Q3 2020 Sequans Communications SA Earnings Call

Welcome to the sequence sales call parents to stop and Tracy results Conference call.

At this time, all participants are in listen only mode.

Today, we will conduct a question about your actual instructions will be given that's totally.

As it relates to the conference is being recorded.

Before I turn the conference over to our host Mr. George trends.

I remind you of the following important explanation in pockets sequence.

This call contains projections and other forward looking statements regarding future events or future financial performance of potential. So I don't think so.

All statements other than present historical stock conditions disgusting this call, including any statements regarding our expected revenue for the fourth culture Twentytwenty.

<unk> results of operations collateral position.

If its drive to Janssen exposure.

Expectations for most it Oh Gee, that's built on critical biotech sales.

The ability to continue to operate the most they acquired a play levels of public texting creeping backlog up older.

The impact of the Corona parts manufacturing operation.

Don't culture, it's about.

Our objectives for future operations are forward looking statements.

In the meaning of the private Securities Litigation Reform Act of 1995 section.

Actually 27 of the Securities Act 1933, as amended and section 21, he off the Securities Exchange Act like teams that's useful otherwise.

Good.

These statements are only predictions reflect our current beliefs expectations with respect to future events and are based on assumptions and subject to risks and uncertainties are subject to change at any time.

We operate in a very competitive rapidly changing environment.

Rich can match real time to time.

Given these risks and uncertainties you should not rely on well place undue reliance on these forward looking statements.

Our children or results may differ materially from those can sales in the projections or forward looking statements.

More information on factors that could affect our business and financial results are included in our public filings made with the Securities Exchange Commission.

Keith Please go ahead.

[noise], thank you or whatever so.

Good morning, Ladies and gentlemen, this is George speaking almost.

But actual without water chief financial officer.

<unk> third quarter results conference call.

We hope everyone is think see if somebody meaning Tennessee has all the fuss continues to deal with this would depend dynamic.

Our global organization continues to take the necessity steps to ensure the safety follow what people.

And we have been functioning quite well.

I'd like to take this opportunity to acknowledge Oh, my God worldwide team for their determination that flexibility.

Unfortunately living called Waterside years during this challenging time.

As you have seen by our press release, we exceeded our thought to get the revenue in Q2.

And we're not expecting another sequential increase in Q4, but.

Putting us on track to grow over 60% for the year.

Compared to our previously I know how to get to 50% year over year growth.

At the high level the box to revenue in fact, all about growing the virus one hour boyfriend or your GE business.

Offsetting the short term, Doug it's having it in other areas.

So we are on track to achieve a stretch revenue targets.

But with a different mix of business that already expecting has just begun.

I'm pleased to say, we're out executing very well and the momentum in all segments of our business is building up.

Oh, Gee accomplishment fall into three areas.

I hadn't wins.

Product development goals.

Go to market this strategy.

I'm proud of what we have achieved already and each of these areas and we expect to accomplish even more before the year is old.

Let me now take you through some of the heat to handle.

Each of our business segments.

And I'll start with a broadband makes it look like.

We exceeded our revenue targets for Q3, an hour to broaden out your <unk> business.

Because we might actually start comedy it's more in order to support a module supporting the jetpack ellipses Fourg reports of what all doors sold by <unk>.

Well the past two conference calls.

We have spoken about the exponential increase in demand that began in the first quarter, but related to these it alters being supplied to schools sparked off school video related distance learning support.

We're also have spoken about the challenges we have faced with extended lead times for certain components.

Fortunately our supply chain issues became more manageable during the third quarter.

We were able to ship more than originally expected.

On our last call High school, we're not assuming all doors, but related to forethought all doors will set the back door pre corporate levels in Q4.

But we kinda the sequel for module sales and a broader than you would see remaining at a very high level similar to the security.

Looking into next year.

We don't have good visibility yet but.

But our current assumption is that it does not remain is so small it for portable routers in Q1.

That is all we're not expecting a shift in business drivers and to broaden out you see you next year.

More to Tesoros diversity as then you'll see me out S. market begins to ramp and we gain more traction in our emerging markets business.

[noise] quite excited about this about us business design wins. So we gained so far this year are beginning to move to production.

We will have some modest revenue from this market already in Q4.

