or retain key personnel and the impact
      of organizational change on our business;
    • deterioration in macro-economic conditions and resulting
      reduced demand for our products and services;
    • risks related to the acquisition and ongoing integration of
      Numerex;
    • disruption of, and demands on, our ongoing business and
      diversion of management’s time and attention in connection with
      acquisitions or divestitures;
    • cyber-attacks or other breaches of our information technology
      security;
    • risks related to the transmission, use and disclosure of user
      data and personal information;
    • our financial results being subject to fluctuation;
    • our ability to respond to changing technology, industry
      standards and customer requirements;
    • risks related to infringement on intellectual property rights
      of others;
    • our ability to obtain necessary rights to use software or
      components supplied by third parties;
    • our ability to enforce our intellectual property rights;
    • our reliance on single source suppliers for certain components
      used in our products;
    • failures of our products or services due to design flaws and
      errors, component quality issues, manufacturing defects, network
      service interruptions, cyber-security vulnerabilities or other
      quality issues;
    • our dependence on a limited number of third party manufacturers;
    • unanticipated costs associated with litigation or settlements;
    • our dependence on mobile network operators to promote and offer
      acceptable wireless data services;
    • risks related to contractual disputes with counterparties;
    • risks related to governmental regulation;
    • risks inherent in foreign jurisdictions; and
    • risks related to tariffs or other trade restrictions.

About Sierra Wireless

Sierra Wireless (NASDAQ: SWIR) (TSX: SW) is an IoT pioneer, empowering
businesses and industries to transform and thrive in the connected
economy. Customers start with Sierra because we offer a device to cloud
solution, comprised of embedded and networking solutions seamlessly
integrated with our secure cloud and connectivity services. OEMs and
enterprises worldwide rely on our expertise in delivering fully
integrated solutions to reduce complexity, turn data into intelligence
and get their connected products and services to market faster. Sierra
Wireless has more than 1,300 employees globally and operates R&D centers
in North America, Europe and Asia. For more information, visit www.sierrawireless.com.

AirPrime, AirLink, AirVantage, mangOH and Legato are trademarks 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 COMPREHENSIVE EARNINGS
(LOSS)

(In thousands of U.S. dollars, except where otherwise stated)

(unaudited)

 
      Three months ended March 31,
      2019     2018
Revenue        
Product $ 151,113 $ 162,931
Services and other     22,700       23,947  
      173,813       186,878  
Cost of sales
Product 108,444 113,900
Services and other     10,739       10,878  
      119,183       124,778  
Gross margin     54,630       62,100  
Expenses
Sales and marketing 22,506 22,425
Research and development 22,797 24,465
Administration 12,390 12,264
Restructuring 1,397 3,591
Acquisition-related and integration 95 1,765
Loss on disposal of iTank business 7
Amortization     5,244       7,466  
      64,436       71,976  
Loss from operations (9,806 ) (9,876 )
Foreign exchange gain (loss) (852 ) 1,115
Other income     31       55  
Loss before income taxes (10,627 ) (8,706 )
Income tax expense (recovery)     596       (343 )
Net loss     $ (11,223 )     $ (8,363 )
Other comprehensive loss:
Foreign currency translation adjustments, net of taxes of $nil     (3,615 )     (767 )
Comprehensive loss     $ (14,838 )     $ (9,130 )
 
Net loss per share (in dollars)
Basic and diluted $ (0.31 ) $ (0.23 )
Weighted average number of shares outstanding (in thousands)
Basic and diluted     36,106       35,912  
 
 
SIERRA WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except where otherwise stated)

(unaudited)

 
      March 31, 2019     December 31, 2018
Assets    
Current assets
Cash and cash equivalents $ 74,143 $ 89,076
Restricted cash 221 221
Accounts receivable, net of allowance for doubtful accounts of
$3,539 (December 31, 2018 – $2,968)
151,686 171,725
Inventories 57,317 50,779
Prepaids and other     18,638   11,703  
302,005 323,504
Property and equipment 39,298 39,842
Operating lease right-of-use assets 27,500
Intangible assets 80,741 84,890
Goodwill 207,895 211,074
Deferred income taxes 11,758 11,751
Other assets     13,311   12,855  
      $ 682,508   $ 683,916  
 
