RBC Dominion Securities Inc.

EQUITY RESEARCH
Paul Treiber, CFA (Analyst)
(416) 842-7811, paul.treiber@rbccm.com
Boyang Li, CFA (Associate)
(416) 842-8130, boyang.li@rbccm.com
John Shuter, CFA (Associate)
(416) 842-9980, john.shuter@rbccm.com

November 9, 2021

Sierra Wireless, Inc. Sector Perform

NASDAQ: SWIR; USD 16.05; TSX: SW
Normalizing following manufacturing disruptions Price Target USD 20.00
Our view: The financial impact from COVID-related disruptions to
WHAT'S INSIDE
Sierra’s manufacturing disclosed in August were largely in line with our
expectations. Similarly, the company anticipates a rebound Q4, which also ☐ Rating/Risk Change ☐ Price Target Change
matches what we anticipated. Amidst a robust demand, though supply ☐ In-Depth Report ☑ Est. Change
constrained, environment, we anticipate Sierra to return to its previous ☐ Preview ☑ News Analysis
trajectory over the coming quarters. Maintain Sector Perform, price target
unchanged at $20. Scenario Analysis*
Downside Current Price Upside
Key points: Scenario Price Target Scenario

• Q3 sees material disruptions, though revenue largely in line with 12.00 16.05 20.00 27.00
expectations. Q3 revenue dropped 38% Q/Q to $83MM (-27% Y/Y), 25% 25% 68%
which was in line with RBC at $83MM (consensus at $78MM). As a result *Implied Total Returns
of the decrease in revenue, adj. EBITDA was -$15MM, compared to RBC Key Statistics
at -$9MM and consensus at -$20MM. Adj. EPS of -$0.56 similarly falls Shares O/S (MM): 37.2 Market Cap (MM): 597
Dividend: 0.00 Yield: 0.0%
between RBC at -$0.41 and consensus at -$0.70. Avg. Daily Volume: 135,400
• Guidance suggests normalization. Sierra anticipates that its
manufacturing capacity is likely to improve Q4. As such, Sierra reinstated RBC Estimates
quarterly revenue guidance and anticipates Q4 revenue to return to FY Dec 2020A 2021E 2022E 2023E
Revenue 535.5 450.9 533.0 596.3
$120-135MM; the high-end of the guidance range is slightly above the
Prev. 452.7 532.8
$120-130MM range suggested in our preview and the mid-point is ahead EBITDA (24.3) (14.9) 24.9 38.3
of consensus at $122MM. Notably, Q4 guidance also brackets consensus Prev. (3.3) 28.5
estimates from August (prior to Q2) at $132MM, which implies the vast EV/EBITDA NM NM 20.9x 13.6x
majority of the disruption on Sierra’s manufacturing has dissipated. Prev. 19.6x
• Moving from production to supply constrained. Following the COVID- EPS, Ops Diluted (1.22) (0.92) 0.15 0.49
related disruption at its manufacturing plant in Vietnam, Sierra Prev. (0.68) 0.24
P/E NM NM NM 32.8x
commenced manufacturing at two new facilities (China, Mexico) during
Q4. The company is ramping production at its facilities and is consuming Revenue Q1 Q2 Q3 Q4
2020 157.6A 144.1A 113.4A 120.5A
accumulated component inventory. Management anticipates it will be
2021 108.1A 132.8A 82.5A 127.6E
again component constrained by the end of Q4 and through FY22. Prev. 83.2E 128.6E
Sierra is seeing significant demand and has record backlog Q3, though 2022 118.6E 134.0E 138.5E 141.9E
component constraints may limit the rate of growth in FY22. Our Prev. 119.5E 133.1E 137.0E 143.1E
EPS, Ops Diluted
FY22e revenue estimates are largely unchanged, though we see growth
2020 (0.40)A (0.30)A (0.32)A (0.19)A
continuing through FY23e (anticipate FY23e revenue up 12% Y/Y). 2021 (0.26)A (0.03)A (0.56)A (0.08)E
• Leaner structure. Sierra made several management changes to reduce Prev. (0.41)E 0.03E
costs and improve execution. While Sierra also recognized an $11.5MM 2022 (0.04)E 0.04E 0.09E 0.06E
Prev. (0.02)E 0.07E 0.11E 0.07E
impairment charge on its Maingate (Services) acquisition, we do not Strategic Ownership: Management & Directors (2.5%)
believe the company will de-emphasize its services business. We All values in USD unless otherwise noted.
Priced as of prior trading day's market close, EST (unless otherwise noted).
anticipate Services growth to rebound over the next several quarters
(growth slowed to 18% Y/Y from 25% Q2). Moreover, we are forecasting
improved profitability following restructuring. We anticipate EBITDA
margin improvement from -7.8% in FY21e to +1.3% in FY22e and +3.4%
in FY23e.
• Maintain Sector Perform. Sierra is trading at 1.0x FTM EV/S, towards
the high-end of its 5-year range (0.2-1.4x) and below peers at 1.5x.
We believe further upwards re-rating in Sierra’s valuation is dependent
on sustainable growth and improved profitability, along with reduced
quarterly execution challenges.

