Sierra Wireless (SWIR) 40-F 2014 FY Annual report (Canada)

Exhibit 1.3

SIERRA WIRELESS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

For the Fiscal Year Ended December 31, 2014

DATED February 27, 2015

MANAGEMENT’S DISCUSSION AND ANALYSIS

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS	1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	2
OVERVIEW	3
Business Overview	3
Our Strategy	4
Annual Overview - Financial Highlights	5
Outlook	9
Disposition of AirCard Business	10
CONSOLIDATED ANNUAL RESULTS OF OPERATIONS	11
Fiscal Year 2014 compared to Fiscal Year 2013	11
Fiscal Year 2013 compared to Fiscal Year 2012	14
SEGMENTED INFORMATION	16
FOURTH QUARTER OVERVIEW	17
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS	19
LIQUIDITY AND CAPITAL RESOURCES	21
NON-GAAP FINANCIAL MEASURES	23
OFF-BALANCE SHEET ARRANGEMENTS	26
TRANSACTIONS BETWEEN RELATED PARTIES	26
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	26
OUTSTANDING SHARE DATA	30
IMPACT OF ACCOUNTING PRONOUNCEMENTS AFFECTING CURRENT PERIOD	30
IMPACT OF ACCOUNTING PRONOUNCEMENTS AFFECTING FUTURE PERIODS	31
DISCLOSURE CONTROLS AND PROCEDURES	31
INTERNAL CONTROL OVER FINANCIAL REPORTING	32
LEGAL PROCEEDINGS	32
RISKS AND UNCERTAINTIES	34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information for the years ended December 31, 2014, 2013 and 2012 and up to and including February 27, 2015.  This MD&A should be read together with our audited consolidated financial statements and the accompanying notes for the year ended December 31, 2014 (“the consolidated financial statements”).  The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).  Except where otherwise specifically indicated, all amounts in this MD&A are expressed in United States dollars.

We have prepared this MD&A with reference to National Instrument 51-102 “Continuous Disclosure Obligations” of the Canadian Securities Administrators.  Under the U.S./Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with the disclosure requirements of Canada, which requirements are different than those of the United States.

Certain statements in this MD&A constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws.  You should carefully read “Cautionary Note Regarding Forward-looking Statements” in this MD&A and should not place undue reliance on any such forward-looking statements.

Throughout this document, references are made to certain non-GAAP financial measures that are not measures of performance under U.S. GAAP.  Management believes that these non-GAAP financial measures provide useful information to investors regarding the Company’s results of operations as they provide additional measures of its performance and assist in comparisons from one period to another.  These non-GAAP financial measures do not have any standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.  These non-GAAP financial measures are defined and reconciled to their nearest GAAP measure in “Non-GAAP Financial Measures”.

In this MD&A, unless the context otherwise requires, references to "the Company", "Sierra Wireless", "we", "us" and "our" refer to Sierra Wireless, Inc. and its subsidiaries.

Additional information about the Company, including our most recent consolidated financial statements and our Annual Information Form, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

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Cautionary Note Regarding Forward-looking Statements

Certain statements and information in this MD&A are not based on historical facts and constitute forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws (“forward-looking statements”), including our business outlook for the short and longer term and statements regarding our strategy, plans and future operating performance.  Forward-looking statements are provided to help you understand our views of our short and longer term plans, expectations and prospects. We caution you that forward-looking statements may not be appropriate for other purposes. We do not intend to update or revise our forward-looking statements unless we are required to do so by securities laws.  Forward-looking statements:

• Typically include words and phrases about the future such as “outlook”, "will", “may”, “estimates”, “intends”, “believes”, “plans”, “anticipates” and “expects”;

• Are not promises or guarantees of future performance. They represent our current views and may change significantly;

• Are based on a number of material assumptions, including those listed below, which could prove to be significantly incorrect:

▪ Our ability to develop, manufacture and sell new products and services that meet the needs of our customers and gain commercial acceptance;

▪ Our ability to continue to sell our products and services in the expected quantities at the expected prices and expected times;

▪ Expected cost of goods sold;

▪ Expected component supply constraints;

▪ Our ability to “win” new business;

▪ Expected deployment of next generation networks by wireless network operators;

▪ Our operations not being adversely disrupted by component shortages or other development, operating or regulatory risks; and

▪ Expected tax rates and foreign exchange rates;

• Are subject to substantial known and unknown material risks and uncertainties.  Many factors could cause our actual results, achievements and developments in our business to differ significantly from those expressed or implied by our forward-looking statements, including, without limitation, the following factors and others which are discussed in greater detail under “Risks and Uncertainties” and in our other regulatory filings with the U.S. Securities and Exchange Commission (the “SEC”) in the United States and the provincial securities commissions in Canada:

▪ Actual sales volumes or prices for our products and services may be lower than we expect for any reason including, without limitation, continuing uncertain economic conditions, price and product competition, different product mix, the loss of any of our significant customers, or competition from new or established wireless communication companies;

▪ Higher than anticipated costs; disruption of, and demands on, our ongoing business; and diversion of management’s time and attention in connection with acquisitions or divestitures;

▪ The cost of products sold may be higher than planned or necessary component supplies may not be available, may be delayed or may not be available on commercially reasonable terms;

▪ We may be  unable to enforce our intellectual property rights or may be subject to litigation that has an adverse outcome;

▪ The development and timing of the introduction of our new products may be later than we expect or may be indefinitely delayed;

▪ Transition periods associated with the migration to new technologies may be longer than we expect; and

▪ Unanticipated costs associated with litigation or settlements associated with intellectual property matters.

Investors are cautioned not to place undue reliance on these forward-looking statements.  No forward-looking statement is a guarantee of future results.

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OVERVIEW

Business Overview

Sierra Wireless is building the Internet of Things ("IoT") with intelligent wireless solutions that empower organizations to innovate in the connected world. We offer the industry’s most comprehensive portfolio of second generation ("2G"), third generation ("3G") and fourth generation ("4G") embedded modules and gateways, seamlessly integrated with our secure cloud and connectivity services. OEMs and enterprises worldwide trust our innovative solutions to get their connected products and services to market faster.

We operate the Company under two reportable segments: OEM Solutions and Enterprise Solutions.

Our OEM Solutions segment includes cellular embedded modules, software and tools for OEM customers to integrate wireless cellular connectivity into products and solutions across a broad range of industries, including automotive, transportation, enterprise networking, energy, sales and payment, mobile computing, security, industrial monitoring, field services, and healthcare. Within our OEM Solutions segment, the AirPrime® Embedded Wireless Modules product portfolio spans 2G, 3G, and 4G cellular technologies and includes remote device management capability, as well as support for on-board embedded applications using the OpenAT® application framework and the company's new open source, Linux-based application framework called Legato.

Our Enterprise Solutions segment includes intelligent gateways, modems and tools for enterprise customers, including a cloud-based platform for deploying and managing IoT applications. This integrated solution enables enterprise customers to accelerate deployment of their IoT applications. Within our Enterprise Solutions segment, the AirLink® product portfolio includes 2G, 3G and 4G LTE gateways. AirLink devices are intelligent wireless gateways that provide plug-and-play mission-critical connectivity. The gateways and modems are designed for use where reliability and security are essential, and are used in transportation, public safety, field services, energy, industrial, and enterprise networking applications worldwide. AirLink gateways can be easily configured for specific customer applications, and also support on-board embedded applications using the company's ALEOS application framework.

Also included in our Enterprise Solutions segment is our AirVantage® Cloud and Connectivity services which provide a secure, scalable platform for IoT applications. The AirVantage Enterprise Platform can be used to collect and store machine data, and process and schedule events from any number of devices, across any network operator around the world. IoT solution developers can use the latest cloud application programming interface standards to quickly integrate machine data with their own enterprise applications and back-end systems. The AirVantage Management Service can be used to centrally deploy and monitor IoT devices at the end of the network, including configuring device settings, delivering firmware and embedded application updates over the air, and administering airtime subscriptions across global networks.

Early in 2014 we completed the acquisition of all the shares of In Motion Technology Inc. ("In Motion") for net cash consideration of $23.9 million. In Motion is a leader in mobile enterprise solutions, providing rugged in-vehicle mobile routers that are integrated with a security system and a powerful management and application platform. In Motion's solutions are used by public safety, transit and utility fleets across the United States and Canada. This acquisition strengthened our position in key market segments and broadened our Enterprise Solutions product portfolio.

As of January 16, 2015, with the acquisition of Wireless Maingate AB ("Maingate"), our Enterprise Solutions segment also includes connectivity and data management services. We acquired substantially all of the outstanding shares of Maingate for $91.6 million, including working capital, subject to certain post-closing adjustments. Maingate is based in Karlskrona, Sweden and is one of the leading providers of managed connectivity services in Europe. Maingate has its own core network and is a fully licensed mobile network operator with its own SIMs, billing and other capabilities. The acquisition of Maingate enhances our device to cloud solution by adding managed connectivity and data management services.

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We continue to seek opportunities to acquire or invest in businesses, products and technologies that expand, complement or otherwise relate to our business.

Our Strategy

The IoT market is expected to grow significantly over the next decade. Enterprises, governments, and consumers are gaining a broader understanding of the benefits of collecting, storing and delivering data from machines and assets at the edge of the network to enable detailed analysis, monitoring, and enhanced services. New IoT applications are helping people and organizations to increase productivity, save energy costs, create new business models, and provide value-added services to their customers. An integral factor in the growth of IoT applications is cellular connectivity - transmitting data from embedded modules and gateways, through advanced mobile networks and cloud services, to the enterprise or consumer. This technology reliably enables things such as the connected car, the connected home, the connected enterprise, as well as smart cities and the smart grid. Adoption of IoT solutions is driven by a number of important trends, such as lower wireless connectivity costs, higher wireless connection speeds, new devices and tools to simplify application development and increased focus and investment from many large ecosystem players. 

We believe these factors will continue to create a substantial growth opportunity for the Company going forward. Based on third-party industry data, we are the global leader in embedded wireless modules with 34% global market share (source: ABI Research, July 2014) and are widely recognized as the innovation leader as well.  We are also a leading provider of gateway and router solutions for industrial, enterprise and mobile applications. We have also developed a cloud service platform that is highly integrated with our devices, gateways, and embedded application software. As we have indicated in the last several years, our corporate strategy is to expand our business across the IoT value chain by:

• Solidifying and growing our leadership position in cellular embedded modules;

• Enhancing our gateways and modems business with new products and selective acquisitions that strengthen our position;

• Continuing to innovate and execute to expand into more IoT segments and geographical markets;

• Leveraging our leading position to build our device-to-cloud solutions platform, providing our customers with simple, scalable and secure solutions that include wireless connectivity services; and

• Accelerating revenue and improving the operating leverage in our business model, to increase profitability and enhance shareholder value.

Over the past three years we significantly advanced our strategy by:

• Generating higher revenues across our business through organic growth and successful integration of acquisitions;

• Acquiring, in August 2012, the M2M business of Sagemcom ("Sagemcom") which included 2G and 3G wireless modules, as well as industry-leading rugged terminals for railway applications.  The acquisition extended our leadership position in the growing IoT market and offered a significantly enhanced market position for us in key segments, including payment, transportation, and railways, as well as new geographical expansion into Brazil;

• Completing the sale of substantially all of the assets and operations related to our AirCard business in April 2013 (refer to the section on “Disposition of AirCard business” for additional details); and

• Completing, in October 2013, the acquisition of the M2M modules and modem assets of AnyData Corporation ("AnyData") which included 3G and 4G wireless modules and modems which are sold mainly in Korea. This acquisition extended our global leadership position in the growing IoT market and provided us with a leading position in Korea.

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In 2014, we continued to deliver on our corporate strategy by:

• Generating higher revenues across our business through organic growth in sales, which increased 18% year-over-year in 2014;

• Successfully acquiring and integrating new businesses into the company, which we achieved with the acquisition of In Motion and the integration of AnyData; both businesses drove profitability growth in 2014;

• Continuing to secure new design wins with global OEMs that are operating in key vertical markets;

• Driving growth in value-added services by expanding our AirVantage cloud platform customer base and building out our solutions offering in Enterprise Solutions;

• Adding wireless connectivity services to our device-to-cloud platform through the successful acquisition of Maingate and a partnership with Wireless Logic Limited for our AirLink Enterprise Connect solution;

• Significantly improving our profitability through revenue growth and strong operating leverage as indicated by significantly improved adjusted EBITDA (increased 89% year-over-year), non-GAAP earnings from operations (up 351% year-over-year) and cash generated from operations ($48.7 million in 2014); and

• Building our broader organizational capability and processes in order to support our continued growth.

Annual Overview — Financial highlights

In 2014, our revenue increased by 24.1% to $548.5 million compared to 2013. This strong revenue result was driven by a combination of organic growth and contributions from acquisitions. Our OEM Solutions segment revenues grew by 24.8% to $476.6 million compared to 2013 while our Enterprise Solutions segment revenues grew by 20.1% to $71.9 million compared to 2013.

