Better than expected quarterly results from Sierra Wireless (Sierra Wireless Stock Quote, Chart, News, Analysts, Financials TSX:SW) weren\u2019t enough to move the needle for National Bank Financial analyst Richard Tse, who delivered a report to clients on Wednesday where he retained his \u201cUnderperform\u201d rating for the stock. Internet of Things communications and mobile computing company Sierra Wireless reported fourth quarter and full 2020 earnings on Tuesday, showing Q4 revenue of $120.5 million, down from $125.1 million a year earlier but up 6.3 per cent sequentially and an adjusted EPS loss of $0.19 per share compared to a loss of $0.23 per share for Q4 2019. Adjusted EBITDA for the quarter was a loss of $2.9 million compared to a loss of $3.2 million a year earlier. (All figures in US dollars.) Sierra ended the year with $171.4 million in cash and no debt, having completed the divestiture of its Automotive product line late last year. \u201cOur business transformation is proceeding well as shown by our third consecutive quarter of sequential revenue growth led by our Q4 Recurring and other services revenue of $32.6 million which increased 9.4 per cent sequentially and 25.1 per cent year on year,\u201d said Kent Thexton, president and CEO, in a press release. \u201cWe are winning in the market with our Solutions offering and our Recurring and other services revenue is now at 27.1 per cent of total revenue.\u201d Sierra generated $87.6 million in sales from its IoT Solutions business, down 3.6 per cent year-over-year, with the company chalking up the drop to lower hardware sales in its Enterprise Gateway products and integrated IoT solutions modules. In the company\u2019s other segment, Embedded Broadband, revenue dropped 3.8 per cent to $32.9 million, with the decrease reflecting lower mobile computing and networking sales related to two computing customers, although Sierra said the Q4 would be the last quarter to be thusly impacted. Looking at the numbers, Tse said they were better than expected, with the $120.5-million top line beating out his $116-million estimate as well as the consensus $117 million, while the adjusted EPS loss of $0.19 per share was better than Tse\u2019s projected loss of $0.23 per share and the Street\u2019s loss of $0.26 per share. Tse said Sierra was showing progress on bulking up its recurring revenue, where Q4 recurring and other service revenue was up 9.4 per cent from the Q3 (adjusted for the automotive divestiture), while lower hardware sales continued to be a headwind, now running into six consecutive quarters of year-over-year decline. Embedded Broadband is still challenged, according to Tse, although he said shedding the auto business could eventually lift Sierra\u2019s margin profile and reduce revenue volatility from quarter to quarter. Tse concluded that 2021 could be a challenging year for Sierra. \u201cSierra Wireless reported better than expected Q4 results care of its IoT segment. Looking ahead, Sierra Wireless expects Q1 revenue will be in line with the current consensus estimate of $109.9 million, but below our previous estimate of $114 million,\u201d Tse wrote. \u201cWith respect to the full year, the Company did not provide an outlook given a tight global supply chain environment that\u2019s hindering the ability to source components which creates uncertainty on the full-year outlook,\u201d he said. \u201cIn our view, that uncertainty reflects the risk inherent in the business model even as the Company moves to shift towards more recurring services. In our view, the appreciation in the stock price over the past year has priced in that shift even though it\u2019s very early in a multi-year process which has us recommending investors to take profits.\u201d The analyst is calling for Sierra to generate 2021 revenue and adjusted EBITDA of $477.6 million and $0.1 million, respectively, and 2022 revenue and adjusted EBITDA of $522.8 million and $27.8 million, respectively. With his maintained \u201cUnderperform\u201d rating, Tse left unchanged his $15.00 price target, which at the time of publication represented a projected 12-month return of negative 13.6 per cent. Tse commented on Sierra\u2019s search for a new CEO and president to replace Thexton who is retiring from his position but will remain with the company until June 30. Tse said, \u201cThe company did not provide an update on its search but it\u2019s our view that a CEO transition comes with the potential for a shift in strategy and the associated risk of extending the timeline to executing a value creation strategy.\u201d Sierra\u2019s share price finished 2020 up 49 per cent, while so far in 2021 the stock is up 18 per cent. Sierra said it\u2019s on track to meeting its operating expense reduction targets for this year, where the company\u2019s operating expenses dropped from $261.7 million in 2019 to $245.8 million in 2020. Sierra received government grants under the Canada Emergency Wage Subsidy and other COVID-19-related subsidies of $7.2 million. The company shed 250 employees in 2020, bringing its workforce to 1,050.