Recently, the U.S. government completed the auction off licenses for the 3.5 gigahertz spend referred to as CBS.

The spectrum will be used by various entities <unk> data on 45, she private networks as well as by mobile operator.

And other service providers to improve networks coverage and kept best.

Last year, we introduced the industry's first sea bass modules designed from the ground up to enable cost effective and easy deployment of broadband I used to devices on a private see about s. networks.

The mother was ought to be on how I guess your P.I.D. it technology.

Which has benefited from it didn't kick off experience and 3.5 gigahertz spectrum deployments in various countries.

Since we introduced them last year. These products have been very well received by the market because if that home is mature and the solutions I don't demise for the smart at.

Therefore, they are much less costly than our competitors product.

Having a cost effective solution is extremely important for private sea bass networks.

45, GE is being used as an alternative to wisely.

That's what I can guarantee the quality of service by using somebody like so specs.

We are working with more than a dozen companies who are using our L.D. cat four and cat six c. about s. modules.

But this does learning likely likely to remain important we believe educational institutions when it creates that on platforms using private LTE networks.

There is also significant interested in private and that's what's the problem at some other vertical markets such as industrial activity has public safety and utilities.

We have numerous additional engagements that have not yet converted to design wins and we believe we are well positioned to shave significant market share in this setting.

Let's start with our go to market strategy for Crs, we added a major module partner, so how to expand our reach in this market.

Oh I bought her that it has lost to see that S models based on our platform last week, where I live anywhere that very well funded drilling to have enough with that it to discuss that I still see that as something that is lets go to markets.

We are off to a good start and we expect to begin accumulating design wins through them, but I've got a quick.

We also expect emerging markets to make a lot of <unk> larger contribution to broaden out your with your revenue next year.

The customer we added this year, but.

Oh ramping up and when it come to them and that business, we have with long time relationships with customers such as jump back.

They have been winning new projects and annuities, yes, such as southeast Asia and the Middle East.

Finally, we are discussing a few opportunities about devices based on our kids should be up that phone would differentiate us carriers and service providers that could generate some potential upside in the second half of next year.

The sales in all doors to support him what learnings was handful fueling the growth of the <unk> business. This year.

But the exciting long term future.

Our broadband and it kinda lazy business is going to be driven by.

Gaining a lot shed off a completely new markets like see about us.

What do we have a product advantage and a strong go to market support.

And coming to market at the right time with the cost effective five she platform that's optimized for non handset applications.

Capitalizing on technology leadership, and seven other advantages such as the support all four of the class strategic partners and the market do hopefully we can create outside of China.

We are extremely pleased with our progress on five hit the college of development.

We have continued to reach all important milestones.

On or ahead of our target dates.

Also when thinking about our R&D spending it's important to note that we are now laser focused on five straight to college.

Very excited about the growing interest in our thought as far as you've got slump and.

And then increasing number of engagements with prospective customers <unk> partners.

[noise] thought did you on the status of the potential strategic.

Partnership for Fiveg that has been an active negotiation for your widen out.

We are pleased to say well moving ahead on the first phase often show study this quarter.

Our partner is concluding its budget allocation to proceed to the second phase.

And full project that will have the same scope on revenue amount we have previously expected.

In addition, we have made progress on on the other strategic engagements we have initiated.

And we have a growing confidence that several of these we've come to fruition as was based on the strong interest in our five G.'s to college.

So a lot of moving ahead on thoughts on Fiveg, we continue to feel very confident and excited about our position and our ability to drive growth for more than a decade.

Let's now turn to less about <unk>.

We are very confident about automotive IC business and.

I do believe that I've been massive I used he would support the high rate of overall growth for the next few years, because we are securing major design wins and the momentum is there but.

But the sense I'm out of patience is required to operate successfully in this market.

We know many of you are frustrated just as we are with how long that sticking to see the vessels are you do you want to get the growth accelerated.

COVID-19 was a headwind headwind in glenn's, it's lumpy that draws its imperative that act in a few places.

But that is happening.

We are so far ahead of what we were at a year ago.

We are winning big data projects with big data companies.

And filing the pipeline was even more exciting opportunities.

We have solved the problem of how to address the segmented market efficiency.