Disseminated: Nov 9, 2021 23:47EST; Produced: Nov 9, 2021 23:47EST

For Required Non-U.S. Analyst and Conflicts Disclosures, see page 10
 Sierra Wireless, Inc.

Normalizing following manufacturing disruptions

The financial impact from COVID-related disruptions to Sierra’s manufacturing disclosed in
August were largely in line with our expectations. Similarly, the company anticipates a rebound
Q4, which also matches what we anticipated. Amidst a robust demand, though supply
constrained, environment, we anticipate Sierra to return to its previous trajectory over the
coming quarters. Maintain Sector Perform, price target unchanged at $20.

Q3/FY21 results
Q3 sees material disruptions, though revenue largely in line with expectations. Q3 revenue
dropped 38% Q/Q to $83MM (-27% Y/Y), which was in line with RBC at $83MM (consensus at
$78MM). The decrease was due to production challenges at its Vietnam facility, which were
an estimated $50MM headwind to revenue. As a result of the decrease in revenue, adj. EBITDA
was -$15MM, compared to RBC at -$9MM and consensus at -$20MM. Adj. EPS of -$0.56
similarly falls between RBC at -$0.41 and consensus at -$0.70.

GAAP EPS was -$1.03 after an $11.5MM impairment charge, $1.8MM stock-based
compensation, $1.1MM in incremental costs related to factory constraints, and $2.8MM
acquisition-related amortization.

Exhibit 1 - Q3 revenue largely in line with expectations

Q3/FY21e
US$ mm except EPS Q3/FY21a RBC Consensus Q3/FY20 Y/Y % Q2/FY21 Q/Q %
REVENUE:
Product $47.2 $47.5 $83.6 -44% $97.6 -52%
Software and Services $35.2 $35.8 $29.8 18% $35.2 0%
Total Revenue $82.5 $83.2 $77.8 $113.4 -27% $132.8 -38%
Organic growth (Y/Y) -27% -27% -20% 19%

Gross Profit $24.1 $32.8 $21.0 $39.5 -39% $46.2 -48%

Gross Margin 29.3% 39.4% 27.0% 34.8% 34.8%
Adj. EBITDA ($15.0) ($9.3) ($19.9) ($7.1) N/A $4.3 -445%
Adj. EBITDA Margin -18.1% -11.2% -25.6% -6.3% 3.3%
Adj. EBIT ($20.8) ($13.7) ($5.9) N/A ($0.8) N/A
Adj. EBIT Margin -25.2% -16.5% -5.2% -0.6%
Adj. EPS1 ($0.56) ($0.41) ($0.70) ($0.32) N/A ($0.03) N/A
GAAP EPS ($1.03) ($0.48) ($0.88) ($0.33) N/A ($0.27) N/A
1) Adj. EPS excludes stock based compensation, acquisition-related amortization, and other unusuals.
Source: RBC Capital Markets estimates; Refinitiv; company reports

Production challenges weigh on Q3 revenue. Product revenue fell 52% Q/Q to $47MM Q3, in
line with our estimate for $47MM, due to production disruptions in Vietnam (previously
estimated $50MM revenue headwind). We note that demand is not perishable and
management anticipates capturing the majority of lost production in subsequent quarters,
though component supply tightness remains an issue. Software and Services revenue was
$35MM (+18% Y/Y), slowing from 25% Q3 and slightly below our forecast for $36MM. While
Sierra also recognized an $11.5MM impairment charge on its Maingate (Services) acquisition,
we do not believe the company will de-emphasize its services business, and expect growth in
the segment to rebound over the coming quarters as new deployments ramp.