GAAP

• 2014 revenue increased by $106.6 million, or 24.1%, compared to 2013 and reflects strong growth in both of our operating segments.

• Gross margin was 32.6%, down 0.4% from 2013 mainly due to increased volume of lower margin products sold in 2014. Gross margin improved sequentially throughout 2014 to 33.5% in the fourth quarter driven mainly by certain product cost reductions negotiated during the year.

• Operating loss from continuing operations decreased by $11.1 million, or 62.7%, compared to 2013, largely due to revenue growth and product cost reductions, partially offset by increases in operating expenses driven mainly by costs added as a result of our recent acquisitions.

• Net loss from continuing operations increased by $1.3 million, or 8.4%, from 2013 due to higher foreign exchange losses partially offset by lower operating losses in 2014.

• Cash and cash equivalents were $207.1 million at the end of the year, an increase of $27.2 million compared to 2013. This reflects $48.7 million of cash generated by operating activities and receipt of $13.8 million previously held in escrow from the sale of the AirCard business in 2013 partially offset by $23.9 million net cash used to acquire In Motion and $10.8 million for capital expenditures.

Non-GAAP

• Gross margin was 32.7%, down 0.4% from 2013, mainly due to increased volume of lower margin products sold in 2014.

• Operating earnings improved by $17.8 million, or 351.1% compared to 2013, as a result of revenue growth and associated gross margin partially offset by higher operating expenses driven mainly by costs added as a result of our recent acquisitions.

• Adjusted EBITDA increased by $16.7 million, or 89.3% compared to fiscal 2013, reflecting revenue growth in both of our operating segments.

• Net earnings from continuing operations increased by $12.9 million, or 185.9% compared to 2013, mainly due to improved operating earnings partially offset by higher income tax expenses.

• See section on "Non-GAAP Financial Measures".

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Selected Annual Financial information:

(in thousands of U.S. dollars, except where otherwise stated)	2014			2013			2012
Statement of Operations data:
Revenue	$	548,523		$	441,860		$	397,321
Gross Margin
- GAAP	$	178,979		$	145,641		$	125,274
- Non-GAAP (1)	179,534			146,047			125,578
Gross Margin %
- GAAP	32.6		%	33.0		%	31.5		%
- Non-GAAP (1)	32.7		%	33.1		%	31.6		%
Earnings (loss) from operations
- GAAP	$	(6,594	)	$	(17,664	)	$	(22,206	)
- Non-GAAP (1)	22,794			5,053			898
Adjusted EBITDA	$	35,411		$	18,702		$	12,645
Net earnings (loss) from continuing operations
- GAAP	$	(16,853	)	$	(15,550	)	$	(4,202	)
- Non-GAAP (1)	19,848			6,942			(444		)
Net earnings from discontinued operations
- GAAP	$	—		$	70,588		$	31,401
- Non-GAAP (1)	—			4,420			33,796
Net earnings (loss)
- GAAP	$	(16,853	)	$	55,038		$	27,199
- Non-GAAP (1)	19,848			11,362			33,352
Revenue by Segment:
OEM Solutions	$	476,650		$	382,016		$	346,543
Enterprise Solutions	71,873			59,844			50,778
Share and per share data:
Basic and diluted earnings (loss) from continuing operations per share (in dollars)
- GAAP	$	(0.53	)	$	(0.50	)	$	(0.14	)
- Non-GAAP (1)	$	0.63		$	0.23		$	(0.01	)
Basic and diluted earnings (loss) per share (in dollars)
- GAAP	$	(0.53	)	$	1.79		$	0.88
- Non-GAAP (1)	$	0.63		$	0.37		$	1.08
Common shares (in thousands)
At period-end	31,869			31,098			30,592
Weighed average - basic and diluted	31,512			30,771			30,788
Balance sheet data (end of period):
Cash and cash equivalents and short-term investments	$	207,062		$	179,886		$	63,646
Total assets	515,364			512,000			464,763
Total long-term liabilities	27,061			21,677			26,826

⁽¹⁾Non-GAAP results exclude the impact of stock-based compensation expense and related social taxes, acquisition amortization, impairment, gain on sale of AirCard business, acquisition and disposition costs, integration costs, restructuring costs, foreign exchange gains or losses on foreign currency contracts and translation of balance sheet accounts, and certain tax adjustments.  Refer to the section on “Non-GAAP financial measures” for additional details.

See discussion under “Consolidated Annual Results of Operations” for factors that have caused period to period variations.

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Other key business highlights for the year ended December 31, 2014:

◦ We celebrated a major achievement in our company history with the shipment of our 100 millionth connected device. We have connected devices operating on more than 80 networks worldwide since developing the world's first embedded module in 1997.

◦ We received an award for Smart Grid Communications from the publishers of FierceEnergy and FierceSmartGrid. The energy innovation award was for an integrated solution that includes our AirPrime WP Series Embedded Module, Legato open-sourced embedded application platform and AirVantage Cloud service.

OEM Solutions

◦ We announced the launch of our AirPrime EM7340 and EM7345 embedded wireless modules for 4G LTE networks. These devices are based on Intel chipsets and designed for integration into notebook computers and tablets, using a standardized M.2 form factor ideal for small, thin devices.

◦ We introduced the Legato™ platform, an open source embedded platform built on Linux and designed to simplify the development of IoT applications. Legato includes Wind River Linux, a commercial-grade Linux distribution with a rich set of capabilities based on the latest open source technologies, along with a fully integrated application framework and feature-rich tools. Legato™ makes IoT application development quicker, easier and more flexible by providing a tested and validated solution on an established, well-supported open source foundation with built-in connectivity, security, and management.

◦ Our AirPrime embedded wireless modules were selected by Philips CityTouch to provide connectivity for the new CityTouch LightWave remote lighting management system that includes intelligent "plug and play" outdoor lighting fixtures.

◦ We announced that Itron Inc. has selected our AirPrime 2G, 3G, and 4G LTE embedded wireless modules for Itron's OpenWay smart grid solutions worldwide. Itron selected Sierra Wireless for our 4G LTE leadership, strong relationships with mobile network operators and our global support with pre-certified modules.

◦ We announced our collaboration with Octo Telematics to provide connectivity for Octo's innovative usage-based insurance (UBI) solution in Europe. Octo's Super Easy Telematics Box is powered by our AirPrime smart module which has an innovative architecture that integrates cellular wireless connectivity and an application processor into a single device, providing a highly cost optimized solution.

◦ Recently, we introduced four new AirPrime embedded modules, the first to support LTE-Advanced networks worldwide (LTE-A). LTE-A is the latest generation of 4G LTE network standards, aimed at improving network capacity, throughput, data speed and operational cost-efficiency.

Enterprise Solutions

◦ We announced the launch of the AirLink ES440 4G LTE gateway and terminal server. Designed for the distributed enterprise market, the Airlink ES440 provides mission-critical connectivity using 4G LTE networks when primary wireline internet connections are unavailable. It also supports a best-in-class business continuity strategy by enabling IT administrators to remotely troubleshoot and repair network equipment, reducing downtime and site visits.

◦ We announced the launch of AirLink Enterprise Connect, a unique bundled solution for retail and branch office locations in the United Kingdom, France, and Germany. AirLink Enterprise Connect comprises an

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AirLink ES440 Gateway, pre-integrated and provisioned with 4G LTE service and access to the AirVantage Management Service, all bundled into one solution.

◦ We announced that the Regional Transportation District of Denver, Colorado has deployed our InMotion Solutions products to support mobile broadband access for automatic vehicle location and smart card fare payments aboard more than 1,100 buses.

◦ We announced that the Westminster, Colorado Police Department selected our InMotion oMG mobile gateway which enables in-vehicle wired and wireless connectivity for tablets and laptops, providing officers with access to all their applications.

◦ More recently, we announced the launch of our next generation of AirLink gateways. The AirLink GX450 4G mobile gateway and the AirLink ES450 4G enterprise gateway offer support for a broader array of LTE frequency bands, making them compatible with networks worldwide.

Outlook

In the first quarter of 2015, including Maingate, we expect consolidated revenue and gross margin percentage to be slightly lower compared to the fourth quarter of 2014, reflecting normal seasonality. We expect operating expenses to increase modestly compared to the fourth quarter of 2014.

We believe that the market for wireless IoT solutions has strong long-term growth prospects.  We anticipate strong growth in the number and type of devices being wirelessly connected, driven by a number of enablers, such as lower wireless connectivity costs, faster wireless connection speeds, new devices and tools to simplify the development of IoT applications, and increased focus and investment from large ecosystem players.  More importantly, we see strong customer demand emerging in many of our target verticals driven by increasing recognition of the value created by deploying IoT solutions, such as new revenue streams and cost efficiencies.

Key factors that we expect will affect our results in the near term are:

• the strength of our competitive position in the market;

• the timely ramp up of sales of our new products recently launched or currently under development;

• the level of success our OEM customers achieve with sales of connected solutions to end users;

• our ability to secure future design wins with both existing and new customers;

• wireless technology transitions and the timing of deployment of new, higher speed networks by wireless operators;

• the availability of components from key suppliers;

• contributions from acquisitions;

• general economic conditions in the markets we serve; and

• seasonality in demand.

We expect that product and price competition from other wireless device manufacturers will continue to play a role in the IoT market.  As a result of these factors, we may experience volatility in our results on a quarter-to-quarter basis. Gross margin percentage may fluctuate from quarter-to-quarter depending on product and customer mix, competitive selling prices and product costs.

See "Cautionary Note Regarding Forward-Looking Statements"

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Disposition of AirCard Business

On April 2, 2013, we completed the sale of substantially all of the assets and operations related to our AirCard business to Netgear, Inc. (“Netgear”). Proceeds on disposition, after final inventory adjustments, were $136.6 million plus assumed liabilities and comprised of cash proceeds of $122.8 million, funds previously held in escrow of $13.8 million and assumed liabilities. After transaction costs of $2.8 million, we recorded an after tax gain on disposal of $70.2 million. On April 3, 2014, we received the full $13.8 million cash proceeds previously held in escrow for realized net cash proceeds of $127.8 million from the divestiture after giving consideration to related taxes and transaction costs.

In accordance with U.S. GAAP, the results of operations and the gain on sale of the AirCard business have been presented as discontinued operations in our consolidated statements of operations for the years ended December 31, 2013 and 2012. The historical consolidated statements of operations and related selected financial information have been retrospectively adjusted to distinguish between continuing operations and discontinued operations.

Summarized results from discontinued operations for the years ended December 31 were as follows: 

(in thousands of U.S. dollars)	2013		2012
Revenue	$	46,701	$	246,845
Cost of goods sold	32,978		177,147
Gross margin	13,723		69,698
Expenses	12,918		36,653
Earnings from operations	805		33,045
Income tax expense	399		1,644
Earnings from operations, net of taxes	406		31,401
Gain on sale of AirCard business, net of taxes	70,182		—
Net earnings from discontinued operations	$	70,588	$	31,401

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CONSOLIDATED ANNUAL RESULTS OF OPERATIONS

(in thousands of U.S. dollars, except where otherwise stated)	2014				2013				2012
	$		% of Revenue		$		% of Revenue		$		% of Revenue
Revenue	548,523		100.0	%	441,860		100.0	%	397,321		100.0	%
Cost of goods sold	369,544		67.4	%	296,219		67.0	%	272,047		68.5	%
Gross margin	178,979		32.6	%	145,641		33.0	%	125,274		31.5	%
Expenses
Sales and marketing	50,476		9.2	%	42,182		9.6	%	37,067		9.3	%
Research and development	80,937		14.8	%	73,112		16.5	%	61,785		15.6	%
Administration	37,027		6.7	%	35,164		8.0	%	32,777		8.2	%
Restructuring	1,598		0.3	%	171		—	%	2,251		0.6	%
Acquisition and Integration	2,670		0.5	%	535		0.1	%	3,182		0.8	%
Impairment	3,756		0.7	%	—		—	%	—		—	%
Amortization	9,109		1.6	%	12,141		2.8	%	10,418		2.6	%
	185,573		33.8	%	163,305		37.0	%	147,480		37.1	%
Loss from operations	(6,594	)	(1.2	)%	(17,664	)	(4.0	)%	(22,206	)	(5.6	)%
Foreign exchange gain (loss)	(12,390	)			3,823				3,326
Other income (expense)	854				(98	)			(196	)
Loss before income taxes	(18,130	)			(13,939	)			(19,076	)
Income tax expense (recovery)	(1,277	)			1,611				(14,874	)
Net loss from continuing operations	(16,853	)			(15,550	)			(4,202	)
Net earnings from discontinued operations	—				70,588				31,401
Net earnings (loss)	(16,853	)			55,038				27,199
Net earnings (loss) per share - Basic and diluted (in dollars)
Continuing operations	(0.53	)			(0.50	)			(0.14	)
Discontinued operations	—				2.29				1.02
	(0.53	)			1.79				0.88

Fiscal Year 2014 Compared to Fiscal Year 2013

Revenue

Revenue increased by $106.6 million, or 24.1%, in 2014, compared to 2013. The increase was largely driven by growth in OEM Solutions, with particular strength in 3G and 4G sales, including solid contributions from automotive, field services, energy, networking and mobile computing customers. In addition, there was strong contribution in Enterprise Solutions from the acquired In Motion products.

