Q2 2020 Sequans Communications SA Earnings Call
Welcome to the sequence second quarter 220 results conference call.
This time, all participants are in listen only mode.
Sure we will come Docs I question answer session and instructions will be given at that time.
This conference is being recorded before I turn the conference over to our host Mr. George Carlin.
Like to remind you of the following important information on behalf of speak on.
This call contains projections on other forward looking statements regarding future events or future financial performance I'm Central fight financing sources.
All statements other than president of historical facts I couldn't it shouldn't fiscal stimulus coal.
Getting any statements regarding expected revenue for the trade <unk> fourth Walter Twentytwenty future results of operations and financial position to construction plans expectations for muscle I don't see a bolt on crichton although T cells.
The ability to continue to operate multi of requires a high levels of productivity increasing backlog of orders.
Talked of the krona virus on our manufacturing operations.
And on customer to bond on other objectives for future operations are forward looking statements.
Within the meaning of the private Securities Litigation Reform Act of 1995.
Sex and try to somebody else to secure she's October 19th her to treat as amended on section 21 eat All Securities Exchange Act I would like to 34 as amended.
These statements are only predictions on reflects our current beliefs and expectations with respect to future events other based on assumptions on subject to risk and uncertainties, a subject to change and that anytime.
We operate in a very competitive and rapidly changing environment.
Risks emerge from time to time, given these risks and uncertainties you should not place undue reliance on gold forward looking statements.
Actual events or results may differ materially from those contained in the projections or forward looking statements more information on factors that could affect or bid list. All financial results argued in our public filings made with the Securities and Exchange Commission. Thank you. Please go ahead Sir.
Thank you operator.
Good morning, Ladies and gentlemen, this is George speaking.
I would never talked a lot of Chief financial Officer.
Welcome to our second quarter results conference call.
Yeah that is a number of new shareholder so somewhat law school, how do you expect that some odd listening to this school.
So we'd like to welcome you all and say that's we appreciate your interest and investment and sequels.
Since the press release I characterize Q2 as it builds on the quarter for us.
It was indeed and I'd like to recap some of our most important that she wants.
Sure through revenue increased nicely.
Sequentially and year to what do you.
Oh, sorry, all four businesses.
We significantly reduced operating loss.
And where it is 32.6 million done out an equity capsule to strengthen our balance sheet.
Although at a major accomplishments the thought loved hot button, so I'm looking at the financial statements.
Include the following.
We must important technical and business milestones related to all our large strategic partnership for Fiveg.
In fact.
Running slightly ahead of schedule and are seeing growing interest from an expanding list of potential customers.
We secured important new design wins and the projects in each of our businesses.
One of them is a major long cycle.
Industrial platform, one and our domestic why your T. business.
It's kind of since its catskill up too many projects that would ship for many years with the same marquee customer.
And it has the potential to generate up to 100 million dollar until that up.
[noise] weakens in years engaging with almost no impact from Korea 19 of the sections.
With many new prospective deals most of them with tier one customers.
I am calling all three business segments.
We set out to send an expanded our partnerships with multiple distributers and microcontroller vendors.
Reinforcing that go to like a strategy to scale. Our most of all your T. business I have discussed on our previous calls.
And we made very good progress on the far east strategic partnership front.
How do we have a few years under discussion and one of them is now in active negotiation.
Why do we like many other companies had supply chain challenges to overcome during the quarter.
I'm happy to say that we managed to limit them back.
Also we faced go read 19 impact.
On demand in our existing automotive related business, that's you're seeing some recovery in cooking.
Lastly, we're expecting to goes one major vertical project, but the final decision regarding doors of the D. and talk about a customer was delayed by about one point.
So in summary, we had very pleased with their shipments softer quarter.
And were very excited about all the future.
We believe that positive impact of curried 19.
On demand for our solutions wouldn't continue to offset any negative impact.
And we continue to assume the same order of magnitude adult revenue growth for Twentytwenty.
As you read of targeting prior to the appendix.
More importantly.
We continue to build a solid foundation for significant growth next year and bill.
Why some external challenges and this remain.
Our own operations or nearly back to normal.
With only one location and it works some homework.
During the first half of the year.
Oh, that's we commend thing any high level of productivity.
While working 100% anymore.
That's right I'd be to be able to be in the office together and almost all locations with appropriate social this dosing and other people.
Oh, we'd like to discuss some of the specific reserves for our cancer deaths in the future.
Due to our recent developments and each of our businesses.
And I will start off with a broader and because of the light duty business.
During Q1, the surgeon demand in the U.S. for portable routers resulted in a very large increase in orders put a lot of modules that bought about isogen back mobile hotspot.
We believe a lot of the demand was to sort of schools for use by students.
Automated challenged in addressing this demand during Q2 was extended lead times for some components.
Well, what collected a creativity and persistence.
We're able to obtain enough components to satisfy a significant portion of this larger orders.