And Riyadh, extending our reach through mid surely beneficial partnerships.

And a lot of completing the second generation of our products, which will strengthen our competitive advantages and enable customers to transition seamlessly into the fives yours.

Going into a little more detail our massive I you see revenue stream coming from our existing base.

Got one and cat M N b customers is doing well and growing.

Yeah. This is Jim I'll do our largest module partner is performing well.

And we have with them at all or somebody else secured design wins in the U.S. and Japan wouldn't but got one and got them and be demolished.

As an example, the second phase of a major meeting project in Japan, we are addressing with them has been finalized it's.

It will begin next year I lost for about 18 months.

Also we are reaching the launch phase of another major design win with them.

On the other side, our modular business in the automotive segment, such as tracking data feed management.

It's coming back after being affected by cold and.

And we'll continue to see strong or the board to have them from our customer who is building infectious disease testing device.

Some of the projects, we have in hand, which we which were delayed by depend that makes situation, but now reaching the launch phase with initial orders are received.

In Q3, we have secured a new customer designing two highest monitoring devices.

And that type of opportunities keeps building with high quality customers.

We are gaining traction in the meeting space, what our monarch Sip.

Some distinct advantages over competing solutions.

We mentioned a major meeting project using a lot of monarch platform on our last call.

And we can now say this is indeed with the iPhone.

And we have finalized the product supply agreement this cost.

Meanwhile, well not as to the second generation of them. One platform has been something to a few customers for evaluation and is about to enter a carrier certification.

The feedback from customers is outstanding.

And two of them have selected this chip for new products.

We are consistently better than the competition in seven out of specs.

We have industry, leading power consumption.

Which we have further reduced with monarch two.

The platform also features yeah.

Highly secure integrated Sim capability.

And low voltage operation down to 2.2 vaults that's.

That allows for optimized low cost Bethree selection.

We expect this new platform to be strong sector.

In the growth of our domestic <unk> business over the next several years.

We have a lot of interest and our cat one second generation life, if that phone call life It took less well.

This will be sampling early next year.

We are developing an excellent pipeline of opportunities as the only non Chinese vendors with their low power kept one offering coming to market.

The cats, one speed and voice support capabilities make such technology ideal for some I usually devices such as security systems.

And wed have all and Hannibal application.

One thing that has been reinforced by our experience so far.

While the time to revenue can be very long for certain applications.

Business once this being a one.

There's also very sticky.

For example, the new medical devices must go through a long comprehensive approval process not that actually related to the salon connectivity.

It is also a very long qualification process for smart meters.

These approvals and qualifications are in addition to the sophistication required by carriers.

For any of these devices can run on their network.

However on the positive side customers would not be quick to switch vendors because it will require them to start the process all over again.

Lastly, our deeply involved in the project with the customer even.

Even if it hasn't launched they are not likely to be swapped by a promise of something just around the corner by a competitor.

Furthermore, we have succeeded recently and displacing other vendors in situations, where the competitor failed to deliver what they promise.

Another key lesson, we have learned as a pioneer in massive I UTI is.

When it comes to new designs and applications enabled by new Fourg to Fiveg technology. It has to be easy to incorporate into the design of the device.

Providing a development kit or it be integrated platform, but.

Reduces complexity and design cost for the customer.

This is why do we have made a great progress during the year.

For example.

With Avnet, one of our distribution partners. What are you simply combined were not to go with a widely used and understood development environment.

<unk> arrest study by hat.

Pat stands for hardware attached on top.

And enables one out a goal to be plugged directly onto that I studied by board, which vastly simplifies the developmental funny type stuff I used the applications.

We announced bundling our monarch platform with Microcontrollers from several are stopped yet and so your partners such as Microchip NXP and estimates.

And integrating the software as a first step toward the offering moderate integrated solutions with some of them.

Just last week, we added a new unseal partner, but NSS.

The largest microcontroller companies.

We'll offer a variety of modules based on our product technology can.

Creating a complete and unique integrated hardware and software solution that's ready for use.

This would save customers Buzztime and money.

You will be hearing more about various types of more integrated solution over the next several months.

In addition to simplifying the process of adding cellular connectivity devices.