Guidance suggests normalization. Ongoing supply chain constraints and the sustained
uncertainty regarding COVID-19 limits Sierra’s visibility. However, the company anticipates
that its manufacturing capacity is likely to improve Q4. As such, the company reinstated

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 2

 Sierra Wireless, Inc.

quarterly revenue guidance, though with a wider range than historical. Sierra anticipates Q4
revenue to return to $120-135MM; the high-end of the guidance range is slightly above the
$120-130MM range suggested in our preview and the mid-point is ahead of consensus at
$122MM. Notably, Q4 guidance also brackets consensus estimates from August (prior to Q2)
at $132MM, which implies the vast majority of the disruption on Sierra’s manufacturing has
dissipated.

Exhibit 2 - Product revenue fell 52% Q/Q to $47MM Q3

Source: RBC Capital Markets; Company Reports

Moving from production to supply constrained. Following the COVID-related disruption at its
manufacturing plant in Vietnam, Sierra commenced manufacturing at two new facilities
(China, Mexico) during Q4. The company is ramping production at its facilities and is
consuming accumulated component inventory ($71MM total inventory Q3, up from $47MM
Q2). Sierra is seeing significant demand and has record backlog Q3, though supply tightness
may limit the rate of growth in FY22, as management anticipates it will be again component
constrained by the end of Q4 and through FY22. That being said, the expanded geographic
footprint is likely to improve the resiliency of Sierra’s supply chain and help mitigate global
supply challenges (e.g. shipping constraints) in the future.

Adj. EBITDA falls to -$15MM Q3. Sierra’s adj. EBITDA fell to -$15MM Q3, down from $4MM
Q2 and below our estimate for -$9MM. On negative operating leverage, gross margins fell
550bps Q/Q to 29.3%, as fixed production costs at its 3 facilities were absorbed across lower
volumes. Through disciplined cost management, total non-GAAP opex declined 6% Y/Y to
$44MM Q3, below our estimate for $46MM, as management contained sales and marketing
expenses. Moreover, Sierra announced several management changes to reduce costs and
improve execution. We expect margins to recover in the coming quarters, as Sierra scales
production at facilities, executes on price increases, and further reduces opex.

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 3

 Sierra Wireless, Inc.

Exhibit 3 - Adj. EBITDA fell to -$15MM Q3 from +$4MM Q2

Q3/FY21e
US$ mm except per share items Q3/FY21a RBC Q3/FY20 Y/Y % Q2/FY21 Q/Q %
Gross Profit $24.1 $32.8 $39.5 -39% $46.2 -48%
Gross Margin 29.3% 39.4% 34.8% 34.8%

Operating Expenses:
Sales & Marketing $18.6 $21.2 $20.1 -7% $21.4 -13%
% of Revenue 23% 26% 18% 16%
Research & Development $16.2 $16.9 $17.7 -8% $16.9 -4%
% of Revenue 20% 20% 16% 13%
General & Administrative $10.4 $11.0 $11.2 -7% $11.0 -6%
% of Revenue 13% 13% 10% 8%
Total Operating Expense (GAAP) $45.2 $49.1 $49.0 -8% $49.4 -8%
% of Revenue 54.8% 59.0% 43.2% 37.2%
Total Operating Expense (Non-GAAP) $43.5 $45.7 $51.0 -15% $46.3 -6%
% of Revenue 52.8% 54.9% 45.0% 34.8%

Adj. EBITDA ($15.0) ($9.3) ($7.1) n/a $4.3 -445%

Adj. EBITDA margin -18.1% -11.2% -6.3% 3.3%
Source: RBC Capital Markets estimates; Company Reports

Free cashflow falls to -$52MM Q3 from +$11MM Q2. Operating cashflow fell to -$48MM Q3
from +$15MM Q2, largely in line with our estimate for -$53MM, as inventory investments
ahead of Q4 were a drain on cash. After $3.2MM capex, free cashflow was -$52MM (RBC at -
$56MM). Sierra’s net cash fell 41% Q/Q to $50MM ($1.35/share) Q3 from $102MM
($2.75/share) Q2, including the issuance of $9.9MM in long-term debt. Management expects
to recover these inventory investments over the coming quarters, beginning in Q4.

