Sierra Wireless, Inc.

Good day and take the stand by. Welcome to Sierra Wireless third quarter earnings call and Q&A. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. David Climey, Vice President, Investor Relations. Please go ahead.

Thanks and good afternoon, everybody. Thank you for joining today's conference call and webcast. On the call today are Phil Brace, President and CEO, and Sam Cochran, our CFO. As a reminder, today's call is being webcast and will be available on our website following the call. Today's call 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 strategies, goals, objectives, expectations, and commentary regarding the outlook for our business. Our forward-looking statements are based on a number of material assumptions which could prove to be significantly incorrect. Additionally, forward-looking statements are based on 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 uncertainty that could cause actual events or results to differ significantly from those expressed or implied by our forward-looking statements. I draw your attention to a longer discussion of our risk factors in our annual information form and management's discussion and analysis, which can be found on CDAR and EDGAR, as well as other regulatory filings and our quarterly earnings release. With that, I will now turn the call over to Phil for his quarterly updates.

Thanks, David, and thank you, everyone, for joining us on the call today. Total revenue in the third quarter was $82.5 million, and GAAP gross margin was 29.3%. As we discussed during our Q2 earnings call, Q3 was negatively impacted by manufacturing capacity constraints due to the COVID-19 pandemic in Vietnam, as well as some well-publicized supply chain issues such as shipping and customs and continued tightness in the availability of components. Before I turn the call over to Sam for more details on the third quarter financials, I would like to talk about our current demand environment, how we're doing on the five-point operating plan that I outlined on last quarter's earnings call, and the recent changes I've made to our executive team, which we announced publicly yesterday. Regarding the current environment, we are continuing to experience very strong customer demand for our devices and services. We are seeing more customers in industrial enterprise and infrastructure markets wanting to deploy IoT solutions. And at the end of Q3, we had record backlog for our devices based on orders from existing and new customers. We strongly believe the macro trends for LPWA, 5G, and private networks are positive, and we expect these technologies to ramp in 2022 and 2023. We also continue to see supply constraints, particularly in semiconductors, and we expect those constraints to continue throughout 2022. Regarding the five-point plan I laid out in early August, let me provide you with a short update on each item. The first action item was to work very closely with our contract manufacturing partner in Vietnam with the goal of resuming full production as soon as possible. Over the last three months, we have made steady progress in restoring manufacturing capacity at the Ho Chi Minh City facility. It was at its lowest level in July and has gradually improved since then. This improvement has continued into the fourth quarter, and we are now running at full capacity. Our partner has done an excellent job managing the COVID-19 protocols, And I very much want to thank all the employees in that location for their diligent work through a difficult situation. The second action item was to have two additional manufacturing sites up and running as quickly as possible to diversify our geographic production and increase our manufacturing resiliency. I'm glad to say that we have now reestablished capacity at a facility in China and are ramping new production lines at a facility in Mexico. With this North American facility, we can ship to our enterprise router customers in the U.S. much faster while reducing some of the global complexity associated with overseas manufacturing. The third action item was to use our balance sheet to play offense and invest in parts that will enable us to fulfill our customers' orders as soon as possible. These investments were made in Q3, and inventory levels increased, as you can see on the balance sheet. Now that we had ramped back up our manufacturing capacity, we had been converting our raw material component inventory into finished goods. The fourth item was to undertake strategic price increases to offset some of the additional costs and investments we were making, balanced with the need to remain competitive in the market. Our approach is to be strategic on pricing, not opportunistic, as we need to be able to meet our customers' IOT requirements over the long term, while allowing us to earn proper return on investment and recoup the increases in costs that we are experiencing. We expect the impact of these pricing changes to occur gradually over time, starting in the fourth quarter. And the fifth and final item was to control the company's OpEx. Our OpEx has declined sequentially, and we have been very careful in managing our expenses, balancing the need for continued investment while allocating as much as possible to production. Sam has been doing a great job with his team, ensuring that we are only spending in areas where we absolutely have to. Moving on to the executive management changes that we announced yesterday, I'm very pleased to say that Praveen Dasal has joined us as Senior Vice President of Engineering. Praveen and I have worked together at multiple companies, including Veritas, Seagate, and LSI, so we know each other well, and he has consistently delivered high-quality hardware and software solutions. So we're glad to have him on board, and he'll be ramping up quickly here in the fourth quarter. In an effort to streamline the organization and also provide better focus for each of the teams, I have made the following key changes. Roy McLean is reporting to me as Senior Vice President of Operations, overseeing manufacturing, procurement, and quality. Joining Roy's team will be a new Vice President of Supply Chain, who comes to us with more than 25 years of supply chain experience in Silicon Valley, including Lumentum and Seagate. I've asked Jim Ryan to take on the role of Senior Vice President Product Partnerships and Marketing. The product management team at Sierra will now be consolidated under his leadership. Steve Harmon is moving to a new role as Senior Vice President of Global Sales. Steve will be adding the European and Asian regions together with his America sales team, so that will streamline and improve our go-to-market efforts worldwide. As a result of these changes, the new leadership at Sierra is smaller, more efficient, and with clear roles and responsibilities. I would like to take the opportunity to thank those leaving the company for their contributions and service. In conclusion, our demand remains very strong across our product lines, and we expect again to be supply constrained in 2022. We have made significant progress getting the manufacturing lines back up and running with increased geographic diversity, including a new facility in North America. We have a new leaner management structure with clearly defined roles and responsibilities that enables a clear focus on profitable growth in 2022. I would once again like to thank our employees, our customers, our suppliers, as we collectively work through the challenges of the COVID-19 pandemic and the tight global supply chain. Together, we will thrive. With that, I will turn the call over to Sam for his review of the third quarter results.