Q4 2021 Sierra Wireless Inc Earnings Call

Welcome to the Sierra wireless fourth quarter and year end 2021 conference call.

I'll now turn the call over to David <unk>, Vice President of Investor Relations.

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 presentations are being webcast and will be available on our website. Following the call before we get started I will reference the company's cautionary note regarding forward looking statements today's.

<unk> contains certain statements and information that are not based on historical facts 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 are forward looking statements are based on a number of material assumptions, which could prove to be significantly incorrect.

<unk> forward looking statements 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 that could cause actual events or results to differ significantly from those expressed or implied by our forward looking statements I draw your attention.

Two 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. This presentation should also be imbued in conjunction with 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 fourth quarter was $149 $9 million and we generated $7 3 million and adjusted EBITDA ahead of our guidance.

Adjusted net earnings was $1 1 million in the quarter positive for the first time in two and a half years.

We ship more devices in the fourth quarter than any quarter in the preceding three years, excluding the automotive business that was sold in late 2020.

In Q4, the CR team work diligently with customers partners and suppliers as we delivered 24% year over year revenue growth and 82% sequential growth, enabling us to finish the challenging year on a positive note.

Before I turn the call over to Sam to provide more details on the fourth quarter and year end financials I'd like to update you on our current manufacturing and supply chain situation and our view of the current end customer demand environment.

From a manufacturing and supply chain standpoint.

We said during our last conference call that we plan to add additional manufacturing capacity to achieve production diversity and manufacturing resiliency.

We accomplish that by adding capacity to an existing facility and ramping up new production of the site in Mexico.

The manufacturing lines for the Mexican facility are running at capacity and we are building our <unk> enterprise routers. There so that can be quickly shipped into the U S market.

Combined with our existing debt facility, we now have three manufacturing locations, giving us improved flexibility with multi factory production.

This was a key factor in allowing us to build and ship product in Q4 for our customers globally.

Regarding the industry tight supply chain environment, we decided last year to use our strong balance sheet and play offense investing in parts and components to secure raw material supply.

Our procurement team did an exceptional job with our partners and suppliers in the fourth quarter, which enabled us to respond to our customers' strong demand.

Going forward our strategy remains the same as we continue to make the necessary investments in parts and components. So we can convert them into finished goods.

That said we can.

To see long lead times for chips and components and we believe the tight supply environment, we will be with us through 2022.

<unk> continued to be a watch item, but we believe we're in a much better position with improved geographic diversity.

To mitigate the potential impact of the pandemic.

Now regarding the current demand environment.

We entered 2022 with the strongest backlog in company history, and we continue to have solid demand for our devices and our services.

We are seeing more customers wanting to add intelligence at the edge and doing more Iot monitoring and industrial enterprise energy and public safety markets.

And modules, we're seeing great demand for our <unk> products, particularly in the infrastructure space with applications in smart meters public cladding and asset management.

We're also seeing traction with our <unk> module enterprise applications and industrial networking.

In enterprise solutions, we are seeing strong demand across the board for our products in public safety energy and industrial Iot markets, including our RV gateways, our newest <unk> XR series, which is tracking to be the fastest ramping product line in our history.

And demand for our flexible smart Sim connectivity offering is strong with customers deploying Iot solutions in applications, such as industrial monitoring asset tracking transportation and security.

I believe strongly that we are at the front end of a wave of demand as these markets will continue to grow for years to come, especially as more <unk> applications in March.

At Sierra wireless, we have a unique and strong position in the Iot market with modules.

Routers and connectivity services given.

Given the current trends in Iot combined with current record backlog and a strong balance sheet. We are confident that we can grow profitably going forward.

With that I'll turn the call over to Sam for his review of the fourth quarter and year end results.

Thank you Phil.

Good afternoon, everyone.

Note that we report our financial results in U S dollars and on a U S GAAP basis.

We also present non-GAAP results to provide a better understanding of our operating performance a full reconciliation between our GAAP and non-GAAP results is available on our website.

Total revenue in the fourth quarter was $149 9 million up 24, 4% compared to $125 million.

I'm period last year looking at our two reporting segments Iot solutions revenue was $104 5 million in Q4 up 28% year over year Enterprise solutions revenue was $45 4 million, an increase of 17% year over year.

In the fourth quarter product revenue grew by 29% year over year to $113 6 million and connectivity software and services revenue was $36 3 million higher by 11% compared to Q4 the prior year.