These partnerships greatly enhance our go to market strategy I know it enable us to penetrate that you have to market faster by extending our reach to all corners of this very fragmented month.

So to summarize.

What will make a real difference in domestic light duty business next year.

Glenn our second generation I'm NB products is very successful based on the good feedback we're getting from customers and the first design wins, we have secured so far.

This new platform treatment, then our technology leadership and.

An increase our design win rate.

Also we'll have a unique and dividend and differentiated position without a lot of next generation kept one product that will help us covering all the spectrum of massive I used the efficacious.

Second we now have several mitchell beneficial partnerships with large marquee companies that chip billions of Microcontrollers for UTI devices every year.

And we are just beginning to.

The scratched the surface of what can be accomplished with them.

Loss to conclude on vertical markets.

Turning to project sort of ethical Mochis, which are mainly services provided to our customers that our software for the Onyx public safety military as select applications.

We are very close to finalizing a new start that project that we have engaged and the thought of course.

This project is in year. One in addition to the large one we have secured with our customer.

That's where we are waiting too long if our customer has been a lot of the disease.

Regarding this large project we are encouraged by the fact that they need is reaching the final phase of selection.

Our customer appears to be confident and the chances of winning.

Because they decided to move ahead with some preliminary work.

Thats will enable them to move faster once they get the final order expected sometime during Q4.

So we'll have a minor amount of revenue in Q4, but the large deal will likely be finalized next year.

Most of the revenue generated by our vertical markets business is some services.

And of course strategic project revenue is also service.

First we expect higher services revenue next year based on the various vertical as strategic projects we've discussed today.

So with this positive reports on our business as we navigate the challenges of operating during the second phase of the global pandemic.

Ill now turn the call over to them.

Huh.

Thank you Josh.

Good morning, everyone I'd like to add some details about our third quarter results Aaron I think about it.

Our third quarter revenue was $14.1 million, a sequential increase at 16.5% in the second quarter, primarily driven by a 32% increase in product revenue.

Revenue in Q3 increased.

16.6% compared to the same quarter a year ago.

We continue to expect further sequential growth in the fourth quarter, putting us on track for greater than 60% topline growth at 2020.

We again had three greater than 10% customers in the quarter. One is an alien anshu I again.

Gross margin in Q3 was 42% compared to 48.3% in the second quarter and compared to 30.2% in the third quarter of 2019.

The Q3 2020 gross margin reflects a much greater proportion modules in the product mix and in Q2, and a lower proportion that service revenue.

We expect a more favorable mix in Q4, which will enable us to improve our gross margin.

Operating expenses were 11.8 million in Q3 up slightly from 11.5 million in Q2, primarily due to an unfavorable euro dollar exchange rate compared to acute care.

Non interest operating expenses were 11.3 million and 10.8 million in Q2.

Our third quarter operating loss was $5.9 million.

Her to an operating loss of 5.6 million in the second quarter.

And an operating loss of 8.6 million in the third quarter at 2018.

Our net loss in Q3 was $9 million or 30 cents per diluted adss.

And included a non cash gain of $1.5 million from the revaluation as the embedded derivative arising in March 2020 minutes to the convertible debt agreements.

This compares to a net loss of $19 million or 70 cents diluted adss in the second quarter.

This included a non cash loss on evaluation of the embedded revenue was $9.1 million.

The net loss for the third quarter of last year. It was nicely million dollars or 41 cents per eight yes.

Our weighted average number and adss in Q3 was 30.3 million an increase of 3.1 million adss.

So in that the equity offerings in May.

On a non IRS basis, our net loss for Q3 was $8.4 million or 28 cents tied to that yes.

Compared to the nine I address your last at $7.5 million.

28 cents per meter, yes in the second quarter and a net loss of $8.6 million or 36 cents speculated 80 S. In the third quarter of 2018.

Our non <unk> first net loss excludes the following non cash items.

Based compensation expense.

At at fair value and the second interest adjustments.

Related to the convertible debt embedded derivatives and other financing.

The impact it can take a look at it then.

And then just for tax benefit or expense relating to forgo any adjustments to convertible debt and other financings.

In analyzing the difference between our actual non I'm sorry, it's not net loss in Q3 and the various analyst estimates, we noted that where there was it where there was a difference I really related primarily to the ascension views regarding foreign exchange gain or loss at quarter end.