As a result, our broadband out you'll see revenue more than doubled sequentially.
We continue to fulfill the backlog for those tend to sort of course.
The components situation it looks like it will begin to improve soon even if we continue to struggle with getting enough component through our drilling.
We expect the expanded use I'll jump back to continue specific as to how to schools on students with removed note link applications as many student may not be able to talk to classes full time since most of the United States considering enough opening the schools unfold ordered using.
On campus classes.
Even if we don't have yet the full picture for true, Florida and beyond.
All indications point to the new normal for Jeff Dyke being at a higher level of demand than before the pandemic.
The Corona virus has focused everyone's attention on the importance of being able to war kinda study remotely.
Which is dependent on having good broadband connection.
Even in advanced countries, such as the United States.
I've seen estimates ranging between 20 million and 14 million people without physical access to broadband connection.
This is not counting those who cannot afford it.
Or part of dependent on mobile it applies with did elements.
Globally.
In addition to divide as much wider in fact, it's estimated that nearly 50% of divorce population still lags access to then.
Federal and local governments and even the United Nations abroad, and commission for sustainable development are setting goals design to connect the other half of the horse population to bridge. The addition of divide.
Devices to enable the broadband and on deserve areas have been part of our core business since our company was halted.
The recently.
Industry of Serota agreed that broken out you deal is likely to see study fairly slow growth.
No forecasts are being revised support not only in emerging markets, but in developed countries as well.
For example.
Next Whos widely followed mobility report forecasts fixed wireless access to grow from 51 million connections and turn to 19 260 million by taunted quantify.
The compound annual growth rate above 20%.
I was wrong time presence in this market plus our technical know how position us to capitalize on fixed wireless access a growth.
As well as higher demand for portable routers over the medium term.
Yes.
As we move into the second half of this year.
We expect the emerging market portions of our broader now you see business to accelerate specifically from the new customers. We secured at the end of last years as that product how to now in production.
Therefore, we should see more growth coming from the emerging markets starting in Q3.
In addition.
We are well positioned to capture the significant shed also developing crs pockets in the last.
As you know Superyacht S. Four sit the citizens broadband who do service for the first of the 3.5 gigahertz band in the U.S., which is currently underused.
So the Fccs opening 150 megahertz in this band for access to licensed users with your priority access license.
And so there's just sort of new users, where the John I'll summarize access.
Seven demographics of the spectrum is being auctions and and then we got some blocks and the remaining 80 me hours would it be available for the general access at no cost not without the ability to ensure quality of service August.
This auction have failed to access licenses attracted over 270 bidders visitors include in addition to tier one telecom operators and tier two and three or wireless access service providers.
Many nontraditional companies such as cable companies utilities, and some other large corporation as well as potential noted our host providers.
Well the successful bidders will be remains to be seen but one thing to certain all these networks will require devices that support the 3.5 gear spent.
Our cats foreign Cadsix products have been supporting 2.5 bands worldwide for nearly a decade.
Last year, we launched modules that thought cost optimized for see about S and the U.S.
As we have reported in the past we have enjoyed strong interest in our scibetta solution for various types of devices and applications.
Including cities and getaways for broadband access and various industrialized applications.
During Q2.
We added and you'll see about us customers and one of them in particular has very large potential.
We believe that our see about us business could contribute 70, and deluxe or more to revenue next year.
Finally, we continue seeing traction with new customers looking to our broadband that you'd be kept for analytics platform.
We are in advanced stage nigger shifting to very losses, one in the U.S. and one in each.
[noise] longer term, we expect to play a significant role in Fiveg with our told us platform.
Anthony under development.
Diane thought as Fiveg platform would serve to measure groups of Fiveg use cases.
One is enhanced mobile broadband we refer to this as NBP.
Supplying solutions for high bandwidth Swanda connectivity.
Our scale video streaming and virtual reality.
And the second is just a reliable low latency communication also refer to this as you are OLED see.
For connected devices used in factory automation robotics and remote management.
Some of these use cases in busquets figure is not likely to be in mass production until mid decade. Meanwhile, some of the applications for which we are seeing immediate interest include.
Then sheryl and at the price fixed wireless.
Bedded or independent devices for mobile computing, such as portable routers.
Extra information high definition come at US then connected car applications.
No that's going on five year related revenue is virtually all services and it's reported as part of our vertical and strategic business.
Lastly, our shipping products based on our first platform those revenues will be recorded as part of the broadband and critical initiatives.
We feel very good about our prospects in Fiveg.
Because the large chip companies are focused on the smartphone market and it's not possible to create one design that's optimized for bus markets.
Also there is only one western company currently serving to Fiveg market.
And then on smartphone portion of the market, there's not that primary focus.
Therefore, a head start up on Fiveg technology.
The support of outstanding strategic partners.