Performance in the fourth quarter was primarily due to continued strong demand coupled with the increased manufacturing capacity as we brought on additional production at two manufacturing facilities as.

As well as improved sourcing of raw materials parts and components.

Gross profit in the fourth quarter was $48 7 million.

12% year over year gross profit margin in Q4 was 32, 5% up 320 basis points compared to Q3 2021.

non-GAAP operating expenses in the fourth quarter were $45 5 million.

Down $4 6 million or nine 2% compared to Q4 the prior year.

This reflects our ongoing cost efficiency initiatives that we've been undertaking throughout the company.

Sequentially Opex was up slightly primarily due to the additional product certifications that were moved from Q3 into Q4.

As mentioned in our last call, we continue to manage our opex and capex tightly across all areas of the business.

In Q4, our adjusted EBITDA was positive $7 3 million compared to adjusted EBITDA of negative $2 9 million a year ago.

For the full year 2021, total revenue was $473 2 million an increase of five 5% over the previous year.

For the full year adjusted EBITDA in 2021 was negative $7 8 million compared to negative $34 9 million. The prior year moving to the balance sheet. We ended the fourth quarter of 2021 with $76 $9 million of cash.

Cash flow from operations in Q4 was positive 7 million and Capex was $4 1 million in the quarter.

During the fourth quarter, we continued our strategy of investing in inventory to secure a stable supply of parts and components to support our growth.

In mid January we announced the company has secured a new debt facility with CIBC, a BDC for approximately $50 million U S dollars.

This debt facility currently has an attractive interest rate and strengthens our balance sheet, giving us greater flexibility as we grow and operate the business going forward.

Regarding guidance for the first quarter the impact of the COVID-19 pandemic on our global business continues to remain uncertain.

We continue to experience and evaluate the effects on our business.

The overall severity and duration of adverse impacts related to COVID-19 on our business financial condition cash flows and operating results for the remainder of 2022 and beyond cannot be reasonably estimated at this time.

As Phil mentioned global demand for our products remains very strong given this environment. We are guiding to a revenue range in the first quarter of the year of $135 million to $150 million with a midpoint of $142 5 million.

With that I will now turn the call over to questions. Operator, Please open the lines.

Ladies and gentlemen, if you would like to ask a question. Please press star and the number one on your telephone.

Well pause for just a moment to compile the Q&A roster.

For ever first question, we have Scott <unk> from Roth Capital Scott Your line is open.

Hey, good afternoon. Thanks for taking my question Nice call guys excellent job on the quarter.

So maybe just quickly for clarification I was wondering if you could quantify the gross margin impact of various component costs, and any expedite or freight or otherwise and then given where we are in the first quarter and your guidance I was wondering if you could give us some idea.

What the gross margin profile looks like and maybe sequentially the different business units, how youre thinking about things given that we've got another five weeks left in the quarter and then I had a quick follow up.

Thanks for your questions.

So we're not going to give gross margin guidance, but I'll give a little bit more color on it.

Seeing as we're we're obviously in a very inflationary period right now so we're seeing pressure from increased component parts.

Ponant costs.

On the other side of it we're seeing very strong demand in modules.

Which is exciting as one part but on the other parts that does put a little bit of pressure on gross margin as well. So I do expect that gross margin flattened out in Q3 as discussed previously and we will see it to continue to rise over 2022.

But no sort of sharp uplift in the near term given those two pieces that I just discussed.

Got you very helpful and Phil if I could I know, it's still early but I guess, we're almost 200 days and at this point in time.

Tremendous turnaround in the module side and enterprise side of the business right. I think enterprise is back to near peak levels modules. As you said I think is up at the highest level seen in three years.

I'm wondering.

At the business is today, if there are some guidelines that you could give us in terms of the module business what that gross margin profile could look like in a normalized environment. What those targets are going to be in the big snapback that we've seen this quarter, which was tremendous is that is that just a snapback or is it sustainable at these levels.

<unk> I know, it's subject of component availability, but just to kind of better understand the supply demand profile is this a snapback or is this sustained level do we think about building as we enter a more normalized environment for the supply chain. Thanks.

Yeah. Thanks, So let me try and try and best answer that I mean, we kind of mentioned that we have basically a record backlog, we do have record backlog not basically record backlog across across our product lines. So demand for the products is very good we have seen as I think I mentioned in Q3 Q3 was uniquely kind of impacted our our module.

So this is where we were underwater the most in terms of in terms of some of the volume.

Having said that right. So we did see a bit of a snap back there in Q4 and certainly into reflected in the guidance Q1, having said that demand for those products is very strong.

