Sierra Wireless Reports Second Quarter 2009 Results

TSX: SW
NASDAQ: SWIR

VANCOUVER, July 30 /PRNewswire-FirstCall/ - Sierra Wireless, Inc. (NASDAQ:
SWIR, TSX: SW) is reporting second quarter 2009 results.
Our results are reported in U.S. dollars and are prepared in accordance with
United States generally accepted accounting principles.
"In the second quarter of 2009 we experienced solid revenue, record unit
volume shipments, strong cash flow, significant improvement in gross margin
and we achieved positive non-GAAP earnings from operations earlier than
expected" said Jason Cohenour, President and Chief Executive Officer. "Gross
margin improved 720 basis points sequentially, driven by product cost
reductions and early synergy returns from our acquisition of Wavecom. Our
strong gross margin, combined with good cost management, drove better than
expected non-GAAP earnings. Additionally, we have started to experience some
of the diversification benefits expected from our acquisition of Wavecom.
Customer concentration was reduced and our product line and geographical
diversification improved during the quarter.
While executing on our business, we also completed our acquisition of 100% of
the Wavecom shares and made good progress on our integration of the two
companies. We have announced a new-look executive team, implemented
organizational structure changes, took significant cost reduction steps,
captured early product cost synergies and leveraged our combined resources to
secure OEM design wins representing market share gains. Our integration is
going well and is on track.
As we look forward, we are focused on continued strong business execution in a
challenging environment and completing our successful integration with
Wavecom. We remain confident that when the business environment strengthens,
we will be well positioned with a broad and diversified product line, a long
list of blue chip customers and partners, a strong global presence, a strong
balance sheet and an excellent team."

Q2 2009 Financial Results - GAAP

Our revenue for the second quarter of 2009 was $135.3 million, gross margin
was $47.1 million, or 34.8% of revenue, operating expenses were $63.3 million,
loss from operations was $16.2 million and our net loss was $5.9 million, or
loss per share of $0.19.

Q2 2009 Financial Results - Non-GAAP

Our non-GAAP results exclude transaction costs related to Wavecom,
restructuring costs, integration costs, stock based compensation expense,
acquisition related amortization, and foreign exchange gains and losses
related to the Wavecom acquisition. Adjusting for these amounts, our non-GAAP
results for Q2 2009 are as follows:

Q2 2009 Q2 2008
-------------------------------- --------
Sierra Wavecom Consolidated Consolidated
(in millions of ------ ------- ------------ ------------
U.S. dollars) Non-GAAP Non-GAAP Non-GAAP Non-GAAP
-------- -------- -------- --------

Revenue - GAAP and Non-GAAP $ 101.9 $ 33.4 $ 135.3 $ 155.7

Gross margin - GAAP $ 32.9 $ 14.2 $ 47.1 $ 43.2
Stock-based compensation 0.1 - 0.1 0.1
-------- -------- -------- --------
Gross margin - Non-GAAP $ 33.0 $ 14.2 $ 47.2 $ 43.3

Earnings (loss) from
operations - GAAP $ 5.0 $ (21.2) $ (16.2) $ 14.4
Transaction costs 0.8 - 0.8 0.7
Restructuring costs 0.6 7.9 8.5 -
Integration costs 0.7 0.2 0.9 -
Stock-based compensation 2.0 0.6 2.6 1.7
Acquisition related
amortization 0.6 5.6 6.2 0.9
-------- -------- -------- --------
Earnings from operations
- Non-GAAP $ 9.7 $ (6.9) $ 2.8 $ 17.7
-------- -------- -------- --------

Net earnings (loss) - GAAP $ (5.9) $ 11.0
Transaction, restructuring,
integration, stock-based
compensation and
acquisition amortization
costs, net of tax 18.8 2.3
Unrealized foreign
exchange gain (11.0) -
Non-controlling interest (0.4) -
-------- --------
Net earnings - Non-GAAP $ 1.5 $ 13.3
-------- --------

Diluted earnings (loss)
per share - GAAP $ (0.19) $ 0.35
Diluted earnings per
share - Non-GAAP $ 0.05 $ 0.42

On a non-GAAP basis, results for the second quarter of 2009, relative to
guidance provided on April 30, 2009 are as follows:

Second quarter revenue for 2009 of $135.3 million was lower than our
guidance of $139.0 million. Our earnings from operations were $2.8
million, better than our guidance of a loss from operations of $2.0
million. Our net earnings of $1.5 million, or diluted earnings per
share of $0.05, were better than our guidance of a net loss of $2.0
million, or loss per share of $0.06.