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Our geographic revenue mix for the years ended December 31, 2014 and 2013 was as follows:

Gross margin

Gross margin was 32.6% of revenue in 2014, compared to 33.0% in 2013. The decrease in gross margin was primarily related to the increased volume of lower margin products sold by our OEM Solutions segment in 2014 compared to 2013. Gross margin improved sequentially throughout 2014 to 33.5% in the fourth quarter driven mainly by certain product cost reductions negotiated during the year. Gross margin included stock-based compensation expense and related social taxes of $0.6 million in 2014, compared to $0.4 million in 2013.

Sales and marketing

Sales and marketing expenses increased $8.3 million, or 19.7%, in 2014, compared to 2013 primarily due to the additional sales and marketing expenses from In Motion beginning in March 2014, as well as targeted investments in our go-to-market capability and higher incentive compensation due to higher revenues. Sales and marketing expenses included stock-based compensation and related social taxes of $2.2 million in 2014, compared to $1.9 million in 2013.

Research and development

Research and development (“R&D”) expenses increased by $7.8 million, or 10.7%, in 2014, compared to 2013.  The increase in R&D expenses related primarily to additional costs associated with the acquired businesses of AnyData and In Motion along with the impact of lower R&D tax credits received in 2014 compared to 2013.

R&D expenses included stock-based compensation and related social taxes of $2.1 million in 2014, compared to $1.4 million in 2013.  R&D expenses also included acquisition amortization of $5.7 million in 2014, compared to $5.5 million in 2013.

Administration

Administration expenses increased by $1.9 million, or 5.3%, in 2014, compared to 2013, primarily due to additional expenses associated with the acquired AnyData and In Motion businesses and a specific bad debt provision. Administration expenses included stock-based compensation expense and related social taxes of $5.6 million in 2014, compared to $4.3 million in 2013.

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Restructuring

Restructuring costs increased by $1.4 million in 2014, compared to 2013, primarily related to severance and benefit payments to employees impacted by the staff reductions related to the Company's decision to reduce the scope of 2G chipset development activities.

Acquisition and integration

Acquisition and integration costs increased by $2.1 million in 2014, compared to 2013, primarily reflecting the costs incurred to acquire and integrate In Motion into our operations and $0.6 million incurred through December 31, 2014 to acquire Maingate.

Impairment

In the second quarter of 2014, we made a decision to reduce the scope of 2G chipset development activities, which resulted in a $3.8 million impairment. Management evaluated the recoverability of costs and determined that the future cash flows expected to be generated were lower than the carrying value of the assets associated with this project. No such impairment was recorded in 2013.

Amortization

Amortization expense decreased by $3.0 million, or 25.0%, in 2014, primarily due to lower acquisition related amortization.  Amortization expense in 2014 included $5.2 million of acquisition amortization compared to $8.2 million in 2013.

Foreign exchange gain (loss)

Foreign exchange loss was $12.4 million in 2014, compared to a gain of $3.8 million in 2013.  Foreign exchange loss in 2014 includes an unrealized loss of $7.4 million on revaluation of an intercompany loan to a self-sustaining subsidiary, primarily driven by the decline in the Euro relative to the U.S. dollar. Foreign exchange gain in 2013 includes an unrealized gain of $2.7 million on revaluation of the intercompany loan.

Foreign exchange rate changes also impacted our Euro and Canadian dollar denominated revenue and operating expenses.  We estimate that net changes in exchange rates between 2014 and 2013 positively impacted our 2014 gross margin by approximately $0.4 million and our operating expenses by approximately $3.4 million.

Income tax expense (recovery)

Income tax recovery was $1.3 million in 2014, compared to an income tax expense of $1.6 million in 2013. The recovery in 2014 was related to a combination of changes in deferred income tax assets and the release of a FASB Interpretation No. 48 provision relating to accounting for uncertainty in income taxes which had become statute barred.

Net loss from continuing operations

Net loss from continuing operations increased by $1.3 million in 2014, compared to 2013.  The increase reflected an increase in foreign exchange loss partially offset by an increase in operating earnings and income tax recoveries.

Net loss from continuing operations in 2014 included stock-based compensation expense and related social taxes of $10.5 million and acquisition amortization of $10.9 million. Net loss from continuing operations in 2013 included stock-based compensation expense of $8.0 million and acquisition amortization of $13.7 million.

Net earnings (loss)

Net loss was $16.9 million in 2014, compared to net earnings of $55.0 million in 2013. The 2014 net loss includes after-tax foreign exchange losses compared to after-tax foreign exchange gains in 2013. Net earnings in 2013 includes the $70.2 million after-tax gain on sale of the AirCard business, combined with the absence of earnings from discontinued operations.

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Weighted average number of shares

The weighted average basic and diluted number of shares outstanding was 31.5 million for the year ended December 31, 2014 and was 30.8 million for the year ended December 31, 2013.

The number of shares outstanding was 31.9 million at December 31, 2014, compared to 31.1 million at December 31, 2013. The increase in number of shares outstanding was primarily due to the issuance of common shares as a result of stock option exercises.

Fiscal Year 2013 Compared to Fiscal Year 2012

Revenue

Revenue in 2013 increased by $44.6 million, or 11.2%, to $441.9 million, compared to 2012.  The year-over-year revenue increase was driven by continued growth in both our Enterprise Solutions and OEM Solutions segments, including a full year contribution from Sagemcom .

Our geographic revenue mix for the years ended December 31, 2013 and 2012 was as follows:  

Gross margin

Gross margin was 33.0% of revenue in 2013, compared to 31.5% in 2012.  The increase in gross margin was primarily related to favorable product mix and product cost reductions.  Gross margin included $0.4 million of stock-based compensation expense in 2013, compared to $0.3 million in 2012.

Sales and marketing

Sales and marketing expenses increased $5.1 million, or 13.8% in 2013, compared to 2012.  The increase in sales and marketing expenses was primarily due to additional costs following the Sagemcom acquisition , as well as investment in additional resources to support our go-to-market strategy. Sales and marketing expenses included $1.9 million of stock-based compensation expense in 2013, compared to $1.2 million in 2012.

Research and development

R&D expenses increased by $11.3 million, or 18.3% in 2013, compared to 2012.  The increase in R&D expenses was primarily related to the additional R&D expenses we incurred following the Sagemcom acquisition, as well as higher certification costs on new products launched during the year and other net product development costs.

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R&D expenses in 2013 included stock-based compensation expense of $1.4 million and acquisition amortization of $5.5 million.  R&D expenses in 2012 included stock-based compensation expense of $1.3 million and acquisition amortization of $5.6 million.

Administration

Administration expenses increased by $2.4 million, or 7.3% in 2013, compared to 2012, due to higher professional fees, bad debt expense and other personnel related costs. Administration expenses included stock-based compensation expense of $4.3 million and $3.0 million in 2013 and 2012, respectively.

Acquisition

Acquisition costs of $0.5 million in 2013 related to the acquisition of AnyData and In Motion. Acquisition costs of $3.2 million in 2012 related to the Sagemcom acquisition. 

Amortization

Amortization expense increased by $1.7 million, or 16.5% in 2013, primarily due to the Sagemcom acquisition.  Amortization expense in 2013 included $8.2 million of acquisition amortization compared to $6.3 million in 2012.

Foreign exchange gain (loss)

Foreign exchange gain was $3.8 million in 2013 compared to a gain of $3.3 million in 2012.  Foreign exchange gain in 2013 and 2012 included a net foreign exchange gain of $2.7 million on revaluation of an intercompany loan to a self-sustaining subsidiary. Foreign exchange gain in 2012 was partially offset by a loss of $1.8 million related to the settlement of foreign currency forward exchange contracts that we entered in connection with the acquisition of the M2M business of Sagemcom.

Foreign exchange rate changes also impacted our Euro and Canadian dollar denominated revenue and operating expenses.  We estimate that net changes in exchange rates between 2013 and 2012 positively impacted our 2013 revenues by approximately $1.0 million.  We estimate that the negative impact on operating expenses during 2013 was approximately $0.5 million.

Income tax expense (recovery)

Income tax expense increased by $16.5 million to $1.6 million, compared to 2012. This was driven by recognition of certain tax assets in 2012 that were realized upon the sale of the AirCard business, resulting in a substantial income tax recovery in 2012.

Net loss from continuing operations

Net loss from continuing operations was $15.6 million, an increase of $11.3 million, compared to 2012.  Improved operating earnings, driven by higher revenues and gross margin were more than offset by the absence of significant tax recoveries in 2013 compared to 2012, associated with the sale of the AirCard business.

Net loss from continuing operations in 2013 included stock-based compensation expense of $8.0 million and acquisition amortization of $13.7 million. Net loss from continuing operations in 2012 included stock-based compensation expense of $5.8 million and acquisition amortization of $11.9 million.

Net earnings (loss)

Net earnings attributable to the Company were $55 million, an increase of $27.8 million, compared to 2012. The after-tax gain of $70.2 million on the sale of our AirCard business was partially offset by higher net loss from continuing operations.

Weighted average number of shares

The weighted average basic and diluted number of shares outstanding was 30.8 million for each of the years ended December 31, 2013 and 2012.

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The number of shares outstanding was 31.1 million at December 31, 2013, compared to 30.6 million at December 31, 2012. The increase in number of shares outstanding was primarily due to issuance of common shares as a result of stock option exercises partially offset by purchases of 510,439 of the Company’s common shares on the Toronto Stock Exchange (“TSX”) and NASDAQ under our normal course issuer bid, which was approved on February 6, 2013 and expired in February 2014.

SEGMENTED INFORMATION

OEM Solutions

										% change
(in thousands of U.S. dollars, except where otherwise stated)	2014			2013			2012			2014 vs 2013		2013 vs 2012
Revenue	$	476,650		$	382,016		$	346,543		24.8	%	10.2	%
Cost of goods sold	336,132			266,867			246,284			26.0	%	8.4	%
Gross margin	$	140,518		$	115,149		$	100,259		22.0	%	14.9	%
Gross margin %	29.5		%	30.1		%	28.9		%

Fiscal Year 2014 compared to 2013

Revenue increased by $94.6 million, or 24.8%, in 2014, compared to 2013. This increase was due to solid contributions from automotive, field services, energy and mobile computing customers. Gross margin percentage decreased in 2014 primarily driven by customer mix within the OEM Solutions segment favoring high volume, lower margin customers, partially offset by product cost reductions.

Fiscal Year 2013 compared to 2012

Revenue increased by $35.5 million, or 10.2%, to $382.0 million in 2013, compared to 2012. This increase was primarily due to a full year contribution from the M2M business of Sagemcom acquired on August 1, 2012, along with strong organic sales in certain market segments. Gross margin percentage improved in 2013 as a result of product cost reductions and the addition of higher margin GSMR products acquired from Sagemcom, partially offset by greater mix of other lower margin embedded modules.

Enterprise Solutions

										% change
(in thousands of U.S. dollars, except where otherwise stated)	2014			2013			2012			2014 vs 2013		2013 vs 2012
Revenue	$	71,873		$	59,844		$	50,778		20.1	%	17.9	%
Cost of goods sold	33,412			29,352			25,763			13.8	%	13.9	%
Gross margin	$	38,461		$	30,492		$	25,015		26.1	%	21.9	%
Gross margin %	53.5		%	51.0		%	49.3		%

Fiscal Year 2014 compared to 2013

Revenue increased by $12.0 million, or 20.1%, in 2014, compared to 2013.  The increase was driven by revenue contribution from the acquired In Motion business, partially offset by lower demand for AirLink products. Gross margin percentage improved in 2014, driven primarily by a combination of favorable product mix, including the acquired In Motion products, and lower product warranty costs compared to 2013.

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Fiscal Year 2013 compared to 2012

Revenue increased by $9.1 million, or 17.9%, to $59.9 million in 2013, compared to 2012.  The increase was largely driven by strong sales growth of our new 4G products. Gross margin percentage improved in 2013, driven primarily by strong growth in new higher margin 3G and 4G products, as well as product cost reductions.

During the years ended December 31, 2014 and 2013, no customer accounted for more than 10% of our aggregated revenue, from continuing and discontinued operations. During the year ended December 31, 2012, Sprint and AT&T each accounted for more than 10% of our aggregated revenue, from continuing and discontinued operations, and on a combined basis, accounted for 25% of the aggregated revenue.