And so the competitive dynamic in that market tends to lend itself to a slightly lower gross margins than we have on average in the company, but frankly I'm working to keep the costs down and continue to work on our supply chain and continue to drive improvements there as well such that we should see we should see continued leverage in the model and frankly continued good growth and good growth in profit that's really.

What I'm trying to do in terms of the three businesses.

Obviously, it's.

Modules on the lower side enterprise.

Enterprise and connectivity on the higher side, so that's kind of how that how that shapes out going forward in terms of.

Is this sustainable I mean.

Look right now we're going to be I anticipate being in a supply constrained environment throughout 2022 at this point. So we are continuing to fight for components demand is very strong we have the manufacturing capacity in place to meet that it's all going to be just can.

Can we get the parts and turn them into finished goods.

Great. Thanks, so much great quarter.

Thank you.

For our next question, we have Mike Walkley from Canaccord Genuity, Mike Your line is open.

Okay. Thanks, taking my questions.

Congratulations to the team for the return to non-GAAP profits.

Wait to see.

Just following up on Scott's questions on the supply and demand.

Historically Q1 is a low point for revenue, but obviously when a different environment has record backlog given the tightness of components.

Any thoughts on seasonality for the year I know, it's tough to get components I'm, just trying to get a feel for.

Catch up demand versus.

Your ability to get supply to keep these type of run rates for the next couple of quarters.

Yes.

As you pointed out I think any kind of focus on seasonality any sort of data or historical perspective on seasonality is.

Certainly distorted in the current environment.

And frankly, we've got.

More demand that would blow through any seasonality than we would have anyway. So.

I think that we.

We really don't have any good guidance on seasonality I would just say that.

The backlog has continued to grow.

We've been continuing to try and recover as much as we can give them bringing online.

More and.

More of our facilities globally and secure and components.

But I think that any sort of historic what you see now reflected in our guidance really doesn't have to do with seasonality historic seasonality its really around what we think we can.

The range of stuff, we can get out in the quarter.

Okay. That's helpful. Until this is just a follow up for you.

Your predecessor committed Sierra wireless to these longer term targets I believe all way back in June 2019 is of about $200 million and $400 million need to help our targets is that still relevant to see how you run the business and if not what metrics do you think investors should focus on is I did notice you changed the way you report some of the.

Line items. Thank you.

Yes. Thanks for thanks for asking that question, obviously at the current run rate its not realistic to assume when we hit those targets and frankly as you pointed out I think that focus on those things resulted in confusing metrics like <unk>.

Very few people, including myself really understood and frankly, I think to pursue those targets required us to run the losses.

And make poor decisions. So my goal is to grow this company.

<unk> both in the short term and the long term, we're seeing very strong demand for our products.

I am going to be focused on profitable growth, having said that I do believe that building a recurring revenue business.

It will be an important part of the strategy, but I do not believe those long term targets that were set three years ago are currently valid and I'm going to be focused on growing the company holistically and growing it profitably going forward.

Great. Thanks, One last question from me and I'll pass the line.

I appreciate that answer that question, Tim just just for you it's great to see Sierra wireless season, there is a strong balance sheet too.

Pick your components a lot of your competitors are really struggling in that area. How should we think just about.

Combining that over time in terms of working capital and cash levels.

Or another way to ask it.

It seemed kind of these high levels of inventory for the next couple of quarters.

Yeah. Good question. So there's two competing things happening right. There was the Q3 shutdown, which led us to build up inventory.

Right that is starting to normalize, but thats going right into very very strong demand on both our modules and our gateways routers. So what we've done stuff like raised prices to protect our margins and we can see.

Here's a look at that the demand remains very strong.

So we're having to continue to invest and components to meet our customer demand. So I would I would think that inventory will stay sort of in line with where it is right now.

Over the over the next few quarters.

See any big move.

Movements in it.

But as you kind of see that play out over the year.

Depending on how demand.

<unk> play out in the second half Youll kind of see US go up and down on inventory and that will obviously impact free cash flow, but as Phil said our goal is to grow this company grow profitably and ultimately deliver that free cash flow.

Okay that makes sense and congrats to your procurement team is like I said, you guys seem to be doing better than others out there getting the components. Thanks for taking my questions.

Thanks.

Our next question, we have Josh Nichols from B Riley Josh Your line is open.

Yes, Thanks for taking my question and good to see.