In Q3, we had a foreign exchange loss of almost $900000 or three cents per 80, yes, that's it literally unrealized non cash and related to the revaluation of the euro denominated net liabilities totaling about 18 million your assets on the balance sheet.

Investors should be aware that possible changes in foreign exchange rates.

<unk> balance sheet guidance.

And the marking to market of embedded derivatives and the convertible debt amendments.

Can cause significant differences in net income or loss from quarter to quarter.

Well the impact that swings in the value of embedded derivatives is excluded from our non ice or asset allocation.

Foreign exchange gains and losses, whether realized or unrealized or not.

Cash flow used in operations during Q3 was $7.9 million compared to cash used in operations at 2.3 million in the second quarter.

Our cash and structured assets at September 30 is 2020.

$25.3 million compared to 35.5 million at the end of Q2.

We are pleased to report excellent progress toward essentially got an innovation financing as part of the technology concession at seven partner Society.

It's in what's called the instruction today, which is the final phase and we believe proceeds could be weather tightness in Europe.

Accounts receivable at September 30, and 2020 increased to $14.1 million and 10.7 million at the end of Q2.

In a higher product sales in the quarter.

Sales were 91 days compared to 61 days at the end of Q2. However, this was due to a great extent your large payment due at the end of September that was received in early October.

Inventories decreased slightly to $5.8 million compared to 5.9 million at the end of Q2, despite the ramp in product revenue.

Current trade payables remain stable at $70 million.

Sure I can debt financing receivables increased to 14.4 million and 10.5 million at the end of Q2.

Now turning to the financial outlet, we are targeting 10% sequential revenue growth in Q4, which leads to greater than 60% year over year growth. It's like 2020 has a home.

It does if you developing financial models, we assume that nine I have first gross margin will continue to reflect a high proportion of modules in the mix similar to Q3 that with a slightly higher level of services.

We expect gross margin for the full year to be around 45%.

Why don't I address operating expenses.

Hi, there are expected to be a little bit higher in Q4, mainly in R&D and.

And assuming that the euro dollar exchange rate remains stable.

I think the reason for the increase that we expect to capitalize less R&D costs.

Let me add my second generation Cat and Cat one ships is completed.

We are not yet capitalizing costs related to the fiveg kept it out of it.

We expect non asterisk financial expenses to be around $2 million in Q4, excluding any foreign exchange gain or loss.

Just help guide your assumptions about the impact of changes in the Euro dollar exchange rate related to the revaluation as euro denominated liabilities on the balance sheet.

Currently each one cents change in the euro it's close to $200000, an unrealized gain or loss.

On the balance sheet position at the end of September.

You should make your own assumptions and we are getting no guidance on foreign exchange rates <unk> future.

For modeling purposes, the exact number at Adss on September Thirtyth 2020.

30 million 312160.

And finally, we wanted to let you know that since our current shelf registration statement expires. Shortly we will be filing in U.S. three replacing our old line and it will have essentially the same campus.

Before I turn the call back to George I'd like to remind you that at the conclusion of this call will post a written version of our formal remarks in the Investor Relations section of our website under Webcasts and presentations page. The same location, where you will find the audio replay.

So George and I will be participating in the virtual reality technology day on November 12, and afford to speaking with you if you plan to participate.

I'll turn the call back to judge that could ever so to conclude just only a couple of points so to put up it up.

We are very happy with the ramp of our heavy obviously this year and with the progress we are doing on all false products customers, but also strategic partnerships.

We have all the foundation to keep growing the three business segments, we have whether on the broadband are you at the business that mess of all your TV business as well as our vertical markets business.

We are very excited about our.

Our partnerships.

We are doing and we have done with a top tier OEM silpada players I don't know.

Looking really to become.

The provider of this centered out of core technology in this space.

Finally got a very excited and we continue to be excited about Hawaii five g. position.

This is really attracting a lot of strategic partners to us so far and I believe we will have more to secure that through the securing in the near future that would help us finance sensor and complement the investment we are doing indices.

Thanks, very much for listening and also now the call for questions.

Uh huh.

Yeah.

Thank you Mr., Ken ladies and gentlemen, you have a question. Please press star one on your telephone keypad.