On a non-GAAP basis, results for the second quarter of 2009, compared to
the second quarter of 2008 are as follows:

Second quarter revenue decreased by 13% to $135.3 million in 2009,
compared to $155.7 million for the same period in 2008. Gross margin
for the second quarter of 2009 was 34.9% of revenue, compared to
27.8% for the same period in 2008. Operating expenses were $44.5
million and earnings from operations were $2.8 million in the second
quarter of 2009, compared to $25.7 million and $17.7 million,
respectively, in the same period of 2008. Net earnings for the second
quarter of 2009 were $1.5 million, or diluted earnings per share of
$0.05, compared to net earnings of $13.3 million, or diluted earnings
per share of $0.42, in the same period of 2008. Our weighted average
shares outstanding used in calculating earnings per share decreased
to 31.1 million in the second quarter of 2009 from 31.5 million in
the prior year because we repurchased shares under our normal course
issuer bid.

On a non-GAAP basis, results for the second quarter of 2009, compared to
the first quarter of 2009 are as follows:

Revenue for the second quarter of 2009 increased by 21% to $135.3
million, compared to $111.4 million in the first quarter of 2009.
Gross margin was 34.9% of revenue in the second quarter of 2009,
compared to 27.7% in the first quarter of 2009. Operating expenses
were $44.5 million and earnings from operations were $2.8 million in
the second quarter of 2009, compared to $28.6 million and $2.2
million, respectively, in the first quarter of 2009. Net earnings for
the second quarter of 2009 was $1.5 million, or diluted earnings per
share of $0.05, compared to $1.8 million, or diluted earnings per
share of $0.06 in the first quarter of 2009.

Our balance sheet remains strong, with $131.5 million of cash, cash
equivalents and short-term investments at June 30, 2009. In the second quarter
of 2009, we generated $18.5 million of cash from operations on a GAAP basis.

Acquisition Synergies and Cost Reduction Plans

We are implementing an action plan that we expect will capture significant
product and operating cost savings independent of the acquisition of Wavecom,
as well as revenue, product cost and operating expense synergies resulting
from the acquisition of Wavecom.
With respect to operating expenses, we have already implemented several cost
reduction activities which have been previously disclosed. We believe that our
expense reduction plan will enable us to achieve quarterly non-GAAP operating
expenses of approximately $40.0 million in Q1 2010. This cost structure target
represents a quarterly reduction of $8.9 million from the pre-acquisition
combined Q4 2008 non-GAAP operating expenses of Wavecom and Sierra Wireless of
$48.9 million. The estimated $36.0 million annualized non-GAAP cost savings is
driven by a combination of cost synergies resulting from the acquisition of
Wavecom, as well as cost reduction activities that are independent of the
combination.
With respect to product cost, we have already implemented synergy actions that
have resulted in product cost savings. Such actions include staff
rationalization and common component supplier price negotiations. We believe
that additional product cost savings will be achieved over time through a
combination of phased actions including manufacturing facility
rationalization, consolidation of logistics activities, and product platform
harmonization which increases component commonality. We believe that these
synergy actions will result in a per unit product cost reduction of
approximately 3% - 4% by the end of 2010.
With respect to revenue, we believe that the improved market position of the
combined company will result in incremental revenue gains over time. As a
combined company, we believe we have the broadest product portfolio and global
technical support capability in our industry, as well as scale and product
cost advantages relative to our peers. We believe that these enhanced market
position advantages have already resulted in OEM design wins that represent
market share gains.
In the second quarter of 2009, we incurred a pre-tax charge of approximately
$8.9 million related to the cost reduction initiatives already implemented.