Hello, the Companys cost improvement initiatives, taking hold here pivoting back to free cash flow generation on that note how should we think about opex for 'twenty two relative.

<unk> is there some additional opportunities to make some cuts there and so as a firm we expect to remain free cash flow positive throughout the.

The coming quarters.

Okay.

Yes, it's a good question so I'll grab that until if do you have anything to add please add it.

The way, we're looking at Opex and I think I've said this before is sort of flat is the new up so opex will be flat at most up in the 2% to 3% range call it sort of.

Some small wage inflation in the sort of thing, but we expect to get a lot of leverage out of this model, which means growing revenue at a much higher pace and keeping opex flat so.

That's a comment on Opex now free cash flow again, it's going to go into our continued very strong demand and good visibility into demand is have enough to invest in our working capital to meet that demand.

So depending on those sort of working capital items.

And are positioned to deliver continued profit growth in free cash flow.

And I on those working capital numbers does that makes sense.

Yes. Thanks.

And then I know you mentioned it I mean record backlog right anything you could do to kind of quantify that a little bit as far as like the dollar value of book to Bill I'm. Just curious how much visibility you have at least from the demand backdrop on the revenue opportunity for this year do you have orders that are going out through <unk> <unk>.

What does that look like now.

Okay.

We get questions. So I'll go ahead Phil.

Yes, we started to take orders not to say we have started to have customers start placing orders into 2023 at this point.

Okay, and then last question for me.

I guess historically you.

You mentioned that seasonality is a little bit different this quarter, but I know the first quarter is usually a little bit softer than in the fourth quarter. I think that's kind of hope had guided shakes out but with the inventory build in the backlog that you have is it fair to assume that.

There's a good chance that the company is going to be able to kind of continue to grow the revenue base as you progressed throughout the year and if so like I mean that would imply that you can.

Probably be doing somewhere around like $600 million potentially.

Sales this year is that kind of in the ballpark with how youre thinking about the business.

Sam you want to take that one or you want me to take a crack at it yeah, Yeah sure I can jump in on that one.

So yes. Good question, we do see sequential growth.

Throughout the year, if you look at Q1 guidance that midpoint of $1 40 to five.

Yes.

The seasonality is a little bit odd this year, because we still are seeing impacts from the Q3 shutdown.

Wasn't all into Q4 some of that is going to go into Q1 as well.

So you mentioned 600, I mean, that's a little bit hot but if you can sort of do a little bit of basic math of 142, 5% and you add a little bit of sequential growth through there you start to get pretty close so I think youre thinking about it close to accurately maybe a tiny bit hot but but about right.

Thanks, guys I'll, let someone else hop in the queue.

For our next question, we have Derek Soderberg from Kony Derrick Your line is open.

Hey, guys. Thanks for taking my questions.

Phil in your prepared remarks, you talked about.

Need for software and connectivity just wanted to touch on monthly recurring revenue exiting the year I guess, what's the strong core.

Order in hardware.

On sales I guess from prior quarters, I guess I would have expected that.

Number to grow a bit more.

I guess could you just explain some of the puts and takes going on in there or is it a lower attach rate lower data consumption.

But more devices anything that would be great. Thanks.

Yes, that's a great question look to overhaul that grew 10, 5% year over year. It is going to continue to be an important part of our business. There having said that there are lots of pieces in there as you know that a lot of that segment is combined with lots of acquisitions that were made historically. So there is some stuff that's going up there's some stuff that's going down.

And frankly as I've kind of implied for them in the process of doing a little bit of a deeper dive in that particular area to go there there may be some some.

Some businesses in there that arent strategically aligned with where we want to go just because something has MRI doesn't mean, it's necessarily right for us So bill.

Building building recurring revenue is going to be important part I'm going to continue to look at it.

Thats kind of various different puts and takes in there.

And I will be continuing to evaluate that going forward.

Got it and then just offset with those product lines that are sort of declining I guess.

Timeline for when those sort of base out.

Okay.

Look we're trying to I'm trying to actually figure out you know overall, how to focus to grow the business holistically. So.

Premature to comment on what kind of what's in and out of there I think what do you need to walk away with us.

I and the management team.

<unk> got both hands on the wheel, we're going to drive to grow this business profitably.

And make sure that we're allocating capital to the right areas that are have the best ROI for the business.

Got it and if I could just squeeze in another one.

You fill again.

Sort of went through this hiccup in Q3, when you joined.

Sort of laid out these near term strategic initiatives cures.

Curious if.

On 2022, what sort of your updated initiatives like what do you want to see for the year.