FOURTH QUARTER OVERVIEW

Consolidated Results of Operations:

	Three months ended December 31,
(in thousands of U.S. dollars, except where otherwise stated)	2014				2013
			% of				% of
	$		Revenue		$		Revenue
Revenue	149,078		100.0	%	118,608		100.0	%
Cost of goods sold	99,072		66.5	%	80,165		67.6	%
Gross margin	50,006		33.5	%	38,443		32.4	%
Expenses
Sales and marketing	12,682		8.5	%	10,693		9.0	%
Research and development	21,012		14.1	%	19,074		16.1	%
Administration	9,008		6.0	%	8,841		7.5	%
Restructuring	540		0.4	%	14		—	%
Acquisition and integration	1,273		0.9	%	369		0.3	%
Amortization	2,092		1.4	%	2,999		2.5	%
	46,607		31.3	%	41,990		35.4	%
Earnings (loss) from operations	3,399		2.3	%	(3,547	)	(3.0	)%
Foreign exchange gain (loss)	(3,852	)			1,921
Other income	246				26
Earnings (loss) before income taxes	(207	)			(1,600	)
Income tax expense	1,494				345
Net earnings (loss) from continuing operations	(1,701	)			(1,945	)
Net earnings from discontinued operations	—				1,078
Net earnings (loss)	(1,701	)			(867	)
Net earnings (loss) per share - Basic and diluted (in dollars)
Continuing operations	(0.05	)			(0.06	)
Discontinued operations	—				0.03
	(0.05	)			(0.03	)

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GAAP:

• Our fourth quarter revenue increased sequentially by $5.8 million, or 4.1%, compared to the third quarter of 2014 and increased by $30.5 million, or 25.7%, compared to the fourth quarter of 2013. The increase was a result of strong organic growth within our OEM Solutions segment.

• Gross margin was 33.5%, compared to 32.8% in the third quarter of 2014 and 32.4% in the fourth quarter of 2013. This improvement was primarily attributable to lower component and manufacturing costs.

• Earnings from operations increased by $0.5 million, compared to the third quarter of 2014 and increased by $6.9 million compared to the fourth quarter of 2013. The increase was attributable to higher gross margin partially offset by higher operating expenses in the fourth quarter of 2014.

• Net loss from continuing operations improved by $1.2 million, compared to the third quarter of 2014 due to higher operating income and lower foreign exchange losses partially offset by higher income tax expenses. Net loss from continuing operations improved by $0.2 million, compared to the fourth quarter of 2013 due to higher operating income offset by foreign exchange losses in the fourth quarter of 2014, compared to foreign exchange gains in the fourth quarter of 2013 and higher income tax expense in the fourth quarter of 2014 compared to the fourth quarter of 2013.

• Cash and cash equivalents at the end of the fourth quarter of 2014 were $207.1 million, an increase of $11.0 million, compared to the end of the third quarter of 2014. Cash generated from operations during the fourth quarter of 2014 was $11.3 million.

NON-GAAP:

• Gross margin was 33.6%, compared to 32.9% in the third quarter of 2014 and 32.5% in the fourth quarter of 2013.

• Earnings from operations increased by $1.7 million, compared to the third quarter of 2014 and increased by $7.4 million compared to the fourth quarter of 2013. The increase was attributable to higher gross margin partially offset by higher operating expenses in the fourth quarter of 2014.

• Adjusted EBITDA increased by $1.0 million, compared to the third quarter of 2014 and by $6.6 million compared to the fourth quarter of 2013. These increases reflect revenue and associated earnings growth in both of our operating segments.

• Net earnings from continuing operations increased by $1.4 million, compared to the third quarter of 2014 and increased by $6.0 million, compared to the fourth quarter of 2013. These increases were the result of higher operating profits partially offset by higher income tax expenses.

• See section on "Non-GAAP Financial Measures".

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SUMMARY OF QUARTERLY RESULTS OF OPERATIONS

The following tables highlight selected financial information for each of the eight most recent quarters that, in management’s opinion, have been prepared on a basis consistent with the audited consolidated financial statements for the year ended December 31, 2014.  The selected financial information presented below reflects all adjustments, consisting primarily of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods.  These results are not necessarily indicative of results for any future period.  You should not rely on these results to predict future performance.

(in thousands of U.S. dollars, except where otherwise stated)	2014												2013
	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Revenue	$	149,078		$	143,270		$	135,012		$	121,163		$	118,608		$	112,262		$	109,589		$	101,401
Cost of goods sold	99,072			96,215			91,691			82,566			80,165			74,916			73,115			68,023
Gross margin	50,006			47,055			43,321			38,597			38,443			37,346			36,474			33,378
Gross margin %	33.5		%	32.8		%	32.1		%	31.9		%	32.4		%	33.3		%	33.3		%	32.9		%
Expenses
Sales and marketing	12,682			12,633			12,795			12,366			10,693			10,452			10,681			10,356
Research and development	21,012			19,887			20,021			20,017			19,074			17,806			17,869			18,363
Administration	9,008			9,006			9,680			9,333			8,841			9,297			8,903			8,123
Restructuring costs	540			71			987			—			14			14			26			117
Acquisition and integration	1,273			356			71			970			369			139			—			27
Impairment	—			—			3,756			—			—			—			—			—
Amortization	2,092			2,159			2,275			2,583			2,999			2,939			2,927			3,276
	46,607			44,112			49,585			45,269			41,990			40,647			40,406			40,262
Operating income (loss) from continuing operations	3,399			2,943			(6,264		)	(6,672		)	(3,547		)	(3,301		)	(3,932		)	(6,884		)
Foreign exchange gain (loss)	(3,852		)	(8,039		)	(891		)	392			1,921			2,563			1,709			(2,370		)
Other income (expense)	246			317			265			26			26			(26		)	34			(132		)
Loss from continuing operations before income tax	(207		)	(4,779		)	(6,890		)	(6,254		)	(1,600		)	(764		)	(2,189		)	(9,386		)
Income tax expense (recovery)	1,494			(1,875		)	1,353			(2,249		)	345			(1,839		)	4,553			(1,448		)
Net earnings (loss) from continuing operations	(1,701		)	(2,904		)	(8,243		)	(4,005		)	(1,945		)	1,075			(6,742		)	(7,938		)
Net earnings (loss) from discontinued operations	—			—			—			—			1,078			(505		)	68,152			1,863
Net earnings (loss)	$	(1,701	)	$	(2,904	)	$	(8,243	)	$	(4,005	)	$	(867	)	$	570		$	61,410		$	(6,075	)
Earnings (loss) per share - GAAP in dollars
Basic	$	(0.05	)	$	(0.09	)	$	(0.26	)	$	(0.13	)	$	(0.03	)	$	0.02		$	2.00		$	(0.20	)
Diluted	$	(0.05	)	$	(0.09	)	$	(0.26	)	$	(0.13	)	$	(0.03	)	$	0.02		$	2.00		$	(0.20	)
Weighted average number of shares (in thousands)
Basic	31,759			31,582			31,466			31,235			30,804			30,688			30,768			30,695
Diluted	31,759			31,582			31,466			31,235			30,804			31,176			30,768			30,695

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Our quarterly results may fluctuate from quarter-to-quarter, driven by variation in sales volume, product mix and the combination of variable and fixed operating expenses.  The impact of significant items incurred during the first three interim periods of the year ended December 31, 2014 are discussed in more detail and disclosed in our quarterly reports and management’s discussion and analysis.  Factors affecting our quarterly results in 2014 were as follows:

In the first quarter of 2014, net earnings from continuing operations decreased $2.1 million, or $0.07 per common share, to a net loss of $4.0 million, compared to the fourth quarter of 2013. The decrease was largely related to higher operating expenses as a result of targeted investments in our go-to-market capability, additional costs relating to the acquired AnyData and In Motion businesses and lower foreign exchange gains, partially offset by higher income tax recoveries in the first quarter of 2014.

In the second quarter of 2014, net loss from continuing operations increased by $4.2 million, or $0.13 per common share, to a loss of $8.2 million, compared to the first quarter of 2014 driven by an impairment in the quarter, higher foreign exchange losses and income tax expenses partially offset by higher gross margin.

In the third quarter of 2014, net loss from continuing operations decreased by $5.3 million, or $0.17 per common share, to a loss of $2.9 million, compared to the second quarter of 2014, driven by a combination of higher gross margin, lower operating expenses and an income tax recovery partially offset by foreign exchange losses.

In the fourth quarter of 2014, net loss from continuing operations decreased by $1.2 million, or $0.04 per common share, to a loss of $1.7 million, compared to the third quarter of 2014, primarily due to a lower foreign exchange loss partially offset by an income tax expense in the fourth quarter compared to an income tax recovery in the third quarter.

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LIQUIDITY AND CAPITAL RESOURCES

Selected Financial Information:

(in thousands of U.S. dollars)	2014			2013			2012
Cash flows provided before changes in non-cash working capital:	$	27,380		$	13,257		$	46,589
Changes in non-cash working capital
Accounts receivable	(5,180		)	10,897			(616		)
Inventories	(8,949		)	11,908			(4,019		)
Prepaid expense and other	25,421			(7,254		)	(14,543		)
Accounts payable and accrued liabilities	10,538			(13,139		)	10,997
Deferred revenue and credits	(510		)	1,147			(422		)
	21,320			3,559			(8,603		)
Cash flows provided by (used in):
Operating activities	$	48,700		$	16,816		$	37,986
Investing activities	$	(22,336	)	$	98,754		$	(64,184	)
Net proceeds from sale of AirCard business	13,800			119,958			—
Acquisition of In Motion	(23,853		)	—			—
Acquisition of M2M business of AnyData	—			(5,196		)	—
Acquisition of M2M business of Sagemcom	—			—			(55,218		)
Capital expenditures and increase in intangible assets	(10,829		)	(13,570		)	(18,452		)
Net change in short-term investments and other assets	(1,584		)	(2,470		)	9,347
Financing activities	$	22		$	(925	)	$	(9,298	)
Issue of common shares	6,404			8,106			436
Repurchase of common shares for cancellation	—			(5,772		)	(6,312		)
Purchase of treasury shares for RSU distribution	(5,955		)	(3,433		)	(2,489		)

Free Cash Flow:

(in thousands of U.S. dollars)	2014			2013			2012
Cash flows from operating activities	$	48,700		$	16,816		$	37,986
Capital expenditures and increase in intangible assets	(10,829		)	(13,570		)	(18,452		)
Free Cash Flow (1)	37,871			3,246			19,534

(1) See section on "Non-GAAP Financial Measures"

Operating Activities

Cash provided by operating activities increased by $31.9 million year-over-year, primarily due to improved operating results and lower working capital requirements driven by the drawdown of inventory prepayments as a result of improved commercial terms from one of our contract manufacturers and other initiatives to improve working capital.

Investing Activities

Cash used in investing activities in 2014 was primarily attributable to the acquisition of In Motion in March 2014 and capital expenditures offset by the receipt of escrow funds from the sale of the AirCard business. The inflow of cash in 2013 was due to the proceeds from the sale of the AirCard business in April 2013.

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Cash used for the purchase of capital equipment was primarily for production and tooling equipment, research and development equipment, and computer equipment and software, while cash used for intangible assets was driven primarily by patent registration costs and software licensing costs.

Financing Activities

Cash provided by financing activities increased $0.9 million year-over-year, primarily due to the absence of share repurchases under the Company's share repurchase program, which expired in February 2014. In 2014, we received $6.4 million from the issuance of common shares and used $6.0 million to purchase 311,333 common shares to satisfy obligations under our restricted share unit plan.

Cash Requirements

Our near-term cash requirements are primarily related to funding our operations, capital expenditures, intellectual property (“IP”) licenses, and other obligations discussed below.  We continue to believe our cash, cash equivalents and short term investments balance of $207.1 million at December 31, 2014 and cash generated from continuing operations will be sufficient to fund our expected working capital requirements for at least the next twelve months and for the purchase of Maingate on January 16, 2015. Subsequent to year-end we utilized approximately $91.6 million for the acquisition of Maingate. Our capital expenditures during the first quarter of 2015 are expected to be primarily for R&D equipment, tooling, leasehold improvements, software licenses and patents.  However, we cannot be certain that our actual cash requirements will not be greater than we currently expect.

The following table presents the aggregate amount of future cash outflows for contractual obligations as of December 31, 2014.

Payments due by period (In thousands of dollars)	2015		2016		2017		2018		2019		Thereafter
Operating lease obligations	$	5,364	$	4,850	$	4,591	$	3,455	$	2,831	$	3,705
Capital lease obligations	283		152		75		34		—		—
Purchase obligations (1)	85,192		—		—		—		—		—
Other long-term liabilities (2)	—		23,967		—		—		—		2,383
Total	$	90,839	$	28,969	$	4,666	$	3,489	$	2,831	$	6,088

⁽¹⁾ Purchase obligations represent obligations with certain contract manufacturers to buy a minimum amount of designated products between January 2015 and March 2015.  In certain of these arrangements, we may be required to acquire and pay for such products up to the prescribed minimum or forecasted purchases.

