Sierra Wireless, Inc.

Good afternoon and welcome to the Sierra Wireless First Quarter Earnings Call. I would like to turn the call over to David Kliney, Vice President, Investor Relations.

Thanks and good afternoon everybody. Thank you for joining today's conference call and webcast. On the call today are Ken Thexton, President and CEO, and Sam Cochran, our CFO. As a reminder, today's presentation is being webcast and will be available on our website following the call. Today's agenda is as follows. Kent will provide his corporate update and Sam will provide a detailed review of our first quarter results followed by Q&A. Before we get started, I'll reference the company's cautionary note regarding forward-looking statements. A summary of our cautionary note can be found on page two of the webcast and is now being displayed. Today's presentation contains certain statements and information that are not based on historical facts and constitute forward-looking statements within the meaning of securities laws. These statements include our strategy, goals, objectives, expectations and commentary regarding the outlook for our business. Our forward-looking statements are based on a number of material assumptions, including those listed on page two of the webcast presentation, which could prove to be significantly incorrect. Additionally, forward-looking statements are based on our management's current expectations, and we caution investors of forward-looking statements, particularly those that relate to longer periods of time or subject to substantial known and unknown material risks and uncertainties, that could cause actual events or results to differ significantly from those expressed or implied by forward-looking statements. I draw your attention to our longer discussion of our risk factors in our AIF and MD&A, which can be found on CDAR and EDGAR, as well as our other regulatory filings. This presentation should also be viewed in conjunction with our quarterly earnings release. With that, I'll now turn the call over to Kent for his corporate update.