Second Quarter and Recent Highlights Included:

- Our Sierra Wireless USB 598 modem for EV-DO Rev A networks was
launched with Telus, which is the first CDMA operator using our TRU-
Update feature, a managed service providing automatic firmware,
driver and application updates.

- Our AirCard 402 for EV-DO Rev A networks, a 2-in-1 mobile broadband
card designed to fit both PC card and ExpressCard slots, commenced
commercial shipments and was launched by Sprint.

- Our new Q26 Elite Wireless CPU(R) for CDMA 1X passed all regulatory
and interoperability testing and was approved for use on the Verizon
Wireless, Sprint and Aeris networks. The Q26 Elite is ruggedized for
extreme environmental conditions and supports GPS which makes it
suitable for fleet management and tracking applications.

- We announced the availability of our new MC5728V embedded module for
EV-DO Rev A networks, designed for integrating mobile broadband
connectivity into a variety of devices, including notebook computers,
networking equipment and industrial handheld devices.

- We announced a collaboration initiative with Meta System Spa to
provide a platform for automotive telematics, with a focus on
emergency calls, stolen vehicle tracking, remote diagnostics and
fleet management.

- We announced that our ALEOS embedded software platform will be
available on our MP line of rugged in-vehicle mobile routers. With
the addition of ALEOS, our MP product line will now share a common
software platform with all of our AirLink gateways and routers,
simplifying device management and support.

Acquisition of Wavecom S.A.

On December 2, 2008, we announced an all-cash offer to purchase all of the
shares and OCEANE convertible bonds ("OCEANEs") of Wavecom S.A. ("Wavecom"), a
global leader in wireless M2M solutions headquartered in Issy-les-Moulineaux,
France. The total value of the transaction was approximately (euro)218
million, representing an enterprise value of approximately (euro)85.5 million.
We made a cash offer of (euro)8.50 per share of Wavecom, and (euro)31.93 per
OCEANE. The transaction was implemented by way of concurrent but separate
public tender offers in both France and the United States for all Wavecom
shares, all American Depository Shares ("ADSs") representing Wavecom's shares
and all OCEANEs issued by Wavecom.
On February 27, 2009, we completed our acquisition of 90.57% of the voting
rights of Wavecom. Following a statutory re-opening of the tender offer and
our purchase of Wavecom shares on the market, we increased our ownership of
the voting rights of Wavecom from 90.57% to 95.4% and, on April 29, 2009,
completed our acquisition of all of the remaining Wavecom shares and OCEANEs
by way of a squeeze-out. The Wavecom shares and OCEANEs have been delisted
from the Euronext and the ADSs have been delisted from the Nasdaq.

Corporate

We announced changes to our leadership team that included the appointment of
former Wavecom executives to our combined executive team. The appointments
include Didier Dutronc as Senior Vice President, Marketing, Philippe
Guillemette as Senior Vice President, Advanced Technology, Pierre Teyssier as
Senior Vice President, Engineering and Emmanuel Walckenaer as Senior Vice
President and General Manager, Solutions and Services.

Financial Guidance

The following guidance for the third quarter of 2009 reflects our current
business indicators and expectations. This guidance is presented on a non-GAAP
basis, which excludes Wavecom transaction and integration costs, restructuring
costs, stock-based compensation expense, acquisition amortization and foreign
exchange on amounts related to the Wavecom acquisition.
Our guidance for the third quarter of 2009 reflects the uncertain macro
economic environment. Our guidance also includes some revenue contribution
from expected new product launches and the uncertainties associated with these
launches could affect our ability to achieve guidance.
Inherent in this guidance are risk factors that are described in greater
detail in our regulatory filings. Our actual results could differ materially
from those presented below. All figures are approximations based on
management's current beliefs and assumptions.