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 171,383 $ 184,220
Deferred revenue     7,548   6,213  
178,931 190,433
Long-term obligations 41,206 43,250
Operating lease liabilities 24,657
Deferred income taxes     5,840   6,103  
      250,634   239,786  
Equity
Shareholders’ equity

Common stock: no par value; unlimited shares authorized; issued
and outstanding: 36,150,299 shares (December 31, 2018 – 36,067,415
shares)

434,054 432,552

Preferred stock: no par value; unlimited shares authorized; issued
and outstanding: nil shares

Treasury stock: at cost; 6,972 shares (December 31, 2018 – 119,584
shares)

(118 ) (1,965 )
Additional paid-in capital 30,217 30,984
Retained deficit (19,518 ) (8,295 )
Accumulated other comprehensive loss     (12,761 ) (9,146 )
      431,874   444,130  
      $ 682,508   $ 683,916  
 
 
SIERRA WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

 
     

Three months ended
March 31,

      2019     2018
Cash flows provided by (used in):        
Operating activities
Net loss $ (11,223 ) $ (8,363 )
Items not requiring (providing) cash
Amortization 8,371 10,708
Stock-based compensation 3,158 2,814
Deferred income taxes 77 68
Loss on disposal of iTank business 7
Unrealized foreign exchange loss (gain) 254 (1,562 )
Other 101 439
Changes in non-cash working capital
Accounts receivable 16,814 2,757
Inventories (6,735 ) 6,624
Prepaids and other (7,647 ) (5,564 )
Accounts payable and accrued liabilities (15,166 ) 1,986
Deferred revenue     1,371       949  
Cash flows provided by (used in) operating activities     (10,618 )     10,856  
Investing activities
Additions to property and equipment (3,858 ) (4,064 )
Additions to intangible assets (488 ) (845 )
Proceeds from sale of property and equipment 57 17
Proceeds from sale of iTank business     500        
Cash flows used in investing activities     (3,789 )     (4,892 )
Financing activities
Issuance of common shares 94 672
Taxes paid related to net settlement of equity awards (670 ) (665 )
Decrease in other long-term obligations     (141 )     (199 )
Cash flows used in financing activities     (717 )     (192 )
Effect of foreign exchange rate changes on cash and cash equivalents     191       (187 )
Cash, cash equivalents and restricted cash, increase (decrease) in
the period
(14,933 ) 5,585
Cash, cash equivalents and restricted cash, beginning of period     89,297       65,224  
Cash, cash equivalents and restricted cash, end of period     $ 74,364       $ 70,809  
 
 
SIERRA WIRELESS, INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS BY QUARTER
 
(in thousands of U.S. dollars, except where otherwise stated)     2019     2018
    Q1     Total     Q4     Q3     Q2     Q1
               
Gross margin – GAAP $ 54,630 $ 264,571 $ 65,895 $ 67,267 $ 69,309 $ 62,100
Stock-based compensation and related social taxes 59 479 58 57 57 307
Realized losses on hedge contracts (3 ) (30 ) (13 ) (11 ) (6 )
Other nonrecurring costs       5       5                    
Gross margin – Non-GAAP $ 54,686 $ 265,025 $ 65,945 $ 67,313 $ 69,366 $ 62,401
 
Earnings (loss) from operations – GAAP $ (9,806 ) $ (18,275 ) $ (4,197 ) $ 853 $ (5,055 ) $ (9,876 )
Stock-based compensation and related social taxes 3,414 13,006 2,743 3,473 3,950 2,840
Acquisition-related and integration 95 3,962 613 570 1,014 1,765
Restructuring 1,397 7,115 2,345 227 952 3,591
Loss on disposal of iTank business 7 2,064 2,064
Other nonrecurring costs 1,160 9,421 2,697 1,583 5,141
Realized losses on hedge contracts (109 ) (562 ) (296 ) (201 ) (14 ) (51 )
Acquisition-related amortization 3,687       18,575       4,261       4,354       4,426       5,534  
Earnings (loss) from operations – Non-GAAP $ (155 ) $ 35,306 $ 10,230 $ 10,859 $ 10,414 $ 3,803
 