Exhibit 4 - Free cashflow falls to -$52MM Q3 from +$11MM Q2

Q3/FY21e
US$ mm except per share items Q3/FY21a RBC Q3/FY20 Y/Y % Q2/FY21 Q/Q %
Cashflow:
Net Income ($37.9) ($17.7) ($12.0) n/a ($10.0) n/a
Depreciation & Amortization $7.2 $7.3 $8.3 -13% $7.3 -1%
Other Items $13.7 $4.1 $1.6 760% $3.2 333%
Changes in Working Capital ($31.4) ($46.9) ($5.5) n/a $14.8 -313%
Operating Cashflow ($48.4) ($53.3) ($7.7) n/a $15.3 -418%
Less: Capex ($3.2) ($3.0) ($2.4) n/a ($4.0) n/a
Free Cashflow ($51.6) ($56.3) ($10.1) n/a $11.3 -558%
Capital Deployed on Acquisitions - - - n/a $0.3 -100%

Cash / Debt Positions:

Cash & Equivalents $75.5 $62.2 $66.5 14% $118.5 -36%
Borrowings 1 $25.4 $16.6 $45.3 -44% $16.6 53%
Net Cash (Debt) $50.2 $45.6 $21.2 136% $101.9 -51%
Net Cash / Share $1.35 $1.23 $0.58 132% $2.75 -51%
1: Includes operating lease obligations.
Source: RBC Capital Markets estimates; Company Reports

Adjusting estimates
We are adjusting our estimates to reflect Q3 results, Q4 guidance and management’s
commentary on the current supply chain environment. Our revenue estimates for FY21e and
FY22e are largely unchanged. On lower operating leverage, we are lowering our FY21e and
FY22e adj. EBITDA estimates to -$15MM and +$25MM adj. EBITDA, from -$3MM and

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 4

 Sierra Wireless, Inc.

+$29MM, respectively. As a result, our adj. EPS estimates fall to -$0.92 FY21e (-$0.68 prior)
and $0.15 FY22e ($0.24 prior). Additionally, we are introducing our FY23 estimates for
$596MM revenue, $38MM adj. EBITDA, and $0.49 adj. EPS.

Exhibit 5 - Changes to financial estimates

FY21e FY22e FY23e
US$ (mm) except EPS Current Prior Current Prior New
Total Revenue $450.9 $452.7 $533.0 $532.8 $596.3
Y/Y Growth (%) -16% -15% 18% 18% 12%

Gross Profit $147.7 $162.8 $181.9 $191.0 $203.5

Gross Margin (%) 32.8% 36.0% 34.1% 35.8% 34.1%
Adj. EBITDA ($14.9) ($3.3) $24.9 $28.5 $38.3
Adj. EBITDA Margin -3.3% -0.7% 4.7% 5.4% 6.4%
Adj. EBIT -$35.1 -$22.1 $6.9 $10.5 $20.3
Adj. EBIT Margin -7.8% -4.9% 1.3% 2.0% 3.4%
Adj. EPS1 ($0.92) ($0.68) $0.15 $0.24 $0.49
1) Adj. EPS excludes stock based compensation, acquisition-related amortization, and other unusuals.
Source: RBC Capital Markets estimates; Refinitiv

Maintain Sector Perform, price target at $20.00

Maintain Sector Perform. While Sierra has a large growth opportunity, there is less certainty
regarding the long-term pricing and profitability of M2M modules and the competitive
environment remains challenging. Sierra is trading at 1.0x FTM EV/S, towards the high-end of
its 5-year range (0.2-1.4x) and below peers at 1.5x. We believe further upwards re-rating in
Sierra’s valuation is dependent on sustainable growth and improved profitability, along with
reduced quarterly execution challenges.

$20.00 price target unchanged. We are rolling forward the basis of our price target from CY22e
to CY23e. Our $20.00 price target reflects our revised estimates and is based on 1.1x CY23e
EV/S (1.1x CY22e EV/S previously), justified below peers (1.5x), given Sierra’s higher mix of
hardware revenue, lower profitability, and low visibility to total revenue growth.

Exhibit 6 - Sierra is trading above the mid-point of its 10-year historical EV/S multiple range

Source: RBC Capital Markets estimates; Refinitiv

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 5

 Sierra Wireless, Inc.

Exhibit 7 - Sierra’s EV/S valuation is below M2M peers

Price Market EV Price/Earnings EV/EBITDA EV/Sales Growth (FTM)
Company Ticker 09-Nov-21 Cap. (MM) (MM) FTM CY22e FTM CY22e FTM CY22e EPS EBITDA Rev.