And generally high barrier to entry, we believe rod a very well position to capitalize on this major opportunity. We believe fiveg can fuel our growth for the next decade.
Turning now to all our must feel UTI business.
The third major growth for use cases for Fiveg is massive machine type communication.
We refer to this as and DC.
Which we refer to hearing in on our business to as massive volumes.
This business currently includes our kept one calliope platform and our cats and be platform monarch.
The second generation of box platforms on Fiveg today.
This will allow our customers to transition seamlessly to fiveg with no change as massive I used the application would involve some fourg to fiveg.
Yes solutions out optimized for robotic assumption.
And low cost in order to run on batteries and provide low cost cellular connectivity with limited through both in comparison to whats provided by program.
Even though that massive IC market has been slower to develop than we expected.
Working with customers and partners through then thought infancy of the market.
And sharing our vision on roadmap had been relationships that thought a difficult for a new come out with one product to displace.
We expect the ramp and massive I'd solutions to fueled strong growth over the next two to three years.
But I guess why not and get them revenue grew sequentially in Q2.
Past inventor issue, we had with our mothers customer and kept one.
And we continue to believe gets one revenue will increase in the second half of the.
Why adequate 19 cost soft demand for applications related to that caught industry demand from a customer to developing health monitoring device has increased significantly.
We expect to see this increase continuing in the second half of the it.
And the stay at relatively high level next year.
In Q2, Curried 19 had an impact on our capital and supply chain for the same components as we use important what elders.
And we were not able to compete to sort of higher demanding Tesla.
But expect to be able to serve these customers includes.
So on balance the cat one business is moving in line with our plan.
We remain very positive on our cat business.
Despite some delays caused by the pandemic on some customer projects, not yet launched and some softness and automotive related business.
The projects already in production.
Moving very well and we are very happy about the level of demand coming from the Comcast security system, we are supplying into yes.
We expect got them revenue to be higher into second half compared to the first half.
And destroy a very weak increase for the full year versus 2019.
Mainly driven by new projects.
We'll be launching bus and the U.S. and Japan.
Overall, we are confident that we have reached an inflection point in domestic if I get the mark.
We believe kept them revenue with continues to grow significantly next year.
Got one is likely to be must this study until we start shipping our next generation platform Calliope too in the second half of next year.
So we believe mess if I use he has a whole.
It is likely to grow was over 50% next year.
Our confidence for the medium term is based on several important design wins during Q2 as well as the significant increase in the total estimated value of projects that are currently in the technical feasibility stage.
Also the new opportunities we are they don't find got a generally logs wrote about must have those already in production.
The categories of application, where do we see a high degree of current into this includes various types of tracking devices.
Metering security connected speakers and health monitoring.
During Q2, we secure the tracking design win that's connected with the major retailers as well as a parking application in Japan.
Oh I must important you design win in Q2 was the first phase as well for large metering opportunity.
So you've mentioned in the past.
As we've been saying that meeting space is an important one for us.
But its collaterally gas and water meters flooded the low power requirements and the harsh environment for this particular challenge.
Our joint promotion of the monarch sit with the Skyworks is showing results.
Particularly in this meeting space.
We have an excellent solution and we are getting strong support and feedback from customers engineering teams.
Got it close to another significant metering design win.
And not engaged in discussions on several more metering projects.
This idea all significant promise for the second half of next year and Bill.
Our go to market the initiatives with our distribution partners.
I haven't had an RFP are going well.
We are expanding the scope of our relationship with Avnet to include Europe.
And we have a number of design wins based on will not go.
We are also expanding the scope of our relationship with at a lot SPD outside the U.S.
And your funnel of opportunities from Japan, and Europe is developing.
We are very pleased with the progress with our existing and fewer partners.
We are moving into next steps of engagement with bought Microchip NXP.
You'll hear more about the work we are doing with them later in the.
For confidentiality reasons, I will be commenting in detail only after that announcements.
Our unique position as it technology provider of cellular connectivity.
Makes us an ideal partner to all MCR vendors.
We have them addressed MSR UTI market.
And to help us address the segmented that pipe of this mark.
While we continue working with the publicly announced MCR vendors.
I'd also for showing discussions with other partners and we expect to solidify additional relationships before year end.
Turning now to vertical and strategic segment.
Our vertical as strategic business remains on track for a significant increase in twentytwenty.
Mainly due to revenue recognition related to the larger strategic deals signed last year.
As we've mentioned previously we were selected by our existing customer.
For the program they are per showing into sublet space.
We had hoped to find out because there was successful in lending business by now.
However, the decision has been postponed to Q4.
The positive side, where to close to finalizing the terms with the new customer for a project that has been on hold for the wide, but this is now moving ahead.
Also we are seeing our pipeline of opportunities increase among both existing and new customers. We are optimistic about our ability to show good growth in this business next year.
Regarding potential new strategic deals, but still involved in multiple discussions.
We are pleased to report.