Sierra Wavecom Consolidated
------ ------- ------------
Q3 2009 Guidance Non-GAAP Non-GAAP Non-GAAP
---------------- -------- -------- --------

Revenue $101.0 million $34.0 million $135.0 million
Earnings (loss) from
operations $8.2 million $(6.2) million $2.0 million
Net earnings $2.0 million
Earnings per share $0.06/share

Conference Call, Webcast and Instant Replay

We will host a conference call to review our results on Thursday, July 30,
2009 at 3:00 pm PDT, 6:00 pm EDT. You can participate in the conference call
either via telephone or webcast. To participate in this conference call,
please connect approximately ten minutes prior to the commencement of the
call.

Telephone participation:

Please dial the following number:

1-800-732-9303 Passcode: Not required
or
1-416-644-3414 Passcode: Not required

Webcast:

We will also broadcast our conference call over the Internet. To
access the web broadcast, click on this URL or enter:

http://w.on24.com/r.htm?e=157054&s=1&k=3EE3CB5BDE24423F291AFC57228B5251

This webcast event will be optimized for Microsoft Windows Media
Player version 9. To download go to:

http://www.microsoft.com/windows/windowsmedia/download

The webcast will be available at the above link for 90 days following
the call.

Should you be unable to participate, Instant Replay (audio) will be
available following the conference call for 7 business days.

Audio only dial: 1-877-289-8525 or 1-416-640-1917
Passcode: 21309445 followed by the number sign.

We look forward to having you participate in our call.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release that are not based on historical
facts constitute forward-looking statements or forward-looking information
within the meaning of the U.S. Private Securities Litigation Reform Act of
1995 and applicable Canadian securities laws ("forward-looking statements").
These forward-looking statements are not promises or guarantees of future
performance but are only predictions that relate to future events, conditions
or circumstances or our future results, performance, achievements or
developments and are subject to substantial known and unknown risks,
assumptions, uncertainties and other factors that could cause our actual
results, performance, achievements or developments in our business or in our
industry to differ materially from those expressed, anticipated or implied by
such forward-looking statements. Forward-looking statements in this press
release include all financial guidance for the third quarter of 2009, and all
other disclosure regarding possible events, conditions, circumstances or
results of operations that are based on assumptions about future economic
conditions, courses of action and other future events. We caution you not to
place undue reliance upon any such forward-looking statements, which speak
only as of the date they are made. These forward-looking statements appear in
a number of different places in this press release and can be identified by
words such as "may", "estimates", "projects", "expects", "intends",
"believes", "plans", "anticipates", "continue", "growing", "expanding", or
their negatives or other comparable words. Forward-looking statements include
statements regarding the outlook for our future operations, plans and timing
for the introduction or enhancement of our services and products, statements
concerning strategies or developments, statements about future market
conditions, supply conditions, end customer demand conditions, channel
inventory and sell through, revenue, gross margin, operating expenses,
profits, forecasts of future costs and expenditures, the outcome of legal
proceedings, and other expectations, intentions and plans that are not
historical fact. The risk factors and uncertainties that may affect our actual
results, performance, achievements or developments are many and include,
amongst others, our ability to develop, manufacture, supply and market new
products that we do not produce today that meet the needs of customers and
gain commercial acceptance, our reliance on the deployment of next generation
networks by major wireless operators, the continuous commitment of our
customers, and increased competition. 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. Many of these
factors and uncertainties are beyond our control. Consequently, all
forward-looking statements in this press release are qualified by this
cautionary statement and we cannot assure you that actual results,
performance, achievements or developments that we anticipate will be realized.
Forward-looking statements are based on management's current plans, estimates,
projections, beliefs and opinions and we do not undertake any obligation to
update forward-looking statements should the assumptions related to these
plans, estimates, projections, beliefs and opinions change, except as required
by law.