⁽²⁾ Other long-term liabilities include the long-term portions of accrued royalties.

Capital Resources

	2014								2013
(In thousands of dollars)	Dec 31		Sept 30		June 30		Mar 31		Dec 31		Sept 30		June 30		Mar 31
Cash and cash equivalents	$	207,062	$	196,086	$	168,418	$	151,339	$	177,416	$	183,220	$	166,573	$	55,923
Short-term investments	—		—		—		—		2,470		5,221		10,000		—
	207,062		196,086		168,418		151,339		179,886		188,441		176,573		55,923
Unused credit facilities	10,000		10,000		10,000		10,000		10,000		10,000		10,000		50,000
Total	$	217,062	$	206,086	$	178,418	$	161,339	$	189,886	$	198,441	$	186,573	$	105,923

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Credit Facilities

We have a $10 million revolving term credit facility ("Revolving Facility") with Toronto Dominion Bank and the Canadian Imperial Bank of Commerce expiring on October 31, 2015. The Revolving Facility is for working capital requirements, is secured by a pledge against all of our assets and is subject to borrowing base limitations. As at December 31, 2014, there were no borrowings under the Revolving Facility.

Letters of Credit

We have access to a revolving standby letter of credit facility of $10 million from Toronto Dominion Bank. The credit facility is used for the issuance of letters of credit for project related performance guarantees and is guaranteed by Export Development Canada. As of December 31, 2014, there were no letters of credit issued against the revolving standby letter of credit facility.

NON-GAAPFINANCIALMEASURES

Our consolidated financial statements are prepared in accordance with U.S. GAAP on a basis consistent for all periods presented.  In addition to results reported in accordance with U.S. GAAP, we use non-GAAP financial measures as supplemental indicators of our operating performance.  The term “non-GAAP financial measure” is used to refer to a numerical measure of a company’s historical or future financial performance, financial position or cash flows that: (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP in a company’s statement of earnings, balance sheet or statement of cash flows; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.

Our non-GAAP financial measures include non-GAAP gross margin, non-GAAP earnings (loss) from operations, Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and non-GAAP diluted earnings (loss) per share, respectively.  We disclose non-GAAP amounts as we believe that these measures provide useful information on actual operating results and assist in comparisons from one period to another.  Readers are cautioned that non-GAAP financial measures do not have any standardized meaning prescribed by U.S. GAAP and therefore may not be comparable to similar measures presented by other companies.  Non-GAAP results exclude the impact of stock-based compensation expense, amortization related to acquisitions, acquisition and disposition costs, restructuring costs, integration costs, impairment, foreign exchange gains or losses on foreign currency contracts and translation of balance sheet accounts and certain tax adjustments.

Adjusted EBITDA as defined equates earnings (loss) from operations plus stock-based compensation and related social taxes, acquisition and integration, restructuring, integration, amortization and impairment. Adjusted EBITDA can also be calculated as non-GAAP earnings (loss) from operations plus amortization excluding acquisition related amortization.

Free cash flow as defined equates cash flow from operating activities less capital expenditures and increases in intangibles.

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The following table provides a reconciliation of the non-GAAP financial measures to our most directly comparable U.S. GAAP results for years ended December 31:

(in thousands of U.S. dollars, except where otherwise stated)	2014			2013			2012
Gross margin - GAAP	$	178,979		$	145,641		$	125,274
Stock-based compensation and related social taxes	555			406			304
Gross margin - Non-GAAP	$	179,534		$	146,047		$	125,578
Loss from operations - GAAP	$	(6,594	)	$	(17,664	)	$	(22,206	)
Stock-based compensation and related social taxes	10,464			7,990			5,781
Acquisition and integration	2,670			535			3,182
Restructuring	1,598			171			2,251
Impairment	3,756			280			—
Acquisition related amortization	10,900			13,741			11,890
Earnings from operations - Non-GAAP	$	22,794		$	5,053		$	898
Amortization (excluding acquisition related amortization)	12,617			13,649			11,747
Adjusted EBITDA	$	35,411		$	18,702		$	12,645
Net loss from continuing operations - GAAP	$	(16,853	)	$	(15,550	)	$	(4,202	)
Stock-based compensation and related social taxes, restructuring, impairment, acquisition, integration, and acquisition related amortization, net of tax	29,337			22,620			22,241
Unrealized foreign exchange loss (gain)	12,285			(3,912		)	(3,139		)
Income tax adjustments	(4,921		)	3,784			(15,344		)
Net earnings (loss) from continuing operations - Non-GAAP	$	19,848		$	6,942		$	(444	)
Net earnings from discontinued operations - GAAP	$	—		$	70,588		$	31,401
Stock-based compensation and disposition costs	—			4,014			2,395
Gain on sale of AirCard business	—			(70,182		)	—
Net earnings from discontinued operations - Non-GAAP	$	—		$	4,420		$	33,796
Net earnings (loss) - GAAP	$	(16,853	)	$	55,038		$	27,199
Net earnings (loss) - Non-GAAP	19,848			11,362			33,352
Diluted earnings (loss) from continuing operations per share
GAAP - (in dollars)	$	(0.53	)	$	(0.50	)	$	(0.14	)
Non-GAAP - (in dollars)	$	0.63		$	0.23		$	(0.01	)
Net earnings (loss) per share - diluted
GAAP - (in dollars)	$	(0.53	)	$	1.79		$	0.88
Non-GAAP - (in dollars)	$	0.63		$	0.37		$	1.08

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The following table provides a quarterly reconciliation of the non-GAAP financial measures to our most directly comparable U.S. GAAP results: 

	2014												2013
(in thousands of U.S. dollars, except where otherwise stated)	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Gross margin - GAAP	$	50,006		$	47,055		$	43,321		$	38,597		$	38,443		$	37,346		$	36,474		$	33,378
Stock-based compensation and related social taxes	131			134			130			160			119			117			95			75
Gross margin - Non-GAAP	$	50,137		$	47,189		$	43,451		$	38,757		$	38,562		$	37,463		$	36,569		$	33,453
Earnings (loss) from operations - GAAP	$	3,399		$	2,943		$	(6,264	)	$	(6,672	)	$	(3,547	)	$	(3,301	)	$	(3,932	)	$	(6,884	)
Stock-based compensation and related social taxes	2,432			2,402			2,326			3,304			2,177			2,145			2,013			1,655
Acquisition and integration	1,273			356			71			970			369			139			—			27
Restructuring	540			71			987			—			14			14			26			117
Impairment	—			—			3,756			—			—			—			—			280
Acquisition related amortization	2,389			2,609			2,784			3,118			3,580			3,405			3,363			3,393
Earnings (loss) from operations - Non-GAAP	$	10,033		$	8,381		$	3,660		$	720		$	2,593		$	2,402		$	1,470		$	(1,412	)
Amortization (excluding acquisition related amortization)	2,699			3,400			3,153			3,365			3,566			3,468			3,403			3,212
Adjusted EBITDA	$	12,732		$	11,781		$	6,813		$	4,085		$	6,159		$	5,870		$	4,873		$	1,800
Net earnings (loss) from continuing operations - GAAP	$	(1,701	)	$	(2,904	)	$	(8,243	)	$	(4,005	)	$	(1,945	)	$	1,075		$	(6,742	)	$	(7,938	)
Stock-based compensation and related social taxes, restructuring, impairment, acquisition, integration, and acquisition related amortization, net of tax	6,618			5,414			9,916			7,389			6,112			5,760			5,393			5,355
Unrealized foreign exchange loss (gain)	3,798			7,953			916			(382		)	(1,970		)	(2,457		)	(1,359		)	1,874
Income tax adjustments	378			(2,781		)	1			(2,519		)	925			(895		)	3,754			—
Net earnings (loss) from continuing operations - Non-GAAP	$	9,093		$	7,682		$	2,590		$	483		$	3,122		$	3,483		$	1,046		$	(709	)
Net earnings (loss) from discontinued operations - GAAP	$	—		$	—		$	—		$	—		$	1,078		$	(505	)	$	68,152		$	1,863
Stock-based compensation and disposition costs	—			—			—			—			3			1,402			876			1,733
Gain on sale of AirCard business	—			—			—			—			(1,056		)	(49		)	(69,077		)	—
Net earnings (loss) from discontinued operations - Non-GAAP	$	—		$	—		$	—		$	—		$	25		$	848		$	(49	)	$	3,596
Net earnings (loss) - GAAP	$	(1,701	)	$	(2,904	)	$	(8,243	)	$	(4,005	)	$	(867	)	$	570		$	61,410		$	(6,075	)
Net earnings (loss) - Non-GAAP	9,093			7,682			2,590			483			3,147			4,331			997			2,887
Diluted earnings (loss) from continuing operations per share
GAAP - (in dollars)	$	(0.05	)	$	(0.09	)	$	(0.26	)	$	(0.13	)	$	(0.06	)	$	0.03		$	(0.22	)	$	(0.26	)
Non-GAAP - (in dollars)	$	0.29		$	0.24		$	0.08		$	0.02		$	0.10		$	0.11		$	0.03		$	(0.02	)
Net earnings (loss) per share - diluted
GAAP - (in dollars)	$	(0.05	)	$	(0.09	)	$	(0.26	)	$	(0.13	)	$	(0.03	)	$	0.02		$	2.00		$	(0.20	)
Non-GAAP - (in dollars)	$	0.29		$	0.24		$	0.08		$	0.02		$	0.10		$	0.14		$	0.03		$	0.09

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OFF-BALANCE SHEET ARRANGEMENTS

We did not have any off-balance sheet arrangements during the years ended December 31, 2014 and 2013.

TRANSACTIONS BETWEEN RELATED PARTIES

We did not undertake any transactions with related parties during the years ended December 31, 2014 and 2013.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with U.S. GAAP and we make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosure of contingent liabilities.  Note 2, Summary of significant accounting policies, in the December 31, 2014 consolidated financial statements includes a summary of the significant accounting policies used in the preparation of our consolidated financial statements.  While all of the significant accounting policies are important to the annual consolidated financial statements, some of these policies may be viewed as involving a high degree of judgment.

On an ongoing basis, we evaluate our estimates and judgments, including those related to business combinations, revenue recognition, adequacy of allowance for doubtful accounts, adequacy of inventory reserve, valuation of goodwill and intangible assets, income taxes, useful lives of long-lived assets, adequacy of warranty reserve, royalty obligations, contingencies, stock-based compensation, and fair value measurement.  We base our estimates on historical experience, anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances.  By their nature, estimates are subject to an inherent degree of uncertainty.  Actual results could differ from our estimates.

The following critical accounting policies require management’s most difficult, subjective and complex judgments, and are subject to measurement uncertainty.

Business combinations

We account for our business combinations using the acquisition method.  Under this method, estimates we make to determine the fair values of acquired assets and liabilities assumed include judgments in our determinations of acquired intangible assets and assessment of the fair value of existing property and equipment.  Assumed liabilities can include litigation and other contingency reserves existing at the time of the acquisition.  Goodwill is recognized as of the acquisition date as the excess of the purchase price over the estimated fair values of net identifiable assets acquired and liabilities assumed at their acquisition date.  Acquisition related expenses are separately recognized from business combination and are expensed as incurred.

When establishing fair values, we make significant estimates and assumptions, especially with respect to intangible assets.  Intangible assets acquired and recorded by us may include patents, intellectual property, customer relationships, backlog and in-process research and development.  Estimates include but are not limited to the forecasting of future cash flows and discount rates.  From time to time, we may engage third-party firms to assist us in determining the fair value of assets and liabilities assumed.  Our estimates of fair values are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.  As a result, actual results may differ from estimates impacting our earnings.

Revenue recognition

We recognize revenue from sales of products and services upon the later of transfer of title or upon shipment of the product to the customer or rendering of the service, so long as persuasive evidence of an arrangement exists,

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delivery has occurred, price is fixed or determinable, and collection is reasonably assured. Customers include resellers and distributors, OEMs, mobile network operators, other enterprises and public sector entities. We record deferred revenue when we receive cash in advance of the revenue recognition criteria being met.  A significant portion of our revenue is generated from sales to resellers.  We recognize revenue on the portion of sales to certain resellers that are subject to contract provisions allowing various rights of return and stock rotation, upon the earlier of when the rights have expired or the products have been reported as sold by the resellers.  Revenues from contracts with multiple-element arrangements, such as those including technical support services, are recognized as each element is earned based on the relative fair value of each element and only when there are no undelivered elements that are essential to the functionality of the delivered elements.  Revenue from licensed software is recognized at the inception of the license term.  Revenue from software maintenance, unspecified upgrades and technical support contracts is recognized over the period such items are delivered or services are provided.  Technical support contracts extending beyond the current period are recorded as deferred revenue.