We have reached a point of actively negotiating terms for the one that's must and advanced.
Since we were able to strengthen our balance sheet.
With additional equity funding in Q2 discussions with prospective customers and partners have become easier.
I'm not able to focus on getting the best possible deal.
Then on how to proceed as quick as possible.
We are continuing to work on additional government innovation funding from the French government and we had very good progress in Q2.
We have received recently an official notification that two out of now in the last phase of the process that we hope to cost in Q4.
To summarize despite ongoing macroeconomic uncertainty.
And a potential further impact some complete 19, we remain optimistic that can be above 50% the growth for this year.
And I have a similar growth level next year.
Over the medium term we expect.
Continuing to growth in broadband for emerging markets.
To sustain at relatively high level of demand for portable routers.
To add new Crs related business.
And to add revenues from a few major deals that we are working to close.
We expect domestic why you did ramp to continue accelerating.
Kept when should continue to steady growth then accelerate with the introduction of our Calliope Catone solution.
Got them is expected to keep accelerating its Tom.
The existing projects shipping plus new design wins and platform projects. We have secured supported by the introduction of our second relation monarch two solution.
Finally, our vertical market business is expected to grow significantly thanks to the deal we ought to closing this year and will add to the revenue generated from our existing and new strategic Fiveg projects.
Helping to fuel far better growth over the long term will be our new high end Fiveg taught us platform for raw bran and critical applications.
Yes that continue to growth and mess divided.
But should continue growing for the rest of the decade as the market continues to grow.
We know that some of you became interested in us as it either in 40 optimized solutions.
Some of your became interested in us as a now you deeply.
Not at Us as a company benefiting from initiatives to bridge the digital divide.
More recently submitted as has come because we are seen as it Fiveg company.
The fact is that throughout all of those things we are the only company, where they can PS advantage of Fiveg for reseller connectivity.
Optimized for the Internet of things market and this will contribute to maintain our momentum over the next decade.
Now I'd like to turn the call over to Deborah to give you more detail on the financial results.
Thank you George and Hello, everyone.
Now I'd like to that sounds about our Q2 results and other development.
Our Q2 revenue was $12.2 million a sequential increase at 39.4% for the first quarter, primarily driven by 59% increase in product revenue, reflecting the surge in demand for modules for portable routers that also increases in products, yes, and massive IR team.
Revenue in Q2 increased 54.6% compared to the same quarter a year ago.
We continue to expect further sequential growth in the final two quarters at year end, Leon Trotsky Micenko of at least 50% topline growth for 2020.
We had three greater than 10% customers in the second quarter, one is an area and our audience.
Our gross margin in Q2 was 48.3% compared to 51.3% first quarter and compared to 37.7% in the second quarter of 2018.
Q2, 2020 gross margin reflects a greater proportion of modules and the product mix than in Q1 and develop inflation service revenue.
Operating expenses were $11.5 million in Q2 down from the 12.3 million in Q1.
Primarily due to fewer trade shows and less travel as well as the onetime charges in Q1 related to bringing on board psyche development team in Israel.
Non IRS operating expenses were $10.8 million wants and 11.6 million in Q1.
Our second quarter operating loss was $5.6 million compared to an operating loss at 7.8 million in the first quarter and a 6.9 million dollar loss in the second clear at 29 team.
Our net loss in Q2 was $19 million or 70 cents per diluted ABS and included a non cash 9.1 million dollar loss and evaluations as the embedded derivatives arising from the March 2020 minutes.
Our convertible debt agreements.
This compares to net loss at 15.3 million or 64 cents per diluted share given maybe yes.
This quarter.
Which also included a noncash loss on revaluation of the embedded derivatives as 5.6 million, partially offset by a onetime noncash gain of 1.4 million recognized as a result, as the amendments to the convertible debt agreement.
The net loss in the second quarter last year was 9.9 39 cents Brady has.
Not at that you like convey what that amendment.
When you investors to maybe I should million with the March 2020 amendments.
Purpose was to breath Tonight.
Stability to extend the maturity of each convertible note solely at our option by one year increments at three times.
In certain cases this could result in a reduction in the conversion price.
Consequently, the equity conversion price is now considered potentially variable so I Srs accounting requires that the conversion option. The recorded as an embedded derivatives, which must be mark to market each quarter with any change in value reflected as a non cash financial gain or loss.
Previously the estimated values of the conversion options will require you to antigen.
The Q1 results we reported in April when markets preliminary because we had not yet finalized devaluation of the amendments which was a highly complex task.
Hey, John injuries, resulting from this process led to changes in our financial and deferred tax expenses for Q1.
If we're in our Q2 financial statements. The comparative Q1 results have been updated to reflect the noncash impacted this valuation process.
And slow updated in final Q1 financial tables have been filed with that form 6K today.
Those of you, making financial models will want to update the relevant Q1 IRS line items.