About Sierra Wireless

Sierra Wireless (NASDAQ: SWIR - TSX: SW) products connect people and machines
to wireless networks around the world. We offer an advanced, comprehensive
product line, addressing consumer, enterprise, original equipment manufacturer
and specialized vertical industry markets. We also offer a wide range of
professional and operated services. Our solutions are used for mobile
computing, transportation, industrial M2M (machine-to-machine), enterprise,
residential and consumer communications applications. For more information
about Sierra Wireless, visit www.sierrawireless.com.
"AirCard" is a registered trademark 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 Retained Earnings (Deficit)
(Expressed in thousands of United States ("U.S.") dollars,
except per share amounts)
(Prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP"))
(Unaudited)

Three months ended Six months ended
------------------ ----------------
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Revenue...................... $ 135,348 $ 155,698 $ 246,755 $ 297,647
Cost of goods sold........... 88,222 112,490 168,919 215,104
--------- --------- --------- ---------
Gross margin................. 47,126 43,208 77,836 82,543
--------- --------- --------- ---------

Expenses:
Sales and marketing........ 15,035 7,928 24,009 15,763
Research and development... 22,923 14,063 37,937 27,832
Administration............. 9,769 5,601 15,843 10,685
Acquisition costs.......... 804 - 7,326 -
Restructuring.............. 8,869 - 10,595 -
Integration................ 936 - 1,190 -
Amortization............... 5,001 1,212 7,421 2,493
--------- --------- --------- ---------
63,337 28,804 104,321 56,773
--------- --------- --------- ---------
Earnings (loss) from
operations.................. (16,211) 14,404 (26,485) 25,770

Foreign exchange gain
(loss)...................... 10,957 (55) 1,034 570
Other income (expense)....... (10) 1,324 (4,032) 3,158
--------- --------- --------- ---------
Earnings (loss) before
income taxes................ (5,264) 15,673 (29,483) 29,498
Income tax expense........... 1,229 4,702 962 8,850
--------- --------- --------- ---------
Net earnings (loss) before
non-controlling interest.... (6,493) 10,971 (30,445) 20,648
Net loss attributable to the
non-controlling interest.... (622) - (909) -
--------- --------- --------- ---------
Net earnings (loss).......... (5,871) 10,971 (29,536) 20,648
Retained earnings (deficit),
beginning of period......... (2,392) (30,925) 21,273 (40,602)
--------- --------- --------- ---------
Deficit, end of period....... $ (8,263) $ (19,954) $ (8,263) $ (19,954)
--------- --------- --------- ---------
--------- --------- --------- ---------

Earnings (loss) per share:
Basic...................... $ (0.19) $ 0.35 $ (0.95) $ 0.66
Diluted.................... $ (0.19) $ 0.35 $ (0.95) $ 0.66
--------- --------- --------- ---------
--------- --------- --------- ---------

Weighted average number of
shares (in thousands):
Basic...................... 31,032 31,371 31,032 31,356
Diluted.................... 31,032 31,512 31,032 31,469
--------- --------- --------- ---------
--------- --------- --------- ---------

SIERRA WIRELESS, INC.

Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars)
(Prepared in accordance with U.S. GAAP)

June 30, December 31,
-------- ------------
2009 2008
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents...................... $ 112,983 $ 63,258
Restricted cash................................ - 191,473
Short-term investments......................... 18,485 18,003
Accounts receivable............................ 73,036 67,058
Inventories.................................... 27,346 33,031
Deferred income taxes.......................... 5,383 5,565
Prepaid expenses............................... 17,307 6,233
--------- ---------
254,540 384,621

Fixed assets................................... 36,263 22,935
Intangible assets.............................. 73,165 15,291
Goodwill....................................... 103,835 33,013
Deferred income taxes.......................... 2,074 2,296
Other.......................................... 7,401 4,230
--------- ---------
$ 477,278 $ 462,386
--------- ---------
--------- ---------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................... $ 54,749 $ 38,631
Accrued liabilities............................ 54,730 47,568
Deferred revenue and credits................... 1,670 683
Current portion of long-term obligations....... 533 193
Current portion of obligations under
capital leases................................ 361 -
--------- ---------
112,043 87,075