Net earnings (loss) – GAAP $ (11,223 ) $ (24,610 ) $ (3,826 ) $ (1,037 ) $ (11,384 ) $ (8,363 )
Stock-based compensation and related social taxes, restructuring,
impairment, acquisition-related, integration, loss on disposal of
iTank, and other non-recurring costs (recoveries)
5,964 35,568 10,462 5,853 11,057 8,196
Amortization 8,371 39,150 9,308 9,483 9,651 10,708
Interest and other, net (31 ) (51 ) 19 (7 ) (8 ) (55 )
Foreign exchange loss (gain) 852 4,908 2,082 (42 ) 4,034 (1,166 )
Income tax expense (recovery) 596       916       (2,768 )     1,738       2,289       (343 )
Adjusted EBITDA 4,529 55,881 15,277 15,988 15,639 8,977
Amortization (exclude acquisition-related amortization) (4,684 ) (20,575 ) (5,047 ) (5,129 ) (5,225 ) (5,174 )
Interest and other, net 31 51 (19 ) 7 8 55
Income tax expense – Non-GAAP (730 )     (2,930 )     (1,245 )     (352 )     (769 )     (564 )
Net earnings (loss) – Non-GAAP $ (854 ) $ 32,427 $ 8,966 $ 10,514 $ 9,653 $ 3,294
 
Diluted net earnings (loss) per share
GAAP – (in dollars per share) $ (0.31 ) $ (0.68 ) $ (0.11 ) $ (0.03 ) $ (0.32 ) $ (0.23 )
Non-GAAP – (in dollars per share)     $ (0.02 )     $ 0.90       $ 0.25       $ 0.29       $ 0.27       $ 0.09  
 
 
SIERRA WIRELESS, INC.
SEGMENTED RESULTS
 
(In thousands of U.S. dollars, except where otherwise stated)     2019     2018
    Q1     Total     Q4     Q3     Q2     Q1
               
IoT Solutions
Revenue $ 94,287 $ 373,937 $ 95,728 $ 95,487 $ 93,274 $ 89,448
Gross margin
– GAAP $ 34,479 $ 139,602 $ 36,651 $ 36,059 $ 34,282 $ 32,610
– Non-GAAP $ 34,510 $ 139,818 $ 36,675 $ 36,081 $ 34,308 $ 32,754
Gross margin %
– GAAP 36.6 % 37.3 % 38.3 % 37.8 % 36.8 % 36.5 %
– Non-GAAP 36.6 % 37.4 % 38.3 % 37.8 % 36.8 % 36.6 %
 
Embedded Broadband
Revenue $ 79,526 $ 419,665 $ 105,667 $ 107,939 $ 108,629 $ 97,430
Gross margin
– GAAP $ 20,151 $ 124,969 $ 29,244 $ 31,208 $ 35,027 $ 29,490
– Non-GAAP $ 20,176 $ 125,207 $ 29,270 $ 31,232 $ 35,058 $ 29,647
Gross margin %
– GAAP 25.3 % 29.8 % 27.7 % 28.9 % 32.2 % 30.3 %
– Non-GAAP 25.4 % 29.8 % 27.7 % 28.9 % 32.3 % 30.4 %
 
Total
Revenue $ 173,813 $ 793,602 $ 201,395 $ 203,426 $ 201,903 $ 186,878
Gross margin
– GAAP $ 54,630 $ 264,571 $ 65,895 $ 67,267 $ 69,309 $ 62,100
– Non-GAAP $ 54,686 $ 265,025 $ 65,945 $ 67,313 $ 69,366 $ 62,401
Gross margin %
– GAAP 31.4 % 33.3 % 32.7 % 33.1 % 34.3 % 33.2 %
– Non-GAAP     31.5 %     33.4 %     32.7 %     33.1 %     34.4 %     33.4 %
 

Contacts

Investor and Media Contact:
David Climie
Vice
President, Investor Relations
+1 (604) 231-1137
[email protected]

Investor Contact:
David G. McLennan
Chief Financial
Officer
+1 (604) 231-1181
[email protected]

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