Sierra Wireless Inc SWIR.O $16.05 $597 $521 N/A N/A 30.8x 20.9x 1.0x 1.0x N/A -195% 17%

M2M:
U Blox Holding AG UBXN.S CHF68.45 CHF478 CHF488 20.0x 19.0x 6.5x 6.4x 1.1x 1.1x N/A 113% 21%
CalAmp Corp CAMP.O $10.36 $364 $452 22.8x 18.7x 11.3x 9.8x 1.3x 1.3x N/A -21% 12%
Digi International Inc DGII.O $22.68 $797 $696 42.2x N/A 14.4x N/A 2.2x 2.1x 68% 39% 6%
M2M Average 28.3x 18.9x 10.7x 8.1x 1.5x 1.5x 68% 43% 13%
Note: Estimates for Sierra W ireless are RBC CM estimates; all other estimates are consensus.

Source: RBC Capital Markets estimates; Refinitiv; company reports

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 6

 Sierra Wireless, Inc.

Sierra Wireless – Financial Estimates

Sierra Wireless Inc. 2021e 2022e 2023e Years Ended Dec 31 2020 -
Financial Estimates Q1 Q2 Q3 Q4e Q1e Q2e Q3e Q4e Q1e Q2e Q3e Q4e 2020 2021e 2022e 2023e 2023e CAGR
US$ 000's except per share figures Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23

Total Revenue 108.1 132.8 82.5 127.6 118.6 134.0 138.5 141.9 132.8 149.8 154.8 158.9 535.5 450.9 533.0 596.3 3.7%
Y/Y % -31.4% -7.8% -27.3% 5.9% 9.8% 0.9% 67.9% 11.2% 12.0% 11.8% 11.8% 12.0% -25.0% -15.8% 18.2% 11.9%
Q/Q% -10.3% 22.9% -37.9% 54.7% -7.0% 12.9% 3.4% 2.5% -6.4% 12.7% 3.4% 2.6%

Cost of Revenue 70.3 86.6 58.3 87.9 78.1 88.2 91.2 93.5 87.5 98.6 102.0 104.7 363.2 303.1 351.1 392.8
Gross Profit 37.7 46.2 24.1 39.6 40.5 45.7 47.3 48.4 45.3 51.1 52.8 54.2 172.3 147.7 181.9 203.5
Gross margin 34.9% 34.8% 29.3% 31.1% 34.1% 34.1% 34.1% 34.1% 34.1% 34.1% 34.1% 34.1% 32.2% 32.8% 34.1% 34.1%
Total operating expenses 46.3 46.3 43.5 42.6 39.7 42.2 41.8 42.7 41.4 43.5 43.2 44.1 214.0 178.7 166.3 172.1 -7.0%
Adj. EBITDA -4.4 4.3 -15.0 0.2 3.1 5.9 7.8 8.1 5.7 9.4 11.4 11.9 -24.3 -14.9 24.9 38.3 N/A
Adj. EBITDA margin -4.1% 3.3% -18.1% 0.1% 2.6% 4.4% 5.6% 5.7% 4.3% 6.3% 7.4% 7.5% -4.5% -3.3% 4.7% 6.4%
Depreciation & amortization 4.2 4.4 4.4 4.4 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 17.5 17.4 18.0 18.0
Adj. EBIT -9.2 -0.8 -20.8 -4.2 -1.4 1.4 3.3 3.6 1.2 4.9 6.9 7.4 -37.5 -35.1 6.9 20.3 N/A
Adj. EBIT margin -8.5% -0.6% -25.2% -3.3% -1.2% 1.0% 2.4% 2.5% 0.9% 3.3% 4.5% 4.6% -7.0% -7.8% 1.3% 3.4%
Other -18.7 -8.6 -19.5 -7.1 -7.1 -7.2 -7.0 -7.3 -7.3 -7.6 -7.3 -7.6 -35.9 -54.0 -28.7 -29.8
Income (loss) before taxes -28.0 -9.4 -40.3 -11.3 -8.5 -5.8 -3.8 -3.7 -6.2 -2.8 -0.4 -0.2 -73.5 -89.1 -21.8 -9.5
Taxes 0.6 0.6 -1.9 -1.7 -1.3 -0.9 -0.6 -0.6 -0.9 -0.4 -0.1 -0.0 -9.6 -2.5 -3.3 -1.4
Effective tax rate -2.0% -6.4% 4.7% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 13.0% 2.8% 15.0% 15.0%