Long-term obligations............................ 1,424 316
Obligations under capital leases................. 317 -
Other long-term liabilities...................... 34,640 14,789
Deferred income taxes............................ 2,354 2,758

Shareholders' equity:
Share capital.................................. 325,893 325,893
Treasury shares, at cost....................... (2,852) (1,487)
Additional paid-in capital..................... 13,804 12,518
Retained earnings (deficit).................... (8,263) 21,273
Accumulated other comprehensive loss........... (2,082) (749)
--------- ---------
326,500 357,448
--------- ---------
$ 477,278 $ 462,386
--------- ---------
--------- ---------

SIERRA WIRELESS, INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(Prepared in accordance with U.S. GAAP)
(Unaudited)

Three months ended Six months ended
------------------ ----------------
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Cash flows from operating
activities:
Net earnings (loss) for
the period................ $ (6,493) $ 10,971 $ (30,445) $ 20,648
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operating activities
Amortization............. 11,620 4,028 18,366 7,799
Stock-based
compensation............ 2,631 1,657 4,734 3,295
Deferred income taxes.... 5 (54) - (170)
Loss (gain) on disposal.. (50) (2) (49) 73
Unrealized foreign exchange
(gain) loss on
restricted cash......... (66) - 15,653 -
Unrealized foreign
exchange loss on
term loan............... - - 1,215 -
Changes in operating assets
and liabilities
Accounts receivable...... 15,317 2,434 34,175 (16,311)
Inventories.............. 12,287 3,215 12,804 (1,924)
Prepaid expenses and
other assets............ (6,293) 2,115 (17) 2,967
Accounts payable......... (8,437) (11,867) (17,517) 5,535
Accrued liabilities...... (1,863) 2,124 (10,102) 9,354
Deferred revenue and
credits................. (204) (15) 91 (171)
--------- --------- --------- ---------
Net cash provided by
operating activities...... 18,454 14,606 28,908 31,095

Cash flows from investing
activities:
Business acquisition,
net of cash acquired
of $139,785............. (19,575) (35) (26,493) (35)
Acquisition of OCEANE
convertible bonds....... - - (104,767) -
Decrease in restricted
cash.................... 29,543 - 175,820 -
Proceeds on disposal..... 96 2 96 2
Purchase of fixed
assets.................. (4,343) (5,110) (6,819) (10,019)
Increase in intangible
assets.................. (453) (595) (1,480) (884)
Purchase of short-term
investments............. (2,497) (38,024) (24,447) (75,596)
Proceeds on maturity of
short-term investments.. 23,591 69,723 24,060 115,920
--------- --------- --------- ---------
Net cash provided by
investing activities...... 26,362 25,961 35,970 29,388

Cash flows from financing
activities:
Proceeds on issuance
of term loan............ - - 102,716 -
Repayment of term loan... - - (103,931) -
Financing costs.......... 7 - (3,914) -
Issuance of common
shares, net of share
issue costs............. - 607 - 684
Purchase of treasury
shares for RSU
distribution............ - (1,011) (2,518) (1,011)
Proceeds on exercise
of Wavecom options...... - - 4,148 -
Repayment of long-term
liabilities............. (34) (46) (566) (139)
--------- --------- --------- ---------
Net cash used in financing
activities................ (27) (450) (4,065) (466)

Effect of foreign exchange
changes on cash and cash
equivalents................. (7,847) - (11,088) -
--------- --------- --------- ---------

Net increase in cash and
cash equivalents............ 36,942 40,117 49,725 60,017
Cash and cash equivalents,
beginning of period......... 76,041 103,524 63,258 83,624
--------- --------- --------- ---------
Cash and cash equivalents,
end of period............... $ 112,983 $ 143,641 $ 112,983 $ 143,641
--------- --------- --------- ---------
--------- --------- --------- ---------

SOURCE Sierra Wireless, Inc.

Sierra Wireless, Inc., David G. McLennan, Chief Financial Officer, (604)
231-1181, Website: www.sierrawireless.com, Email: investor@sierrawireless.com