Divestitures acquisitions.

Growing profitably I think you've mentioned any initiatives you can point to for this year.

Yes, I think I think it's fair to say that we have.

We've had a pretty turbulent first 60, I think Scott mentioned 200 days to minutes.

Like a lot longer than that I mean, what I'm trying to do is actually put the company on stable footing right now I think that.

We've actually done the team has done a great job of kind of navigating some.

Frankly unprecedented unprecedented areas what I expect to see going forward is a continued focus on minimum double digit revenue growth with expanding profit margins and expanding EBITDA margins as we go throughout the year kind of holding Opex flat I will likely when we think about the future going forward.

I'm going to be pursuing some evaluation of the portfolio and taking a look to see kind of what makes sense whatnot I think that.

Consolidation in the industry. There's a lot of talk about that I do think that's inevitable out there and so and I do think there are some interesting opportunities in the industry, but right now for me and for the company and focus on taking the portfolio of products, we have and making sure. They operate as best as we can.

Got it thanks guys.

Our next question, we have Todd Coupland from CIBC. Your line is open.

Yes, good evening everyone.

Just a point of clarification and then I had a question. So is the 36 million that.

Connectivity solutions business that grew 11%.

That also being defined as recurring revenue or <unk> are those interchangeable.

There are some services as.

Well, yes.

Basically right, there's a small amount that doesn't get included a very small amount, but essentially that divided by three that's close to the number you see there for them are.

Okay and Thats the piece that grew at 11% and how and the prior question the commentary around some puts and takes acquired businesses not sure all of it fits et cetera, that's all around.

The <unk> MLR Youll keep as a metric and then the long term <unk> stack et cetera.

Uh huh.

Is not relevant.

That was the point there right.

That's correct, yeah, so still sort of trying to make it clear that his focus is to grow the whole business holistically grow profitably without sort of.

Myopic view on just services. So I think that's the point you're trying to get across there.

Okay, Yes.

I'll start, saying, we're no longer going to be talking about that period. So yes, there's a bunch of stuff yes.

It was a hard metric for us to reconcile regardless, so I'm not surprised.

And then just thinking about the growth in the business I know, there's been lots of questions about.

Pull forward versus sort of secular demand like how much of like if you were to think about the business five G plus other trends.

Like how much of a tailwind is that right now like I thought <unk> was sort of slowly coming on and then you referenced a number of times in your prepared comments is is that actually kicking up in a material way.

And maybe what are the other two or three factors there as we think about qualitatively beyond that.

<unk>, what's pressing the business. Thank you.

Yes, let me try that one of the things I guess on <unk>.

Cited about I think five G. As you pointed out I mean, it's a it's a nascent small part of the business, but it's starting to grow and when I think about having.

A decade or some some long number like that of deployment behind us or excuse me in front of us.

I just feel great low power <unk> as great private networks, all of our enterprise business I mean, what I get excited about the long term growth opportunities.

The number of things that we have that are tailwind from when you just think about smart infrastructure smart meters of this whole idea of work from home in the <unk> space. This is just being now translated into the infrastructure energy space right and I think that the.

I think theres, some tremendous growth opportunities not just in <unk>, but <unk> L. PWA.

Routers gateways managed connectivity.

I think this whole.

To go back to the pandemic when I look at the pandemic impact for US it was around.

Impacting our manufacturing recovering from that when you think more globally.

So the idea of being able to remotely manage and monitor things.

I think that's only going to accelerate that trend.

Okay.

That's helpful and then when you think about again.

People have often thought about this business a little bit commoditized can you sort of characterize.

What you think or see our strongest competitive advantages that can drive that double digit growth youre talking about.

Yeah look I think that obviously every every market that we participate in is has got some competitors and we want to compete vigorously I think theres, a very valuable role that we can play.

Trusted western provider.

In this space and I think when we look at and modulus for example.

Some of our.

RF capabilities performance low power are very very key there our router space, our new <unk> products are getting very good reviews in the marketplace for their performance their ruggedized space are really targeted at a more industrial use case, which I think is great and then on the managed connectivity side.

The ability to build and deploy solutions that can go anywhere in the world and connect up to the best network and have that <unk>.

Managed appropriately as also a value proposition that is resonating with customers. So I feel good about our competitive position that is not to say however that we don't have a lot of work left to do.

Frankly, I am six months and 200 days, there's a lot more things we can do to be a lot more competitive here.

And certainly my team and I are going to be focused on that.

Okay.

And last question for me.