Our weighted average number of Adss in Q2 was 27.2 million and increased 3.3 million adss, reflecting equity offerings in may.
On a non I first basis, our net loss for Q2 was $7.5 million or 28 cents per diluted EPS.
Compared to non I address your loss of $8.7 million.
36 cents, great, yes in the first player and a net loss of 7.9 million.
33 cents per diluted ABS in the second quarter of 2019.
Our non high for us not loss excludes noncash items related to stock option stock based compensation expense.
And the non cash impact and the fair value and effective interest adjustments related to the convertible debt with embedded derivatives and other financing and non cash in Pakistan right about that and then and the noncash deferred tax benefits expense related to the convertible debt and other financing.
In analyzing the difference between our actual non effort not I address net loss in Q2 and the various analyst estimates.
We noted that where there was a defense and.
Pair that with Incyte, where there was a difference it was related primarily to the assumptions used regarding foreign exchange gain or loss for the quarter. In Q2, we had a foreign exchange loss of over $500000 related to the reevaluation of euro denominated liabilities on the balance sheet.
By contrast in Q1, we had a 675000 forex gain.
Investors should be aware that possible swings in foreign exchange related to balance sheet liability.
And the marking to market and the embedded derivatives and the convertible debt amendments.
Significant differences in net income or loss from quarter to quarter.
While the impact of swings in the value of the embedded derivatives is excluded from our non IRS presentations.
Foreign exchange gains and losses are now.
Cash flow used in operations during Q2 was $1.4 million compared to cash flow used in operations at 7.7 million in the first quarter.
Our cash and short term deposits at June Thirtyth, 2020 totaled $35.5 million compared to $5.1 million at the end of Q1.
This increase reflects the proceeds of our equity offerings in may the recovery of the 2019, French resets credit and an additional 5 million euro.
Got it wrong as part of the Kevin 19 stimulus package aimed at helping French technology companies.
As George mentioned, we believe we're on track to receive French innovation financing as part of that technology concession for Fiveg and we had applied for innovation financing city Israeli government as well.
Accounts receivable at June Thirtyth, 2020 increased to $10.7 million from 8.8 million at the end of Q1, reflecting higher product sales.
Yes, as compared to 61 days compared to 91 days at the end of Q1.
Inventories decreased slightly to $5.9 million compared to $6.1 million at the end of Q1.
Current trade payables increased to $70 million spent 12.2 million.
Reflecting large capex purchases in June for the Viking program.
Short term debt financing receivables increased to 9.6 million and 6.6 million at the end of Q1.
Turning to the financial outlook, we are targeting at least 10% sequential revenue growth in Q3.
Additionally, we continue to expect sequential revenue quarterly revenue growth in the fourth quarter.
Therefore, we continue to expect full year revenue in 2022 Gram right, 60% compared to 2019.
Although we remain somewhat cautious about accounting greater challenges with supply chain Utica the 19th.
For those of you developing financial models, we continue to assume that non IRS best margin will average about 45% during the second half the year with the potential to fluctuate from quarter to quarter based on its a portion of modulus versus service revenues in the mix.
We also continue to assess non IRS operating expenses, you averaged around $10.5 million during the second half.
Okay. That's on a quarterly rate and we expect non IRS financial expenses to be around $2.1 million per quarter. During the remainder of 2020, excluding any foreign exchange gain or loss.
Finally for modeling purposes, the exact number it adss on June Thirtyth 2020 was 30.269 million 536.
Before I turn call back to George I, just like to remind you that at the conclusion of this call. We were speaking version of our formal remarks and Investor related relations section of our web site under Webcasts and presentations page. The same location, where you will find the audio replay.
Also George and I will the risk will be participating in the virtual Canaccord conference on August 12.
For the speaking with you if you plan to participate now turn call back to judge.
I could ever so again to conclude towards as I said. It was Q2 was a great quarter on all fronts, including the balance sheet aspect.
And we believe the Twentytwenty is going to be is strong views.
Our three businesses are doing very well.
Extra demand for broadband, but also from new customers and new market segment.
Acceleration of massive our UTI is happening.
And vertical deals continue to bill.
Also strategic partnership continues to develop thanks to our leadership position has unique provider of a comprehensive fiveg before she connectivity solutions focused on that used to mark.
So all signs are positive and we feel very good about a future.
Thanks for listening, we'll turn the call now two questions operator.
Thank you if you wish asked the question signals by pressing star one on your telephone keypad.
Again that is there's and ask the question.
Hi, My name for just a moment hello, everyone and opportunity to take them.
We will now take our first question from Craig.
The rightly FBR. Please go ahead.
Yes, thanks for taking the question and congratulations on all the accomplishments in the quarter.
I wanted to start just with the qualification on the supply side, you mentioned that there were some supply issues impacting college football rights and jet pump business and matching prior to business. How do you see that that supply issue progressing as we go through the third quarter is that something gets resolved now and you feel like you're getting sufficient.