GAAP Net Income -28.5 -10.0 -38.4 -9.6 -7.2 -4.9 -3.2 -3.2 -5.3 -2.4 -0.3 -0.2 -63.9 -86.6 -18.5 -8.1
Net margin % -26.4% -7.6% -46.6% -7.6% -6.1% -3.7% -2.3% -2.2% -4.0% -1.6% -0.2% -0.1% -11.9% -19.2% -3.5% -1.4%
Adj. Net Income -9.6 -1.1 -20.7 -2.8 -1.6 1.4 3.5 2.3 1.1 5.2 7.4 4.7 -44.3 -34.2 5.5 18.4 N/A
Adj. net margin % -8.9% -0.8% -25.1% -2.2% -1.4% 1.1% 2.5% 1.6% 0.8% 3.5% 4.8% 2.9% -8.3% -7.6% 1.0% 3.1%

GAAP EPS ($0.78) ($0.27) ($1.03) ($0.26) ($0.19) ($0.13) ($0.09) ($0.08) ($0.14) ($0.06) ($0.01) ($0.00) ($1.76) ($2.34) ($0.49) ($0.22)
Adj. EPS (Operating) ($0.26) ($0.03) ($0.56) ($0.08) ($0.04) $0.04 $0.09 $0.06 $0.03 $0.14 $0.20 $0.12 ($1.22) ($0.92) $0.15 $0.49 N/A
Diluted shares outstanding 36.7 37.0 37.2 37.2 37.3 37.3 37.4 37.4 37.5 37.5 37.6 37.6 36.4 37.0 37.4 37.6

Cash & Cashflow:

Net cash (net debt) 94.6 101.9 50.2 46.1 41.4 47.1 58.9 71.1 64.6 73.3 81.5 90.0 154.4 46.1 71.1 90.0
Net cash (net debt) per share $2.57 $2.75 $1.35 $1.24 $1.11 $1.26 $1.57 $1.90 $1.72 $1.95 $2.17 $2.39 $4.24 $1.24 $1.90 $2.40
Operating cash flow -50.4 15.3 -48.4 -1.1 -1.7 8.7 15.7 16.3 -2.6 12.7 12.2 12.5 -7.8 -84.7 39.0 34.9 N/A
Free cash flow -55.1 11.3 -51.6 -4.1 -4.7 5.7 11.7 12.3 -6.6 8.7 8.2 8.5 -26.7 -99.5 25.0 18.9 N/A
Free cash flow / share ($1.50) $0.31 ($1.39) ($0.11) ($0.13) $0.15 $0.31 $0.33 ($0.17) $0.23 $0.22 $0.23 ($0.73) ($2.69) $0.67 $0.50 N/A