Funding from certain research and development agreements is recognized as revenue when certain criteria stipulated under the terms of those funding agreements have been met and when there is reasonable assurance the funding will be received. Certain research and development funding will be repayable only on the occurrence of specified future events. We recognize the liability to repay research and development funding in the period in which conditions arise that would cause research and development funding to be repayable. Government research and development arrangements are recognized as a reduction of the related expense when the criteria stipulated under the terms of the agreements have been met and when there is reasonable assurance the funding will be received.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments.  We consider the following factors when determining whether collection is reasonably assured:  customer credit-worthiness, past transaction history with the customer, insured amounts, if any, current economic industry trends and changes in customer payment terms.  If we have no previous experience with the customer, we typically obtain reports from credit organizations to ensure that the customer has a history of paying its creditors.  We may also request financial information, including financial statements, to ensure that the customer has the means of making payment.  If these factors indicate collection is not reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash.  If the financial condition of any of our customers deteriorates, we may increase our allowance.

As at December 31, 2014, accounts receivable comprised 20.7% of total assets.  Included in this balance was a provision of $2.3 million for doubtful accounts, or 2.1% of accounts receivable (as at December 31, 2013 - $2.3 million for doubtful accounts, or 2.0% of accounts receivable).  We believe our allowance for doubtful accounts as at December 31, 2014 is adequate to provide for probable losses existing in accounts receivable.

Inventory

We value our inventory at the lower of cost, determined on a first-in-first-out basis, and estimated net realizable value. We assess the need for an inventory write-down and/or an accrual for estimated losses on inventory purchase commitments based on our assessment of estimated market value using assumptions about future demand and market conditions. Our reserve requirements generally increase as our projected demand requirements decrease, due to market conditions, technological and product life cycle changes and longer than previously expected usage periods.  If market conditions are worse than our projections, we may further write-down the value of our inventory or increase the accrual for estimated losses on inventory purchase commitments.

Goodwill and intangible assets

Goodwill and intangible assets are assessed for impairment on an annual basis and between annual tests whenever circumstances indicate that the carrying value of the goodwill and intangible assets might be impaired.

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Circumstances may include an adverse change in business climate or a more likely than not expectation that a reporting unit will be sold or disposed. On at least a quarterly basis, we assess whether such circumstances exist.

An evaluation of recoverability of goodwill requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the estimated fair value of each reporting unit. Significant judgments that are required on our part to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates, consideration of appropriate control premium, market conditions, and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit and may result in impairment charges in future periods.

At December 31, 2014, our goodwill balance was $104.0 million.  We determined that there was no impairment as the fair values of each of our two reporting units exceeded their respective carrying values.  Our analysis took into consideration an income valuation approach using the expected discounted cash flows for each reporting unit. The principal factors used in the discounted cash flow analysis were the projected results of operations, the discount rate based on our estimated weighted average cost of capital, and terminal value assumptions for each reporting unit.  The discounted cash flow model used was based on our business plan, as approved by our Board of Directors.  For years subsequent to those contained in our business plan, we analyzed third party forecasts and other macro-economic indicators that impact our reporting units to provide a reasonable estimate of revenue growth in future periods.  Our gross margins and operating expense estimates were consistent with those generated in recent historical periods.  We also developed assumptions for the amount of working capital and capital expenditures needed to support each reporting unit.  No impairment of goodwill was recorded during the years ended December 31, 2013 and 2012.

In addition to the income valuation approach noted above, we also considered our current market capitalization, which was approximately $1,510.3 million at December 31, 2014 and exceeds our book value of $356.9 million.

Income taxes

We recognize and measure each tax position related to income tax positions taken or expected to be taken in a tax return.  We have reviewed our tax positions to determine which should be recognized and measured according to the more likely than not threshold requirement.  The tax benefits recognized in the financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.  If the realization of a tax position is not considered more likely than not, we provide for a valuation allowance. The ultimate realization of our deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. We consider projected future taxable income from continuing operations, tax planning strategies and transactions in making our assessment. If our assessment of our ability to realize our deferred tax assets changes, we may make an adjustment to our deferred tax assets that would be charged to income (loss).

We do not provide for taxes on foreign earnings as it is our intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries.  It is not practical to estimate the income tax liability that might be incurred if there is a change in management’s intention in the event that a remittance of such earnings occurs in the future.

The ultimate amount of future income taxes and income tax provision could be materially different from those recorded, as it is influenced by our future operating results and our tax interpretations.

Amortization

Amortization of property and equipment and intangible assets incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operation of plant and equipment and intangible assets.

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Warranty costs

We accrue product warranty costs in accrued liabilities to provide for the repair or replacement of defective products.  Our accrual is based on an assessment of historical experience, product quality and management’s estimates.  If there is a change in these factors, we adjust our accrual accordingly.

Royalty obligations

Under certain license agreements we are committed to royalty payments based on the sales of products using certain technologies.  We recognize royalty obligations as determinable in accordance with agreement terms.  Where agreements are not finalized, we have recognized our current best estimate of the obligation in accrued liabilities and other long-term liabilities.  When the agreements are finalized, the estimates are revised accordingly.

Contingencies

We are from time to time involved in litigation, certain other claims and arbitration matters arising in the ordinary course of our business.  We accrue for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.  Significant judgment is required in both the determination of probability and the determination as to whether an amount of a loss is reasonably estimable. These accruals are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and technical experts and other information and events pertaining to the particular matter.  To the extent there is a reasonable possibility (within the meaning of ASC 450, Contingencies) that the losses could exceed the amounts already accrued, management believes that the amount of any such additional loss would not be material to our results of operations or financial condition.

In some instances, we are unable to reasonably estimate any potential loss or range of loss.  The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have on the company. There are many reasons why we cannot make these assessments, including, among others, one or more of the following: in the early stage of a proceeding, the claimant is not required to specifically identify the patent that has allegedly been infringed; damages sought that are unspecified, unsupportable, unexplained or uncertain; discovery not having been started or being incomplete; the complexity of the facts that are in dispute (e.g., once a patent is identified, the analysis of the patent and a comparison to our activities is a labour-intensive and highly technical process); the difficulty of assessing novel claims; the parties not having engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and the often slow pace of patent litigation.

We are required to apply judgment with respect to any potential loss or range of loss in connection with litigation.  While we believe we have meritorious defenses to the claims asserted against us in our currently outstanding litigation, and intend to defend ourselves vigorously in all cases, in light of the inherent uncertainties in litigation there can be no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by us for those cases for which an estimate can be made.  Losses in connection with any litigation for which we are not presently able to reasonable estimate any potential loss or range of loss could be material to our results of operations and financial condition.

Stock-based compensation

We recognize stock-based compensation expense for all stock-based compensation awards based on the fair value at grant date. We recognize stock-based compensation expense for those shares expected to vest on a straight-line basis over the requisite service period of the award.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards requires subjective assumptions. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the

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application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Fair value measurement

We measure our short-term investments at fair value, defined as the price that would be received from selling an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining fair value measurements, we consider the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of non-performance.

An established fair value hierarchy requires the company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is both available and significant to the fair value measurement.  Three levels of inputs may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable and are supported by little or no market activity and that are significant to the fair value determination of the assets or liabilities.

The determination of fair value requires judgments, assumptions and estimates and may change over time.

OUTSTANDING SHARE DATA

As of the date of this MD&A, we had 32,064,316 common shares issued and outstanding, stock options exercisable into 1,213,082 common shares at a weighted average exercise price of $14.98 and 592,325 restricted treasury share units outstanding.

IMPACT OF ACCOUNTING PRONOUNCEMENTS AFFECTING CURRENT PERIOD

In July 2013, the FASB issued ASU 2013-11, Income Taxes (ASC 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists.  The update is intended to eliminate the diversity in practice of the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The update is effective for annual and interim financial statements for fiscal years beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. We adopted this presentation standard prospectively on January 1, 2014 which resulted in a reclassification of $3.5 million unrecognized tax benefit to deferred income tax asset.

In November 2014, the FASB issued ASU 2014-17, Pushdown Accounting. This update provides an acquired entity the option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The standard is effective on November 18, 2014. This update does not have a material impact on our company.

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IMPACT OF ACCOUNTING PRONOUNCEMENTS AFFECTING FUTURE PERIODS

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606). The update is intended to clarify the principles of recognizing revenue, and to develop a common revenue standard for U.S. GAAP and IFRS that would remove inconsistencies in revenue requirements, leading to improved comparability of revenue recognition practices across entities and industries. ASC 606 contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much, and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard is effective for annual and interim financial statements for fiscal years beginning after December 15, 2016. Early application is not permitted. We are in the process of evaluating the impact of this update and cannot reasonably estimate the effect on our financial statements at this time.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The update provides guidance about management's responsibility in evaluating whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. Given our financial condition, we do not expect the update to have a significant impact on our disclosures.

DISCLOSURE CONTROLS AND PROCEDURES

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for the Company.  Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed with securities regulatory authorities is recorded, processed, summarized and reported within time periods specified in applicable securities regulations, and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We conducted an evaluation of the effectiveness of our disclosure controls and procedures, which was carried out under the supervision of, and with the participation of, our management, including our Chief Executive Officer and our Chief Financial Officer, as of December 31, 2014.  Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2014 to ensure that information required to be disclosed by us in the reports we file or submit under applicable securities laws and regulations is recorded, processed, summarized, and reported within the time periods specified thereby.

We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. Control procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. We considered these limitations during the development of our disclosure controls and procedures and will periodically re-evaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.

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INTERNAL CONTROL OVER FINANCIAL REPORTING

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934 and has designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of December 31, 2014, based on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on its evaluation under this framework, management concluded that our internal control over financial reporting was effective as of that date.

KPMG LLP (“KPMG”), an independent registered public accounting firm, who audited and reported on our consolidated financial statements as at and for the year ended December 31, 2014, has issued an attestation report on our internal control over financial reporting as of December 31, 2014.  The attestation report is included in our consolidated financial statements.

There were no changes in our internal control over financial reporting during the year ended December 31, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

LEGAL PROCEEDINGS

In November 2013, we filed a complaint against Nokia Corporation with the EU Commission for breach of Article 102 of the European Union Treaty. The complaint alleges that Nokia Corporation abuses a dominant position, discriminates, applies unfair royalties and wrongfully refuses to grant a license to Sierra Wireless in the context of Nokia's essential patents licensing program. We also believe that Nokia Corporation violates Section 5 of the FTC Act (United States) and have sent a notice to the Federal Trade Commission ("FTC") setting out these violations. The EU Commission and FTC are each currently reviewing the materials we have submitted to them and the parties' filings. On January 6, 2014, we received notice from the International Chamber of Commerce ("ICC") of arbitration proceedings launched by Nokia Corporation against us, for alleged unpaid royalties of approximately €32 million. Both parties in the arbitration have filed their responses and the ICC has appointed an arbitrator. We

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believe Nokia's arbitration claims are without legal merit, and we will defend the claims vigorously. Nonetheless, an unfavorable outcome could have a material adverse effect on our operating results, liquidity or financial position.

In January 2012, a patent holding company, M2M Solutions LLC ("M2M"), filed a patent infringement lawsuit in the United States District Court for the District of Delaware asserting patent infringement by us and our competitors. The lawsuit makes certain allegations concerning the AirPrime embedded wireless module products, related AirLink products and related services sold by us for use in M2M communication applications. The lawsuit is in the discovery stage. The claim construction order has determined one of the two patents-in-suit to be indefinite and therefore invalid. It is anticipated that M2M will not proceed with its infringement case against us, but will eventually appeal the claim construction order. M2M wishes to proceed against other defendants in related cases involving the same patents with regard to its infringement claims. These trials are anticipated to occur in late 2015. Any appeals from the claim construction order may follow the disposition of these trials. In August 2014, M2M filed a second patent infringement lawsuit against us in the same court with respect to a recently issued patent held by M2M, which patent is a continuation of one of the patents-in-suit in the original lawsuit filed against us by M2M. The lawsuit is in the scheduling stage and trial is anticipated to occur in late 2016.

In May 2010 and in February 2011, a patent holding company, Golden Bridge Technology Inc. (“GBT”), filed patent infringement lawsuits in the United States District Court for the District of Delaware asserting patent infringement of the same two patents by a number of parties, including us and certain of our customers. In both cases, the litigation makes certain allegations concerning the wireless modems sold by us and our competitors. Both lawsuits have been dismissed against us. In May 2012, GBT filed a patent infringement lawsuit in the United States District Court for the Central District of California asserting patent infringement by us of a different patent from the other two lawsuits, but concerning essentially the same products. In September 2012, this lawsuit was dismissed in the Central District of California and re-filed in the District of Delaware. This Delaware lawsuit has been dismissed against us.