Supply for both of those businesses or is it supply sufficiency something that occurs later in the quarter hung up so when would you expect.
Oh, Hi Tech and did you know, it's getting better you know I don't want to say that as long as Rubicons does that lead time remains.
Long gun and obviously goes demand soon all related to the complete a very hard to predict so you are getting always.
Because no one knows when when this crisis will end and people in water little bit cautious. So there they've done something on suddenly they need much more and obviously we plan on our side oldest so in a nutshell.
July was still tough.
But I see August doing one with catching up and I believe hopefully with all dollar suspicion. We did for the rest of the year, we should be fine, but to remain neutral the tune on the edge that can make mistakes cautious as anything can happen in the last minute on this.
Yes that makes sense and then turning to the critical IP business. So nice to see some of those emerging markets design wins, starting to come in and ramp in the back half year. What's your calendar 21, how do you see a critical I O T geographic mix dynamics playing out.
It's a lot of the growth coming out of the emerging markets versus versus the rest market and Deborah given a geographic mix dynamic is there anything too.
But you know on on the gross margin side.
No just correct for for.
Maybe you when you refer to critical how you deal one what what are you referring is it this laments critical or or you're talking about the broadband ideas as the difference.
Yeah, but muscular. Thank you yeah brought on sort of okay. I mean, maybe just for the terminology enough because of broadband and critical UTI. The fiveg at this critical because this is the latency the low latency, which opening a new application but.
On the yes, indeed, I mean, you know a D.D. it did emerging market I mean is moving well as they said because we added some customers.
Last year and those guys are moving through production.
And I'm quite happy to see this set up accelerating even in Q3. So hopefully this will continue.
And obviously when you refer to see that S antigen, taking all this all this is outside of the.
Emerging so the mix.
There is always impacted a little bit you know on gross margin when your southern division market, but overall.
Yeah, I'd say that's it.
It's more Alan where we sell and is not so much of an impact or factor on the selling price, it's more related to volume and.
In the end applications.
I'm not expecting or anything that can impact on gross margin based on where where the.
Where we're selling.
Got it and then lastly, before I hop back in like Q, turning to the massive I acute business are you made some points on your distribution and then see you partnerships. George can you just help us understand the visibility you're getting into the demand creation design win panels with phase two.
Okay partners distribution them to you when and what should we expect from a messaging and I'm just.
Quantification standpoint, with respect to those opportunities as we look at the back half of the year and more significantly calendar 21. Thank you.
Yeah, I mean, Craig.
And did all I can talk at least couple of extra too because we had a pretty slow quarter on goes engagement thought of developing a start to distribution and the reality. The five mm was not as big as as we saw within the past you know another or see this was really better than household for lead generation out of bringing Ted one.
Account plus.
So I didn't off the market was that has also obviously the the refers to the market in the same time, but the go to market I'm hard pressed on tour or has a very positive impact as you know early to talk about.
You know.
Revenue impact for next year, you I'll say specifically on this even if we see that trend recede up by bigger we see bigger deal that drive negotiating and obviously this way to fuel our revenue investor value to next year on on massive on DMC you part, but this is really another angle, which is obviously how did the vote.
The market, mainly the dark fiber.
Already we're seeing some traction data and more would come out say ER and the second half of this year I mean, we're seeing more customer buying if you want the viki the tools to develop projects on song.
And again this should help us significantly next year I'm very positive about it but still too early if you want to quantify I would say to tell you look I mean this was the portion of direct business and this is the percentage of index business or two partners.
But all is that it had a positive I'm very excited about and and this should do fuel the growth next year.
Got it thank you.
And we will now take our next question from Mike Walkley of Canaccord Genuity. Please go ahead.
Great. Thank you.
Just to.
Follow up question on the on the road sequentially that 10% plus growth is it equally weighted across all business to get more broadband can you just give us maybe some color of the sequential growth and going back to the supply chain question on how much do you think does not able to ship in Q2.
In terms of revenue decline through the supply issue that Paul looks like it might get rectified Rob yes.
Thank you.
Well on the on the Oh.
Well, let's say equally and as fast because you know we have all this.
The vertical less physic project as you know it's a revenue recognition. So sometimes you can vary from quarter to quarter. Because this is a percentage of completion and and depending what try to during the quarter, we could be picking up <unk> million a lot more or less even if they have a new deals I didn't know, but very honestly if I have to look to Q3, if I have.
Mine.
We're not expecting or.
Growth quarter to quarter on divesting non strategic solves this growth will be coming from the two line product line broadband and message by UTI and the two wouldn't be growing quarter to quarter and our planet keys.
Okay.
And regarding the supply chain.
No I could say that.
We we you know we we use.
We could do I mean, it's very hard you know because the order one would receive order from the beginning we Didnt think we'll do everything in Q2, Oh, we're thinking that would do something the piece in Q2 and a decent can see from the beginning so snuck all looked to have in the backlog was planned for Q2.