Source: Company reports, RBC Capital Markets estimates

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 7


Key ESG questions
This section is intended to highlight key ESG discussion points relevant to this company, as well as our views on the outlook. Both the questions
we highlight and our responses will evolve over time as the dialogue between management, analysts and investors continues to advance. We
welcome any feedback on the topics.
What are the most material ESG
issues facing this company?
Does the company integrate ESG
considerations into its strategy?
What is diversity like at board /
management level?
What steps has the company taken
to minimize negative impacts on the
environment?
What ESG information does the
company report?
November 9, 2021
Sierra Wireless, Inc.
Our view
Sierra Wireless publishes an ESG materiality matrix and list, outlining important ESG
issues facing the company. Sierra embraces the need of integrating ESG factors into
its business, highlighting People and Planet as being its most material ESG issues.
Sierra Wireless seeks to create a respectful workplace fostering equal opportunity
and diversity, develop and market environmentally friendly products, while reducing
the company’s carbon footprint.
It is evident that Sierra Wireless addresses its ESG issues by prioritizing both People
and Planet. These two areas of emphasis drive Sierra Wireless’ corporate social
responsibility efforts, a commitment we believe will persist going forward.
From our viewpoint, Sierra Wireless does integrates ESG into its strategy. The
company works closely with the Responsible Business Alliance (RBA), which sets
strict industry benchmarks for social responsibility and environmental sustainability
in the electronic supply chain industry. Sierra Wireless demonstrated its diversity
and inclusion commitment by President and CEO Kent Thexton signing the UN
Women’s Empowerment Principles in January 2019, a pledge to promote gender
equality and women's empowerment across all levels within the company.
Additionally, Sierra Wireless believes they are “perfectly positioned” to help drive
the transformation to a more sustainable planet, as evidenced by developing
products used to enhance customer sustainability efforts. The company’s industrial
IoT offerings enable customers to carefully track and control power usage, increasing
efficiency and reducing carbon emissions.
Four of Sierra's twelve board members are women (33%), one of which chairs the
Board. In April 2019, Sierra Wireless published a Board and Senior Management
Diversity and Inclusion Policy. The policy articulates quantifiable diversity and
inclusion targets including a 25% minimum of short-listed women candidates for
senior management positions. We view this policy positively, as it demonstrates a
strong effort to address an ESG issue identified by not only Sierra Wireless, but many
in our coverage universe.
Sierra Wireless has launched a number of initiatives to reduce the negative
effects the company’s operations has on the environment. In 2019, Sierra Wireless
collaborated with a renewable energy company to achieve its goal of carbon offsets
on 100% of the company’s air flights. Moreover, Sierra Wireless has worked with its
contract manufacturers to install LED lighting and quick ‘open/close’ doors to reduce
its carbon footprint. The company has also spearheaded unconventional practices to
make a positive mark on the planet, such as introducing honeybees to its Richmond
headquarters to combat the high mortality rates for bees in North America.
Sierra Wireless began publishing an annual sustainability report in 2017, detailing
ESG priorities, practices, and results. We note this report ranked as one of the most
comprehensive ESG reports in our coverage universe. The company reports along
GRI standards.
Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 8
 Sierra Wireless, Inc.

Target/Upside/Downside Scenarios Investment summary

Sierra Wireless is well positioned to benefit from the
Sierra Wireless, Inc.
coming “Internet of Things” (IoT) and proliferating device
24 125 Weeks 19JUN19 - 09NOV21 connectivity. However, there is less certainty regarding the
22
TARGET 20.00 long-term pricing and profitability of M2M modules and the
20
18 competitive environment remains challenging. We believe
16 CURRENT 16.05
stronger organic growth or greater visibility to higher IoT
14
12 services revenue would be catalysts for the shares.
10
8
6 • The $11B IoT services opportunity. With the move to IoT
4 services, Sierra is addressing a larger total addressable
8m market (TAM) compared to IoT devices. Based on data
6m
4m
2m
from Sierra, the TAM of IoT services is expected to reach
2019 2020 2021
J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N
$11.0B in 2021, which compares to $2.3B for IoT devices.
SWIR US Rel. S&P 500 COMPOSITE MA 40 weeks Emerging LPWA (low-power, wide-area) modules are likely
Source: Bloomberg and RBC Capital Markets estimates for Target to accelerate IoT penetration beyond early adopters.
Valuation Hypothetically, Sierra believes LPWA may increase its annual
Our $20.00 price target equates to 1.1x CY23e EV/S, justified module shipments from 20MM currently to 40MM over the
below peers (at 1.5x), given Sierra’s higher mix of hardware next several years.
revenue, lack of profitability, and low visibility to growth. Our • IoT services offers compelling long-term economics.
price target supports our Sector Perform rating. Sierra's targets call for recurring IoT services to triple from
$130MM Q4/FY20 (annualized) to $400MM in 3 years.
Upside scenario With the mix shifting to recurring IoT services, along with
In this optimistic scenario, we assume reacceleration in operating leverage, Sierra is targeting 14-16% adj. EBITDA
growth as a record number of design wins convert to margins in three years or $168–208MM adj. EBITDA, up
revenue and underlying demand improves. Our outlook calls from -$24MM last year.
for organic growth to improve to 22% FY22e as growth in • Recent disruptions may slow re-rating upwards. Sierra is
IoT begins to accelerate. This scenario suggests a $27.00 trading at 1.0x FTM EV/S, towards the high-end of its 5-year
valuation, based on 1.4x EV/S on $5638MM CY22e sales. range (0.2-1.4x) and compared to peers at 1.5x. We believe
further upwards re-rating in Sierra’s valuation is dependent
Downside scenario on sustainable growth and improved profitability, along with
Under this more pessimistic scenario, we assume softening reduced quarterly execution challenges.
in M2M market growth on new competitive entrants and a
slowdown in new design wins. Our outlook calls for 14% FY22e Risks to rating and price target
organic growth. This scenario suggests a $12.00 valuation, 1) Greater-than-expected decline in M2M module ASPs;
based on 0.6x EV/S on $556MM CY23e sales. 2) larger-than-expected headwinds from new entrants into
the M2M market; 3) slower-than-expected uptake of M2M
modules in key end markets; 4) unexpected acquisition
integration risks; 5) departure of key management personnel;
and 6) a decline in tech market valuations.

