Sierra Wireless Inc

Sierra Wireless Inc (TSX: SW) is a leading wireless communication equipment designer and Device-To-Cloud Internet-of-Things solutions provider. The company's product and services portfolio contain high-speed cellular modules and services such as connectivity services, cloud platforms, etc.

Key Highlights

• Guidance for Q1 2021: The company expects its revenue to be around USD 109.9 million as it witnesses strong demand for its products and services. Moreover, the group also secured hardware orders and recurring revenue of approximately 15% above Street Consensus for Q1 2021. These guided numbers are excellent, keeping in view the current economic conditions. 

• A rising trend in revenue: The company shows spirited performance as it continued to improve in Q4 2020 with 6.3% sequential revenue growth to USD 120.5 million and overall gross margins improving to 36%. The rising trend of revenue reflects that the business transformation is proceeding well.

Source: Company

• Increase in cash and cash equivalents: Cash and cash equivalents at the end of Q4 2020 stood at USD 171.4 million, increased by USD 99.4 million, compared to USD 72.0 million in Q3 2020. The increase in cash was mainly due to net proceeds from its Automotive Business's sale, partially offset by repayment of short-term borrowings and long-term debt, and M2M New Zealand acquisition.

Source: Company

Financial overview of Q4 2020 (In thousands of USD)

Source: Company

• In Q4 2020, the company reported revenue of USD 120.4 million, compared to USD 125.1 million in the previous corresponding period. Although on a sequential basis, the company has shown healthy performance.
• The gross margin stood at 36.0% in Q4 2020 as compared to 35.8% in pcp. The modest increase was driven by product and customer mix changes in its Embedded Broadband and IoT Solutions segment.
• The company posted a higher loss from operations at USD 22.3 million in the reported quarter compared to the loss of USD 17.1 million in pcp. The higher operating loss was primarily due to higher cumulative operational expenses.
• The company managed to report a net income of USD 0.9 million, against a loss of USD 10.9 million in Q4 2019, primarily due to net earnings from discontinued operations. 

Risks associated with investment

The current economic downturn impacted the company's operating segments adversely through lower automotive revenue and weak demand for its hardware products. Any further shutdown could result in material and adverse effects on the Company's ability to conduct business. Other risks such as currency fluctuations, technology risks, regulatory risks are also present. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company is presently working on developing Fifth Generation (5G) cellular embedded modules launched in Europe in Q4 2020. Moreover, they will strengthen its focus on device-to-cloud IoT solutions, driving high-value recurring revenue and would invest in 5G embedded modules and routers, which would lead to improved business prospects. The management expects revenue to be around USD 109.9 million as they witness strong demand for its products and services in Q1 2021. The group also secured hardware orders and recurring revenue of approximately 15% above Street Consensus for Q1 2021. We believe these guided numbers are exceptional, keeping in view the current economic conditions. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 18.49 on March 31, 2021. Digi International Inc, etc. as the peer group for comparison.

1-Year Price Chart (as on March 31, 2021). Source: Refinitiv (Thomson Reuters)

Tecsys Inc

Tecsys Inc (TSX: TCS) is a Canada-based company engaged in the development, marketing and sale of enterprise-wide supply chain management software for distribution, warehousing, transportation logistics and point-of-use. The Company also provides related consulting, education and support services. 

Key highlights

• The eighth consecutive quarter of record revenue: The company has continuously shown spirited performance as it witnessed the eight successive quarters of record revenue. In Q3 2021, the group saw a healthy performance from all the segments where SaaS revenue increased by 89% to CAD 4.7 million, while cloud, maintenance and subscription revenue increased 26% to CAD 13.4 million.

Source: Company

• Robust Annual Recurring Revenue (ARR): Despite the turmoiled period in 2020, the Company maintained its pace and witnessed a spirited performance in ARR. The Company is continuously working closely with customers; thus, its presence is increasing along volume, which is appreciable. 

Source: Company

• SaaS segment bookings fueling recurring revenues: The company witnessed higher revenue from Cloud, maintenance and subscriptions, which increased to CAD 13.4 million, up CAD 2.8 million or 26%, in Q3 2021 in comparison to CAD 10.6 million in the previous corresponding period. SaaS primarily drove the increase. The increase in SaaS revenue was driven by new bookings in recent quarters and benefited from transaction volume-based SaaS fees. SaaS revenue in Q3 2021 was CAD 4.7 million, up 89% or over CAD 2.2 million compared to the previous corresponding period.  

Source: Company

• Strong & growing backlog: The company recorded a strong momentum as its backlog increased, primarily driven by SaaS success. On January 31, 2021, the contracted SaaS backlog was CAD 57.6 million, up 11% from CAD 52.0 million on April 30, 2020, and the Professional Services backlog increased to CAD 37.8 million from the previous year end.    

Source: Company

Financial overview of Q3 2021 (in thousands of CAD)

Source: Company 

• In Q3 2021, the company posted higher consolidated revenue of CAD 31.9 million, compared to CAD 26.8 million in the previous corresponding period. Healthy performance from all the segments helped the company to achieve a higher mark, partially offset by revenue from proprietary products.
• Gross profit increased to CAD 15.4 million, up 20%, against CAD 12.8 million in Q3 2020.
• The company posted a profit from operations of CAD 2.6 million in the reported quarter, against CAD 1.3 million in pcp, partially offset by higher G&A expenses and higher R&D expenses.
• In Q3 2021, the company reported a net profit of CAD 1.8 million, against CAD 0.8 million in pcp, primarily due to higher revenue, partially offset by higher income tax expenses.  

Risks associated with investment 

The company earns a significant portion of revenue from a subscription base. If the customers decide to discontinue their subscription or the company fails to attract more healthy customers, it might affect the group’s financial performance. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The performance in the third quarter of fiscal 2021 continues to reflect momentum in the market for Tecsys solutions. This is the company's eighth straight quarter of reporting record revenue; moreover, they expect its SaaS revenue to continue its growth trend through expansion and migrations of their base customers and new customer wins. The second major COVID wave delayed some deals resulting in a significant new business pipeline for the last quarter of fiscal 2021. Furthermore, the company is delighted to sign six new accounts in the quarter, three of which were significant accounts that signed small initial orders with considerable growth to come is a key positive statement. Therefore, based on the above rationale and valuation, we suggest a "Hold" recommendation at the closing price of CAD 42.24 as of March 31,2021. We have considered Kinaxis Inc, Absolute Software Corp, Baylin Technologies Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 31, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.