Just because you know we know that it will be impossible for us to certain however, we are planning maybe you know to do.
A couple of supply we could actually if I give you really the number in mind I have it on the plan. It was somewhere seven how to kids how to cater to could do more but if the supply was in line of went to at home.
No there.
That's helpful and.
Congrats on the stronger balance sheet.
Yeah, but how does this cash now that you guys up in terms of.
You're growing forecasts towards breakeven and then for the France in Israel funding what to those amounts look like if they come through later this year.
Okay.
Rick without our fundraising we hit in Q2, we feel that we are we are set to take the company cash flow breakeven.
On the the additional funding that's still in process.
On the French government.
We're expecting maybe about $6 million as which would be a portion this year and of course in next year.
And the Israeli is probably a financing is probably more.
Around.
400000 per quarter.
Yes.
Thank you that that's it for me congrats.
Thanks.
And when they take our next question from some girls Bearish. Please go ahead.
Hi, Good afternoon, just a quick follow up from the prior question and.
Trying to look at that the timing as the.
Breakeven there how should we look at a.
Cost structure next year, I know you're guiding for next year, but just trying to kind of model, where we could get to the timing of debt to EBITDA breakeven looking at the Opex.
Yeah, I think our expectation is that this year, the we have Viking team fully ramp.
And then and also engineers meeting fan legacy to IP. So we're not expecting to have two I continue to increase headcount in cost at significantly next year. So Anthony.
As we bring on what projects there might be a bit more support to be done that.
I'm not expecting a significant increase in opex that kind of 21.
Okay, Great and then could you expand a little bit on this.
You've mentioned as India.
The significant growth at the Q. The next to you on that you've talked about them.
So or any kind of creators and cable companies and utilities.
Could you help us.
I understand what is becoming she ended about that specific frequency whether its institute.
Your product occurring right now and basically what are some of the key applications or maybe a bit in more detail.
So I wanted to know D.D., the best way to look about can we have to kind of big application for cigarette us whether it's used by the main that is cool has an offload now the horse.
Your job regular business the Vic operator, if they got the frequency so because they have some frequency band available and some region.
If they are separated the data on spectrum. They can offload they use us on this and for this it will not be in my opinion and new business for us in the sense like assemblies that I could not business the job with operators and okay. You have one more frequency band to support them to device versus.
No not having to see got us insight. However, we are completely new application, which as you can qualify them like private 40 or into future Fiveg networks, which is essentially the new operators are calling called them operates or even if I didn't really do you maybe down not telecom operator about the new.
Service provider or developing a network to sort of campus application to sort of cities to sort of utility to serve factory.
And this figure like Super Wi Fi, if you want to doesn't quite until sort of the space. Because you know the wife or has it changed when it's at larger scale and volume because you start getting using the quality of service. While 45, she can get attitude the quality of service and now you have a frequency band that looks like a you know if say which is.
Semi license, but it looks like unlicensed sequence event, because you can put your network without really being a lot of funding for the spectrum and use it to run an operation locally or better. So this is really the new markets for us, it's very hard, but honestly too I don't have real numbers off the market size because very complicated old.
The study have seen it's very hard for them to estimate the number of units you can get there, but if we satisfy the attraction we have from the customers because we have done enough customers I mentioned that even during the quarter. We added a couple of guys.
You know all this let us feel like there is there is demand we're we already shipped some but lower level, but obviously now when the auction will be finished and the people can start moving we should see acceleration of this market I noticed the mission that we could do you know.
Few fumigant allowed to maybe more.
Incremental revenue next year coming only from the smart you tend to use.
Great that chief who then in the last question now that we're getting very close to that I can you comment not being able to get a supply from TSMC has that changed at all your outlook about China. I know you have and you have not consider China Angie.
Markets, where you can have meaningful participation in the past does that change your or maybe it doesn't but their potential opportunities arising from now on the decline dynamics.
Oh, there's all those that I make really a dod coming a positive to the company. There's very very hard to say you know how big is and song today because study hard too.
We didn't measure it yet, but definitely if some traction all this is positive as you know see cost being obviously when you know that it's breaking that the awfully into Western war, the having to 45, you technologies, attracting a lot of partner, we're seeing as well. Some production you know with some people that they want all using as well a medical.
[laughter] not to say it like this on having friends.
Having sequenced the French company and we have some people coming to our chip because we're not the Americans. So.
There are still very hard to say to quantify it and say how much will benefit from this inside China I'm more interested in Dan backed off of our business in the U.S. and Euro then then the divorce, but maybe the diverse could there as well both of them getting something more in China could be positive because if people you know if the pension continue on they want to avoid.
They want to have European technology, we can be well placed to sell this technology as well.
Okay. Thank you very much.
Okay. Thank you Sir.