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 9

 Sierra Wireless, Inc.

Company description
Sierra Wireless (Nasdaq: SWIR; TSX: SW) is a Vancouver, Canada-based global provider of machine-to-machine (M2M) products.
Sierra offers 2G, 3G, and 4G wireless M2M modules, routers, and gateways, along with software, tools, and services. Founded in
1993, Sierra invented the AirCard mobile broadband modem in 1999. In 2008, Sierra acquired Wavecom to create a global leader
in the M2M market. Since inception, Sierra has shipped more than 100MM wireless modules. Sierra has a stable management
team that has guided the company through its transition toward M2M. In April 2013, Sierra sold its AirCard business to NetGear for
$138M ($100M after-tax). In January 2015, Sierra acquired Wireless Maingate, a provider of M2M connectivity services in Europe,
for $90MM. As an M2M pureplay, Sierra generated more than $600MM in revenue in 2015. In December 2017, Sierra acquired
Numerex, a provider of M2M cloud & connectivity services for $107MM.

Required disclosures
Non-U.S. analyst disclosure
One or more research analysts involved in the preparation of this report (i) may not be registered/qualified as research analysts
with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be
subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities
held by a research analyst account.

Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
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Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
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RBC Capital Markets, LLC makes a market in the securities of Sierra Wireless, Inc..

Explanation of RBC Capital Markets Equity rating system

An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the
analyst's sector average.
Ratings
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
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The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes,
high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility.

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 10

 Sierra Wireless, Inc.

Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories -
Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Outperform (O),
Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are
not the same because our ratings are determined on a relative basis.
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Sep-2021
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Outperform] 800 56.58 341 42.62
HOLD [Sector Perform] 562 39.75 172 30.60
SELL [Underperform] 52 3.68 3 5.77

Rating and price target history for: Sierra Wireless, Inc., SWIR US as of 08-Nov-2021 (in USD)
14-Feb-2019 05-Nov-2019 14-Feb-2020 19-Mar-2020 21-Jul-2020 23-Jul-2020 16-Feb-2021
Rtg:SP Rtg:SP Rtg:SP Rtg:SP Rtg:SP Rtg:SP Rtg:SP
Target: 14.00 Target: 12.00 Target: 11.00 Target: 7.00 Target: 9.00 Target: 13.00 Target: 20.00

25

20

15

10

0
Q3 2019 Q1 Q2 Q3 2020 Q1 Q2 Q3 2021 Q1 Q2 Q3 2022

Legend:
TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; R: Restricted; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage;
NR: Not Rated; NA: Not Available; RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date
a security was removed from a recommended list; Rtg: Rating.
Created by: BlueMatrix

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: ADR (RL 10),
and the Guided Portfolio: All Cap Growth (RL 12). RBC Capital Markets recommended lists include the Strategy Focus List and
the Fundamental Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a
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Equity valuation and risks

For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please
see the most recent company-specific research report at www.rbcinsightresearch.com or send a request to RBC Capital Markets
Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Sierra Wireless, Inc.
Valuation
Our $20.00 price target equates to 1.1x CY23e EV/S, justified below peers (at 1.5x), given Sierra’s higher mix of hardware revenue,
lack of profitability, and low visibility to growth. Our price target supports our Sector Perform rating.

November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 11

 Sierra Wireless, Inc.

Risks to rating and price target

1) Greater-than-expected decline in M2M module ASPs; 2) larger-than-expected headwinds from new entrants into the M2M
market; 3) slower-than-expected uptake of M2M modules in key end markets; 4) unexpected acquisition integration risks; 5)
departure of key management personnel; and 6) a decline in tech market valuations.

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November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 12

 Sierra Wireless, Inc.

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November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 13

 Sierra Wireless, Inc.

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November 9, 2021 Paul Treiber, CFA (416) 842-7811; paul.treiber@rbccm.com 14