Thanks, David. I expect this to be my last quarterly update before my planned retirement. I'm happy to report that the Sierra wireless transformation continues to gain momentum, with strengthening demand being offset in the near term by global supply chain environment. I will start my comments on our first quarter results and highlights. Total revenue in Q1 was $108.1 million, up 4.9% year over year. As we announced on March 23rd, the ransomware incident shut down our production facilities for one week, And as such, we were slightly behind the consensus of $109.8 million. We also noted during our Q4 results report that our demand was running about 15% higher than our expected revenue due to global supply chain challenges. During the quarter, orders continued to materialize, increasing this figure to 20%. In the first quarter, our connectivity software and services revenue was $33.7 million, up 26.1% year over year. We are seeing this revenue grow as one, our existing customers increase their IoT deployments with us. Two, we have new customers starting to ramp their deployment based on design wins we secured over the last two to three years. And three, some customer usage rates are recovering as economies open up as we get through what is hopefully the worst of the global pandemic. Clearly, the need for both real-time monitoring of remote assets and improved processing at the IoT edge is growing in importance. In fact, IoT analytics research just reported that they expect the predictive maintenance marketplace will quadruple by 2026. In my conversations with CEOs of industrial and enterprise companies, it's clear that they urgently want to digitize their assets so they can gather data from their equipment and factories, control endpoints, and run insightful data analytics. Many of these customers are looking for a trusted supplier that can securely provide them with IoT devices, connectivity, and edge-to-cloud tools for two-way data orchestration. All of these trends in IoT are certainly playing right into Sierra's strengths. In Q1, we're introducing a new metric to measure our performance and growth in our recurring revenue. MRR, or monthly recurring revenue, indicates the recurring revenue in the last month of each quarter and is defined as the monthly subscription revenue including usage fees from current subscribers. In our earnings release, we've included historical data for MRR in a graph for the last two years. You can see that our recurring revenue has grown nicely from 7.1 million in MRR in Q1 2019, up to 11.5 million in this past quarter, generating a CAGR of 27% over the two-year period. Over the last 12 months, MRR from March 2020 to March 2021 increased by 30.7%. Going forward, we will be providing you with MRR updates each quarter and stepping back from providing quarterly LTAR design win information. It was certainly important to show LTAR when we were transforming and building the services business over the last two years as design wins take several years until starting to show in our revenue results. With the continued maturity of our connectivity software and services business, and are strongly growing recurring revenue, we are moving to report monthly recurring revenue as a more common and easily understood metric. With regards to our hardware devices, we continue to see improving demand for our modules and gateways in the first quarter, and our backlog and pipeline continue to grow. We are facing a very tight supply chain environment, which we spoke during our last conference call and is being reported widely. Our operations team is working diligently to secure components so we can build and ship products for our customers. And we're using our balance sheet to make advanced purchases of component inventory. Our teams are also working very closely with our contract manufacturers to ensure we have the necessary production capacity. We are talking to our major suppliers constantly to facilitate any extra supply possible. And we are working closely with our valued customers to get them as much product as possible. But we will continue to have demand run ahead of our ability to supply in Q2. In the first quarter, we announced that we had a ransomware incident, which was discovered on March 20th. We immediately engaged an external team of expert advisors to help identify, isolate, and implement measures to mitigate this incident. Our factory production was halted, but has since been fully restored. We worked very quickly to minimize the impact of the incident, and we have been providing customers with updates and communications throughout the process. While the investigation of the incident is ongoing, We believe at this time that the incident was limited to our internal systems and website only as we maintain a clear separation between our internal IT systems and our customer facing products and services. We are aware that the threat actor that attacked our system was Ragnar Locker. Our IT team, with the help of external experts, have enhanced our security and monitoring tools with an added layer of protection to detect and identify malicious activity. We've also enhanced security at corporate endpoints for improved detection and 24 by 7 monitoring. I would like to thank all our staff and advisors for working tirelessly to return to business as usual. Now back to discussing business growth. Our 5G programs and embedded modules are now certified with all major carriers in North America and leading carriers globally. We are shipping 5G products to customers globally on both sub-6 and millimeter wave OEM deployments. Our 5G modules are primarily going into networking devices, laptops, video applications such as security and broadcast video, and the public safety markets. And our design wins continue to grow in 5G, as many of our OEM customers are seeing higher demand from their end customers for 5G products. So we're off to a good start in 5G in the first half of 2021, and we expect activity to pick up in the second half of this year with growth really coming in 2022. In the first quarter, our global sales team continued to secure new IoT solutions wins. I'd like to share a few examples. The first win is with a leading U.S.-based industrial technology company. They needed a sole source supplier for an IoT solution that enabled them to do remote monitoring of industrial products. They have been struggling with disparate pieces of hardware, multiple SIM providers, and various management tools. As a single provider, we have a bundled solution for them with first-class support. allowing them to digitize their assets quickly and scale globally and we are now doing tests with them using our octave data orchestration to further improve their iot solution the hardware value of this first design with this new customer is expected to be 4.5 million dollars and the recurring service revenue in year three is expected to be approximately 1.5 million another customer we signed up in q1 is an ev tv charging station company that is expanding its U.S. charging infrastructure given the rapid growth in the electrical vehicle market. This customer wanted a long-term relationship with an IoT partner that had high-quality cellular gateways packaged with IoT connectivity services. Our LX60 gateways, together with a ready-to-connect SIM, was the right fit for this customer. The hardware value of this initial design was expected to be $1 million, and recurring revenue in three years' time is expected to be approximately $300,000 per year. And this is just to start with this new EV customer. And the last example I'll provide today is a services design win. We signed this customer in Europe, a leading provider of event ticketing, online registration, and cashless payments. The customer has a number of point-of-sale devices being used throughout Europe and international locations, but was struggling with various carriers, contracts, and restrictions. The solution was having Sierra Wireless with a global SIM and strong commercial and technical support to be its sole supplier on the services side. The recurring revenue in three years' time is expected to be approximately $1 million. In Q1, we also announced the launch of AccuLink Cargo, a new managed IoT asset tracking solution that companies can quickly and easily deploy to track the location and condition of high-value and sensitive assets. It leverages our expertise in IoT device hardware, cloud management, and global connectivity, all in a unified solution that's based on a single monthly fee. We built this solution around three key needs for our customers, real-time visibility, product-level tracking, and exception-based monitoring, so they can constantly track their high-value, sensitive assets at all times. This managed cargo tracking solution enables manufacturers freight carriers, and third-party logistics firms to avoid shipping delays, reduce dwell time, and prevent theft. In Q1, we also announced a new LPWA module that supports the 450 MHz spectrum, so it meets the specific requirements of our smart metering and utility customers in Europe. Some countries, such as Germany, the Netherlands, and Austria, are reserving 450 MHz spectrum for LTE-M networks so they can provide connectivity for smart energy and smart grid solutions. Our new embedded module has best-in-class power consumption and advanced firmware over-the-air capabilities. The battery life of smart meters can be extended to more than 10 years, reducing the number of utility truck rolls needed for battery replacements. And lastly, I'm pleased that this week we launched our new XR90 and XR80 multi-network 5G routers. The XR series provides 5G high-speed connectivity for real-time video streaming in mission-critical environments and high-performance business-critical applications. The new routers deliver the full performance of 5G across any network, whether it's being used for mobile applications or primary, temporary, or backup fixed wireless connectivity. Both the XR80 and the XR90 allow customers to maximize 5G data speeds across Wi-Fi 6, and multi-gigabit Ethernet interfaces using quad-core processing and our internal OS architecture that accelerates the data path. So we're excited about taking this high-speed router series to market. In summary, our business transformation to IoT solutions leader is proceeding strongly with growing design wins, strong growth in our higher margin recurring revenue areas, and a strong pipeline of demand and orders throughout 2021. So with that, I will now pass it over to Sam for his review and comments on the first quarter. Thank you, Kent.