And then take our next question from sale of Roth Capital. Please go ahead.
Hi, Good morning, good afternoon, and thanks for taking my questions guys really nice job in a in a very difficult operating environment.
First quick clarification, just want to make sure I heard this correctly broad band our revenues doubled sequentially from the first quarter second quarter and George as it relates to incremental into you partners. It sounds like you're optimistic that you're going to sign an additional tier one by year end did I hear that correctly.
Yeah, I mean, you know as Scott I mean, the two I get from you know your understanding in the broadband, yes, indeed double and the I'm sure partner I mean, but honestly I still believe in my vision are all that's your partner. The you know they have entered a sequel side I see sequenced, becoming the arm.
Of cellular technology for Damsio partners, obviously, all of them, we're lucky on display and displays but you know the way I see that traction domestic flag discussed with those partners.
I think as well to them and it's very positive a you know the name that we made them public.
And others. So we have discussion with them and when it becomes more serious will make them public as one and we hope that something withdrawals as well in the coming six months is indeed very.
Very good and then looking at the fourth quarter, you're looking for sequential increase from the third quarter, which is up 10% Oh. It seems like there are a lot of factors that are starting to contribute to some of that upside as well. If I heard correctly are you start see some contribution from emerging market broadband couldn't unit fourth quarter segrest should be ramping monarch go and do we start to see empty you.
You should that early as well are all four of those new elements gonna be contributors for the time, we get to the fourth quarter.
Well, indeed, everything is going to that I'd Directionally, we believe all the business and will contribute in Q4 and now on them. So you know I don't qualify some data Martin can afford to the tournament dollar amount because even you know shipping thousands soft PK left I think getting design win can generate some revenue elected to the really.
No major however, the flow of design win will be important thanks, Dan she'll partner for Q.
Okay, and real quickly and be Ionkey, we haven't talked a lot about lately up at monarch in a part that was available or what's the level interested that really start to ramp up in 2021.
They're very honestly there is interest, but you know we were seeing a little bit. The war you know as you know one day you asked they haven't value to you, but the <unk> people you know they didnt make clear differentiation between kept them in NB and as a component of this people prefer to go I'm talking differentiation in terms of pricing of the data plan if you want.
So as such we see really in the U.S. still kept them oriented Europe. We have some couple of operator motivated by and guaranteed because some of them. They deploy all end value Dick's, namely for example, what upon so we see some interest that obviously lot of playing in China, and Japan day back off a little bit on Monday, UTI principal docomo today.
Stop there and value to plan, saying, we'll maintain only got them that is some noise on the softbank as all that there would do the same. So this if you want to give you that global view, if you excluded China, we're feeling cut them, becoming the dominant maybe with some still use case for India UTI. So obviously, we're not giving up on I know you do you how disorders.
And then due to the truck promoting but we are more seeing design win and a promotion and so on but all dollar catch up.
And for US you know that is no negative impact of all this because as you know we have the kept them. We have then got you do you can offer industrial motor platform or single mode platform and then value to solve this is my husband back to just for us to adjust therefore can data sources.
[noise] versus the priority of the demand for Mark.
Gotcha, and lastly, if I could on the Fiveg front. It seems like there continues to be a tremendous amount of interest tremendous amount of dialog in terms of what you're doing from a tourist standpoint, and and you're tracking expectations from the development standpoint.
Could you just clarify the number of strategic discussions that you do you have on going and it sounds like you're very close on one and then also look in a world of limited Fiveg availability and resources you got Qualcomm you got Mediatech and basically you guys will be on scarcity y or so many potential partners coming to work with you what do you guys.
I was doing that's differentiated there continues to put them on the radar screen and anybody because these deals thanks nice quarter.
Yes, Scott I mean, even on the five Gee, we're really we're seeing amazing attraction in all I mean, it's very hard to qualify who strategic who's not you know but.
We're guessing I will say from deep pocketed guys. What are they have really strategic interest and song to a regular customers really looking to get our solution in hand as soon as possible.
So obviously that people are looking for us for a little bit of the technology.
Price points, we are targeting on just the can always yeah, no cost optimization for all of the solution and a you know the optimization of the solution for non handset Oh. This is really creating the traction.
Let's say today, you know we have couple of them I could qualify them strategic and he says they ought to be pocket and you would have decent amount of money on one of them is an advanced stage of negotiation.
But you have others it all.
Ladies and maybe just holiday they I don't see them really coming with big check now, but there will be coming to an gives was sick losses on for customer out for partner. Let me put somebody has won on the table or to be sure. They can get the.
To be into them between the first successes.
Great. Thank you.
That completes the you in a section I'd like turn the call back to you for any additional or something.
Okay. So staying thank you very much for Ah listening and all the question looking forward to talk with you on that occasion, thanks, very much and thanks again.
Thank you.
Leads the calls thank you all of your participation you may now disconnect.
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