You signaled sector consolidation.

Some have speculated on sort of Crs.

Place in that as a consolidator or now with your focus on cost and cash flow, whether Sierra wireless perhaps is consolidated can you just sort of clarify your stance in the market.

Commitment to the strategy and all of that just to help us understand where you are hoping to take the company. Thanks a lot.

Yes, I mean, obviously, it's my number one focus is to grow the company grow the properly profitably and frankly build some some equity value.

That's really what we're what we're looking to do I am more likely to.

Clean up the portfolio and do a divestiture or prior to me doing an acquisition because I think one of the things. The challenges we have with Sierra frankly is that it was a confusing story and husband confusing story, we're doing a lot of things and so I'm more likely to clean.

Clean up some of the smaller businesses and perhaps divest them prior to an acquisition.

However, long term, but I think it's pretty clear there's a number of players in the space, including Sierra whose thicknesses you could argue would benefit from the scale for which consolidation provides us so.

I think that that is likely at some point in time, but right now I'm kind of focused on building. The businesses, we have returned them to profitability and profitable growth unlikely to do divestiture prior to acquisition and then we'll see where we go from there.

Great I appreciate all the color thanks a lot.

Thank you.

For our next question, we have Paul <unk> from RBC capital markets. Paul Your line is open.

Thanks, very much and good afternoon tend to in regards to say Q4 $150 million in revenue and then also the outlook for Q1. It doesn't sound like demand is a constraint for either of those.

With manufacturing capacity a constraint for Q4, and then now the constraint for Q1 is component availability am I getting that characterizing that right.

Yes.

Okay.

Ah.

Gosh, I guess Ive never really.

Q4 was kind of a turbulent time, because we were just coming out we are bringing back up with our partners bring it back up Vietnam, we are starting to ramp Mexico.

So.

I guess I would say that.

Q4 was likely manufacturing constrained and then Q1 is probably component constrained I think thats, probably a fair statement to make.

But.

Yes.

Yeah, I think thats, probably probably okay. At this point it's not.

Perfect, but close enough.

More dominant.

Or is more dominated by our own manufacturing in Q1 is more dominated by component supply.

Okay. That's helpful and then as you look out through.

'twenty, two or 'twenty three I mean, obviously the short term focus is probably on component securing component supplies.

At what point would manufacturing would you look to expand the manufacturing footprint further.

Yeah, that's a great question and we've talked about today, we have made some targeted investments.

In some particular product lines that are at the beginning part of their part of their ramp.

We believe strongly that the demand.

Is there in the out years I think that what I don't want to do is bring on extra capacity and then destock.

When we can't get the supply so I think that's going to be a combination of.

We're going to be cautious on that but.

If we get more visibility into a stronger supply line in terms of components in our demand remains solid and clearly we'll be looking at and I think that's one of the things that a strong balance sheet enables us to do should that opportunity be there but.

Like like many of you have been around the block a few times right. So I'm pretty cautious on adding extra fixed capacity that that will be sitting idle effect I can't use it.

And then with record backlog, obviously, it looks like demand is outpacing supply.

Can you help us understand like the demand is it perishable and if it is or it is not like what are customers doing if they're not able to secure supply from you or they just delaying shipments so theyre not including connectivity.

And it can you help us understand what's going on there.

Yes, that's it.

That is a good question and a question I ask.

My customers when I talk to them a bunch and the good news is is that oftentimes we are not the only supplier.

Dealing with it.

I think.

In Q3, when youre dealing with our own major situations I mean, we were a much more significant bottleneck, which is why we were really scrambling to recover from that and I never wanted to be an emphasis situation, where we're blocking our customers.

So.

I think right now we're trying to do our best to meet our customers' minimum quantities to make sure that we are not the blocker in their situation and I think what they're seeing is just like like what we are seeing in our own supply I think just in general what one of our customers are doing as lead times for products are going up.

So lead times are going out and.

That's what they tend to do is just reschedule. It out later in time, that's what I'm, saying.

Okay. Thank you for taking my questions.

Okay.

Presenters, we don't have any further questions at this time please continue.

Yeah.

Okay I think.

At this point we're.

We're done with the call I would like to take a moment and express my appreciation for all of our employees suppliers partners customers. It's been a challenging certainly a challenging 2021.

And I appreciate all the partnership and collaboration we've got across the board.

Close the call. It the future is very bright for demand is very strong.

We are going to execute well and grow this company profitably going forward. Thanks for everybody's support and joining the call today.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.

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