Although there can be no assurance that an unfavorable outcome would not have a material adverse effect on our operating results, liquidity or financial position, we believe the claims made in the foregoing legal proceedings are without merit and intend to defend ourselves and our products vigorously in all cases.

IP Indemnification Claims

We have been notified by one or more of our customers in each of the following matters that we may have an obligation to indemnify them in respect of the products we supply to them:

In May 2013, a patent holding company, Adaptix, Inc., filed a patent infringement lawsuit in the United States District Court for the Eastern District of Texas against one of our customers asserting patent infringement in relation to our customer’s products, which may include certain LTE products which utilize modules sold to them by us. In March 2014, the lawsuit was transferred to the United States District Court for the Northern District of California. The claim construction hearing is set for May 2015 and trial is set for August 2016.

In February 2012, a patent holding company, Intellectual Ventures (comprised of Intellectual Ventures I LLC and Intellectual Ventures II LLC), filed a patent infringement lawsuit in the United States District Court for the District of Delaware against two of our customers asserting patent infringement in relation to several of our customer's products and services, including the mobile hotspots sold to them by us prior to the transfer of the AirCard business to Netgear. The lawsuit was split into several separate lawsuits and amended complaints were filed in October 2013. We have intervened in two of the cases in defense of our products with respect to four patents-in-suit alleged to relate to Wi-Fi standards. The lawsuits are in the discovery stage. A claim construction hearing was held in September 2014.

In September 2011, a patent holding company, Mayfair Wireless, LLC, filed a patent infringement lawsuit in the United States District Court for the District of Delaware against two of our customers asserting patent infringement in relation to the wireless hotspots sold to them by us prior to the transfer of the AirCard business to

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Netgear. In October 2013, the plaintiff objected to the Magistrate’s report and recommendation that the Court grant the defense motion to dismiss for lack of subject matter jurisdiction. In June 2014, the District Court Judge adopted the Magistrate's report and dismissed the case.

In June 2011, Barnes and Noble, Inc. filed a declaratory judgment action in the United States District Court for the Northern District of California against LSI Corporation (and later added Agere Systems, Inc.), (collectively, “LSI”), seeking a declaration that certain patents were not infringed by their products, including the 3G Nook e-reader which incorporates wireless modules sold to them by us. LSI counterclaimed for patent infringement. There were 9 patents-in-suit, two of which relate to the 3G products which incorporate our modules. The claim construction order was released in April 2014 and the lawsuit was dismissed without prejudice in June 2014. This outcome will not have a material adverse effect on our operating results.

A patent holding company, Eon Corp. IP Holdings, LLC ("Eon"), filed a patent infringement lawsuit against one of our customers in October 2010 in the United States District Court for the Eastern District of Texas, which was subsequently transferred to the United States District Court for the Northern District of California. The lawsuit involves assertions of patent infringement in relation to wireless modems sold to our customer by us prior to the transfer of the AirCard business to Netgear. A claim construction order was issued in July 2013, and the defendant's motion for summary judgment of non-infringement was granted by the Court in March 2014. Eon has appealed the order granting summary judgment to the United States Court of Appeals for the Federal Circuit. Eon filed a patent litigation lawsuit against another of our former AirCard customers in January 2012 in the United States District Court for the District of Puerto Rico involving the same patent-in-suit in the California lawsuit plus three additional patents. This lawsuit was transferred in part to the District of Delaware with respect to claims related to one of the four patents-in-suit, which claims related to interactive television. The Delaware case has since been closed. The claim construction order in the Puerto Rico case was issued in April 2014. The case was closed in September 2014 following the filing of a joint notice of stipulation of dismissal without prejudice. Eon may refile this complaint pending the result of its appeal in the California lawsuit.

Although there can be no assurance that an unfavorable outcome would not have a material adverse effect on our operating results, liquidity or financial position, we believe the claims made in the foregoing legal proceedings are without merit and intend to defend ourselves and our products vigorously in all cases.

We are engaged in certain other claims, legal actions and arbitration matters, all in the ordinary course of business, and believe that the ultimate outcome of these claims, legal actions and arbitration matters will not have a material adverse effect on our operating results, liquidity or financial position.

RISKS AND UNCERTAINTIES

Our business is subject to significant risks and uncertainties and past performance is no guarantee of future performance. The risks and uncertainties described below are those which we currently believe to be material, and do not represent all of the risks that we face.  Additional risks and uncertainties, not presently known to us, may become material in the future or those risks that we currently believe to be immaterial may become material in the future.  If any of the following risks actually occur, alone or in combination, our business, financial condition and results of operations, as well as the market price of our common shares, could be materially adversely affected.

Competition from new or established IoT, cloud services and wireless services companies or from those with greater resources may prevent us from increasing or maintaining our market share and could result in price reductions and/or loss of business with resulting reduced revenues and gross margins.

The market for IoT products and services is highly competitive and we have experienced and expect to continue to experience intense competition. More established and larger companies with strong brands and greater financial, technical and marketing resources, or companies with different business models sell products and services that compete with ours and we expect this competition to intensify. Business combinations or strategic alliances by our competitors could weaken our competitive position. We may also introduce new products or services that will put

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us in direct competition with major new competitors. Existing or future competitors may be able to respond more quickly to technological developments and changes and introduce new products before we do or may independently develop and patent technologies and products that are superior to ours or achieve greater acceptance due to factors such as more favorable pricing, more desired or better quality features or more efficient sales channels. If we are unable to compete effectively with our competitors' pricing strategies, technological advances and other initiatives, we may lose customer orders and market share and we may need to reduce the price of our products, resulting in reduced revenue and reduced gross margins. In addition, new market entrants or alliances between customers and suppliers could emerge to disrupt the markets in which we operate through disintermediation of our modules business or other means.

Acquisitions and divestitures of businesses or technologies may result in disruptions to our business or may not achieve the anticipated benefits.

The growth of our Company through the successful acquisition and integration of complementary businesses is an important component of our business strategy. For example, on August 1, 2012, we acquired the M2M business of Sagemcom, on October 16, 2013 we completed the acquisition of AnyData's M2M modules and modem business, on March 3, 2014 we completed the acquisition of In Motion Technology Inc. and on January 16, 2015 we completed the acquisition of Wireless Maingate AB. We continue to seek opportunities to acquire or invest in businesses, products and technologies that expand, complement or otherwise relate to our business. Any acquisitions, investments or business combinations by us may be accompanied by risks commonly encountered including but not limited to the following:

• Exposure to unknown liabilities or risks of the acquired companies, including unknown litigation related to acts or omissions of an acquired company and/or its directors and officers prior to the acquisition, deficiencies in disclosure controls and procedures of our acquired company and deficiencies in internal controls over financial reporting of an acquired company;

• Higher than anticipated acquisition and integration costs and expenses;

• The difficulty and expense of integrating the operations and personnel of the acquired companies;

• Possible use of cash to support the operations of an acquired business;

• Possible increase in foreign exchange translation risk depending on the currency denomination of the revenue and expenses of the acquired business;

• Disruption of, and demands on, our ongoing business as a result of integration activities including diversion of management's time and attention from the ongoing business;

• Failure to maximize our financial and strategic position by the successful incorporation of acquired technology;

• The inability to implement uniform standards, disclosure controls and procedures, internal controls over financial reporting and other procedures and policies in a timely manner;

• The potential loss of key employees and customers;

• A possible decrease in our share price if the market perceives that an acquisition does not fit the our strategy, the price paid is excessive in light of other similar transactions or that the terms of the acquisition are not favorable to our earnings growth;

• A possible decrease in our share price, if, as a result of our growth, we decide to raise additional capital through an offering of common shares, preference shares or debt; and

• Possible dilution to our shareholders if the purchase price is paid in common shares or securities convertible into common shares.

In addition, geographic distances may make integration of businesses more difficult. We may not be successful in overcoming these risks or any other problems encountered in connection with any acquisitions. If realized, these risks could reduce shareholder value.

As business circumstances dictate,we may also decide to divest assets, technologies or businesses. For example, on April 2, 2013 we completed the sale of our AirCard business to NetGear, Inc.. In a divestiture, we may not be successful in identifying or managing the risks commonly encountered, including: higher than anticipated costs; disruption of, and demands on, our ongoing business; diversion of management's time and attention; adverse

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effects on existing business relationships with suppliers and customers and employee issues. We may not be successful in overcoming these risks or any other problems encountered in connection with a divestiture of assets, technologies or businesses which, if realized, could reduce shareholder value.

In addition, we may be unsuccessful at bringing to conclusion proposed transactions. Negotiations and closing activities of transactions are complex functions subject to numerous unforeseen events that may impede the speed at which a transaction is closed or even prevent a transaction from closing. Failure to conclude transactions in an efficient manner may prevent us from advancing other opportunities or introduce unanticipated transition costs.

We may have difficulty responding to changing technology, industry standards and customer requirements, and therefore be unable to develop new products in a timely manner which meet the needs of our customers.

The wireless communications industry is subject to rapid technological change. Our business and future success will depend, in part, on our ability to accurately predict and anticipate evolving wireless technology standards and develop products that keep pace with the continuing changes in technology, evolving industry standards and changing customer and end-user preferences and requirements. Our products embody complex technology that may not meet those standards, preferences and requirements. Our ability to design, develop and commercially launch new products depends on a number of factors, including but not limited to the following:

• Our ability to attract and retain skilled technical employees;

• The availability of critical components from third parties;

• Our ability to successfully complete the development of products in a timely manner;

• The ability of third parties to complete and deliver on outsourced product development engagements; and

• Our ability to design and manufacture products at an acceptable cost and quality.

A failure by us, or our suppliers in any of these areas, or a failure of new products to obtain commercial acceptance, could mean we receive less revenue than we anticipate and we may be unable to recover our research and development expenses.

We develop products to meet our customers' requirements. OEM customers award design wins for the integration of wide area embedded wireless modules on a platform by platform basis. Current design wins do not guarantee future design wins. If we are unable or choose not to meet our customers' future needs, we may not win their future business and our revenue and profitability may decrease.

In addition, wireless communications service providers require that wireless data systems deployed on their networks comply with their own standards, which may differ from the standards of other providers. We may be unable to successfully address these developments on a timely basis or at all. Our failure to respond quickly and cost-effectively to new developments through the development of new products or enhancements to existing products could cause us to be unable to recover significant research and development expenses and reduce our revenues.

The loss of any of our significant customers could adversely affect our revenue and profitability, and therefore shareholder value.

We sell our products to OEM's, enterprises, distributors, resellers and network operators, and we are occasionally party to sales agreements with customers comprising a significant portion of our revenue. Accordingly, our business and future success depends on our ability to maintain and build on existing relationships and develop new relationships with OEMs, enterprises, distributors, resellers and network operators. If certain of our significant customers, for any reason, discontinues their relationship with us or reduces or postpones current or expected purchase orders for products, or suffers from business failure, our revenues and profitability could decline, perhaps materially. In the years ended December 31, 2014 and 2013, no customer individually accounted for more than 10% of our aggregated revenue, from continuing and discontinued operations. However, during the

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year ended December 31, 2012, two customers each accounted for more than 10% of our aggregated revenue from continuing and discontinued operations and, on a combined basis, accounted for 25% of the aggregated revenue, and we may experience similar customer concentration in future periods.

In addition, our current customers purchase our products under purchase orders. Our customers have no contractual obligation to continue to purchase our products following our fulfillment of current purchase orders and if they do not continue to make purchases, our revenue and our profitability could decline, perhaps materially.

Failures of our products or services due to design flaws and errors, component quality issues, manufacturing defects or other quality issues that may result in product liability claims and product recalls could lead to unanticipated costs or otherwise harm our business.

Our products are comprised of hardware and software that is technologically complex and we are reliant on third parties to provide important components for our products. Despite the sophisticated testing and certification processes for our products, it is possible that our products may contain undetected errors or defects, especially when introduced or when new versions are released. As a result, our products may be rejected by our customers leading to loss of business, loss of revenue, additional development and customer service costs, unanticipated warranty claims, payment of monetary damages under contractual provisions and damage to our reputation.

We may be found to infringe on the intellectual property rights of others.

The industry has many participants that own, or claim to own, proprietary intellectual property. We license technology, intellectual property and software from third parties for use in our products and from time to time may be required to license additional intellectual property. In some cases, these licenses provide us with certain pass-through rights for the use of other third party intellectual property. There is no assurance that we will be able to maintain our third party licenses or obtain new licenses when required and this inability could materially adversely affect our business and operating results and the quality and functionality of our products.

In the past we have received, and in the future we may continue to receive, assertions or claims from third parties alleging that our products violate or infringe their intellectual property rights. We may be subject to these claims directly or through indemnities against these claims which we have provided to certain customers and other third parties. Our component suppliers and technology licensors do not typically indemnify us against these claims and therefore we do not have recourse against them in the event a claim is asserted against us or a customer we have indemnified. This potential liability, if realized, could materially adversely affect our business operating results and financial condition.

