Q3 2021 Sierra Wireless Inc Earnings Call

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Good day and take the standby 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 assist.

Please press Star Zero as a reminder, this conference call is being recorded.

To turn the call over to Mr. David Clemmie, 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 Cochrane, Our CFO as a reminder, today's call is being webcast 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 are 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 SEDAR 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 update.

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 and 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 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 L. PWA <unk> and private networks are positive and.

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.

We provide you with a short update on each item.

The first action items was to work very closely with our contract manufacturing partner in Vietnam with the Golar presuming full production as soon as possible.

Over the last three months, we have made steady progress in restoring manufacturing capacity at the whole 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 items. Most of you 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 in our 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 hadn't ramped back up our manufacturing capacity, we have been converting a raw material component inventory into finished goods.

Yes.

The fourth item was to undertake strategic price increases to offset some of the additional costs and investments we are 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.