Activity in this area by third parties, particularly those with tenuous claims, is increasing, resulting in us taking a more aggressive defensive approach, which may result in increased litigation. In the last few years, patent claims have been brought against us by third parties whose primary (or sole) business purpose is to acquire patents and other intellectual property rights, and not to manufacture and sell products and services. These entities aggressively pursue patent litigation, resulting in increased litigation costs for us. We expect that this recent development will continue for the foreseeable future. Infringement on intellectual property can be difficult to verify and litigation may be necessary to establish whether or not we have infringed the intellectual property rights of others. In many cases, these third parties are companies with substantially greater resources than us, and they may be able to, and may choose to, pursue complex litigation to a greater degree than we could. Regardless of whether these infringement claims have merit or not, we may be subject to the following:

• We may be found to be liable for potentially substantial damages, liabilities and litigation costs, including attorneys' fees;

• We may be prohibited from further use of intellectual property as a result of an injunction and may be required to cease selling our products that are subject to the claim;

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• We may have to license third party intellectual property, incurring royalty fees that may or may not be on commercially reasonable terms. In addition, there is no assurance that we will be able to successfully negotiate and obtain such a license from the third party;

• We may have to develop a non-infringing alternative, which could be costly and delay or result in the loss of sales. In addition, there is no assurance that we will be able to develop such a non-infringing alternative;

• Management attention and resources may be diverted;

• Our relationships with customers may be adversely affected; and

• We may be required to indemnify our customers for certain costs and damages they incur in such a claim.

In addition to potentially being found to be liable for substantial damages in the event of an unfavorable outcome in such a claim and our inability to either obtain a license from the third party on commercial terms or develop a non-infringing alternative, our business, operating results and financial condition may be materially adversely affected and we may have to cease the sale of certain products and restructure our business.

We may be unable to attract or retain key personnel which may harm our ability to compete effectively.

Our success depends in large part on the abilities and experience of our executive officers and other key employees. Competition for highly skilled management, technical, research and development and other key employees is intense in the wireless communications industry. We may not be able to retain our current executive officers or key employees and may not be able to hire and transition in a timely manner experienced and highly qualified additional executive officers and key employees as needed to achieve our business objectives. We do not have fixed-term employment agreements with our key personnel. The loss of executive officers and key employees could disrupt our operations and our ability to compete effectively could be adversely affected.

Furthermore, loss of key employees or deterioration in overall employee morale and engagement as a result of organizational change could have an adverse impact on our growth, business and profitability.

Contractual disputes could have a material adverse effect on our business.

Our business is exposed to the risk of contractual disputes with counterparties and as a result we may be involved in complaints, claims and litigation. We cannot predict the outcome of any complaint, claim or litigation. If a dispute cannot be resolved favorably, it may delay or interrupt our operations and may have a material adverse effect on our operating results, liquidity or financial position.

Cyber attacks or other breaches of information technology security could have an adverse impact on our business.

We rely on certain internal processes, infrastructure and information technology systems to efficiently operate our business in a secure manner. The inability to continue to enhance or prevent a failure of these internal processes, infrastructure or information technology systems could negatively impact our ability to operate our business. Although we believe that we employ leading edge security measures that are being continuously updated to prevent and detect malicious threats to our information systems, the prevalence and sophistication of these types of threats are increasing and our security measures may not be sufficient to prevent the damage that such threats can inflict on our assets and information. A major security breach could result in the loss of critical data, theft of intellectual property, disclosure of confidential information, customer claims and litigation, reduced revenues due to business interruption, class action and derivative action lawsuits and damage to our reputation.

We depend on single source suppliers for some components used in our products and if these suppliers are unable to meet our demand the availability of our products may be materially adversely affected.

Our products are comprised of components some of which are procured from single source suppliers, including where we have licensed certain software embedded in a component. From time to time, certain components used in our products have been, and may continue to be, in short supply worldwide. Such shortages in allocation

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of components may result in a delay in filling orders from our customers, which may adversely affect our business. In addition, our single source suppliers may experience damage or interruption in their operations due to unforeseen events, become insolvent or bankrupt, or experience claims of infringement, all of which could delay or stop their shipment of components to us, which may adversely affect our business, operating results and financial condition. If there is a shortage of any such components and we cannot obtain an appropriate substitute from an alternate supplier of components, we may not be able to deliver sufficient quantities of our products, we may lose business or customers and our operating results and financial condition may be materially adversely affected.

Our financial results are subject to fluctuations that could have a material adverse effect on our business and that could affect the market price of our common shares.

Our revenue, gross margin, operating earnings and net earnings may vary from quarter-to-quarter and could be significantly impacted by a number of factors, including but not limited to the following:

• Price and product competition which may result in lower selling prices for some of our products or lost market share;

• Price and demand pressure on our products from our customers as they experience pressure in their businesses;

• Demand fluctuation based on the success of our customers in selling their products and solutions which incorporate our wireless products and software;

• Development and timing of the introduction of our new products including the timing of sales orders, OEM and distributor customer sell through and design win cycles in our embedded wireless module business;

• Transition periods associated with the migration to new technologies;

• Potential commoditization and saturation in certain markets;

• Our ability to accurately forecast demand in order to properly align the purchase of components and the appropriate level of manufacturing capability;

• Product mix of our sales.  Our products have different gross margins — for example the embedded wireless module product line has lower gross margins than the higher margin rugged mobile product line;

• Possible delays or shortages in component supplies;

• Possible delays in the manufacture or shipment of current or new products;

• Possible product quality or factory yield issues that may increase our cost of goods sold;

• Concentration in our customer base;

• Seasonality in demand;

• Amount of inventory held by our channel partners;

• Possible fluctuations in certain foreign currencies relative to the U.S. dollar that may affect foreign denominated revenue, cost of goods sold and operating expenses;

• Achievement of milestones related to our professional services contracts;  and

• Operating expenses that are generally fixed in the short-term and therefore difficult to rapidly adjust to different levels of business.

Any of the factors listed above could cause significant variations in our revenues, gross margin and earnings in any given quarter.  Therefore, our quarterly results are not necessarily indicative of our overall business, results of operations, and financial condition.

Quarterly variations in operating results or any of the other factors listed above, changes in financial estimates by securities analysts, or other events or factors may result in wide fluctuations in the market price of our common shares. Broad market fluctuations or any failure of the Company’s operating results in a particular quarter to meet market expectations may adversely affect the market price of our common shares.

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Continued difficult or uncertain global economic conditions could adversely affect our revenue and profitability.

A significant portion of our business is in the United States, Europe and the Asia-Pacific region and we are particularly exposed to the downturns and current uncertainties that impact the wireless communications industry in those economies. Economic uncertainty may cause an increased level of commercial and consumer delinquencies, lack of consumer confidence resulting in delayed purchases or reduced volumes by our customers, increased market volatility and widespread reduction of business activity generally. To the extent that we experience further economic uncertainty, or deterioration in one of our large markets in the United States, Europe or the Asia-Pacific region, the resulting economic pressure on our customers may cause them to end their relationship with us, reduce or postpone current or expected orders for our products or services, or suffer from business failure, resulting in a material adverse impact to our revenues, profitability, cash flow and bad debt expense.

It is difficult to estimate or project the level of economic activity, including economic growth, in the markets we serve. As our budgeting and forecasting is based on the demand for our products and services, these economic uncertainties result in it being difficult for us to estimate future revenue and expenses.

We have been subject to certain class action lawsuits, and may in the future be subject to class action or derivative action lawsuits, which if decided against us, could require us to pay substantial judgments, settlements or other penalties.

In addition to being subject to litigation in the ordinary course of business, in the future, we may be subject to class actions, derivative actions and other securities litigation and investigations. We expect that this type of litigation will be time consuming, expensive and distracting from the conduct of our daily business. It is possible that we will be required to pay substantial judgments, settlements or other penalties and incur expenses that could have a material adverse effect on our operating results, liquidity or financial position. Expenses incurred in connection with these lawsuits, which include substantial fees of lawyers and other professional advisors and our obligations to indemnify officers and directors who may be parties to such actions, could materially adversely affect our operating results, liquidity or financial position. Although we have certain insurance policies in place to transfer risk, we do not know with certainty if any of this type of litigation and resulting expenses will be fully or even partially covered by insurance. In addition, these lawsuits may cause our insurance premiums to increase in future periods.

We depend on a limited number of third parties to manufacture our products. If they do not manufacture our products properly or cannot meet our needs in a timely manner, we may be unable to fulfill our product delivery obligations and our costs may increase, and our revenue and margins could decrease.

We outsource the manufacturing of our products to several contract manufacturers and depend on these manufacturers to meet our needs in a timely and satisfactory manner at a reasonable cost. Our reliance on third party manufacturers subjects us to a number of risks, including but not limited to the following:

• Potential business interruption due to unexpected events such as natural disasters, labor unrest or geopolitical events;

• The absence of guaranteed or adequate manufacturing capacity;

• Potential violations of laws and regulations by our manufacturers that may subject us to additional costs for duties, monetary penalties, seizure and loss of our products or loss of our import privileges, and damage to our reputation;

• Reduced control over delivery schedules, production levels, manufacturing yields, costs and product quality;

• The inability of our contract manufacturers to secure adequate volumes of components in a timely manner at a reasonable cost; and

• Unexpected increases in manufacturing costs.

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If we are unable to successfully manage any of these risks or to locate alternative or additional manufacturers or suppliers in a timely and cost-effective manner, we may not be able to deliver products in a timely manner. In addition, our results of operations could be harmed by increased costs, reduced revenues and reduced margins.

Under our manufacturing agreements, in many cases we are required to place binding purchase orders with our manufacturers well in advance of our receipt of binding purchase orders from our customers. In this situation, we consider our customers' good faith, non-binding forecasts of demand for our products. As a result, if the number of actual products ordered by our customers is materially different from the number of products we have instructed our manufacturer to build (and to purchase components in respect of), then, if too many components have been purchased by our manufacturer, we may be required to purchase such excess component inventory, or, if an insufficient number of components have been purchased by our manufacturer, we may not be in a position to meet all of our customers' requirements. If we are unable to successfully manage our inventory levels and respond to our customers' purchase orders based on their forecasted quantities, our business, operating results and financial condition could be adversely affected.

We depend on wireless network carriers to promote and offer acceptable wireless data services.

Our products can only be used over wireless data networks operated by third parties. Our business and future growth depends, in part, on the successful deployment by network carriers of next generation wireless data and networks and appropriate pricing of wireless data services.

Misappropriation of our intellectual property could place us at a competitive disadvantage.

Our intellectual property is important to our success. We rely on a combination of patent protection, copyrights, trademarks, trade secrets, licenses, non-disclosure agreements and other contractual agreements to protect our intellectual property. Third parties may attempt to copy aspects of our products and technology or obtain information we regard as proprietary without our authorization. If we are unable to protect our intellectual property against unauthorized use by others it could have an adverse effect on our competitive position. Our strategies to deter misappropriation could be inadequate due to the following risks:

• Non-recognition of the proprietary nature or inadequate protection of our methodologies in the United States, Canada, France or other foreign countries;

• Undetected misappropriation of our intellectual property;

• The substantial legal and other costs of protecting and enforcing our rights in our intellectual property; and

• Development of similar technologies by our competitors.

In addition, we could be required to spend significant funds and management resources could be diverted in order to defend our rights, which could disrupt our operations.

Government regulations could result in increased costs and inability to sell our products.

Our products are subject to certain mandatory regulatory approvals in the United States, Canada, the European Union, the Asia-Pacific region and other regions in which we operate. For example, in the United States, the Federal Communications Commission regulates many aspects of communications devices. In Canada, similar regulations are administered by the Ministry of Industry, through Industry Canada. European Union directives provide comparable regulatory guidance in Europe. Although we have obtained all the necessary Federal Communications Commission, Industry Canada and other required approvals for the products we currently sell, we may not receive approvals for future products on a timely basis, or at all. In addition, regulatory requirements may change or we may not be able to receive regulatory approvals from countries in which we may desire to sell products in the future.

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We may also incur additional expenses or experience difficulties selling our products associated with complying with the SEC rules and reporting requirements related to conflict minerals. In August 2012, the SEC adopted new disclosure requirements implementing Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 for manufacturers of products containing certain minerals that may originate from the Democratic Republic of Congo and adjoining countries. As a result, since 2013 the Company has been required to conduct certain country of origin and due diligence procedures in order to meet the SEC reporting requirements. The impact of the regulations may limit the sourcing and availability, or may increase the costs, of some of the metals used in the manufacture of the Company's products. Also, since the Company's supply chain is complex, the Company may be unable to sufficiently verify the origins for all metals used in the Company's products through its supplier due diligence procedures.

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