You find your question has been on todays Please press star two to remove your sales from the key.

Once again please.

I wanted to ask a question.

It's another to our first question today comes from Mike Walkley of Canaccord Genuity.

Hey, congratulations on the revenue momentum and strong results.

Question for me is.

On CBR I see a lot of commentary on the script on CBR S.

Sounds like its going better than planned from last call. Pete can you maybe help us size the market opportunity and 2021 four years for CBR This momentum.

Hi, Mark.

Mike sort of hi, So Mike I mean that does that he that bought the you know that one of the challenges we have it if you look to all of the study I don't see about us as really a decided this potential because they see it can go to many many application and when you start dealing with the private networks and so on its a little bit complicated.

But when I look to the.

Number of customers, we have you know and interest we are seeing.

ER in the pipe, we said in the past that we believe that we'll be doing you know maybe next year.

As a target for us somewhere like you know between $3 million to $5 million next year. This is this is my thought to get them. In this segment. Obviously, we're doing this on that is this like a fund that is itself, but them up you know would be as we have in hand, and estimating each customer how much would be doing with us.

However, I still believe that the potential can be much more vendors just only a question of.

You know.

Having enough time to estimate all those projects how big they can be each one of them.

Great.

Thanks, and just a follow up you know broadband.

Strong again.

Maybe the cares after the surge in demand.

Let's talk about supply demand dynamics into Q4 and.

How you see that search to continue.

Yeah, you know the Oh in for a full in terms of supply.

Supply chain you know in general all the semi industry. These days is under stretch somehow in terms of capacity, including if you go even to TSMC, even our regular products.

You know, we're seeing I'll say longer lead time than usual, but sort of managing this I I believe all of take lets say the issues. We have seen in Q1, and Q2 are behind us and Tom's off because we got really a lot of problems and when when this demand happened and we were not people almost to soda.

You know, 20% off self the orders we have received.

Now in Q3, we start seeing we saw that we managed to get this mainly starting in August.

I'm Fame and for Q4, we see we don't expect major problem I mean, we see we see a the company couple of a love serving dogs are we haven't had.

Great. Thanks, and last question I'll pass the line.

But can you help us with any 10% customers during the quarter.

So clearly the demand for jet athletes. It was a big contributor Oh that we also have a traditional and I mean, I anticipate and methodology space and.

Partners that we work with there and one was a Ah Ah service revenue.

Yes, what everybody else is well and thanks, taking my questions.

Thank you Mike.

Can you.

Well now move to my next question, which comes from Scott Drew of Roth Capital. Please go ahead. Thanks.

Hey, good morning, good afternoon, thanks for taking my questions.

George Deborah really nice job in a in a difficult operating environment just to clarify quickly in broadband in the quarter are there were still some supply constraints.

Did you quantify the impact what you guys could it potentially ship if if you were not constrained and looking into the fourth quarter.

Sequential 10% growth I, just want to confirm you're expecting broadband to grow sequentially and I had a couple of follow ups.

Uh huh.

Well you know on in Q3, you know, we we start having we had a problem in July and the lost most would have covered a little bit. So I didn't know I mean, I could I mean, we could do a little bit more obviously, if we didnt have the problem of July in terms of capacity, but I could say, maybe a dollars it'll find its it may go up 10%. So you know that I consider has slipped.

In Q3 to Q4 I'll talk about the definitely the order off Jeff.

But but this stuff like a sense by the way put some stress as well on on other modules, we manufacture for domestic bi UTI.

Got it kept one modules in general.

And what was that the question.

This oh sequential out here towards you into a flat.

Look on the broadband you know are they said d. the demand for it we expect to do almost the same level in Q4 or in terms of Ah, but to grow of Petrodeltas versus Q3. So we are assuming a not so much the growth in the broadband at least you know to measure the revenue was up roll them or we could have a little.

But the growth coming from.

Some are some see bad that's sort of the two are serving heals, we'll have some and we have a couple of new order from that merger that they could be as was bringing some growth, but if I look to the.

You know the generic business or I guess it was flat between Q3 Q4.

Great perfect and and moving onto massive aiotv, so much going on in that front for you guys with the Renesas relationship just announced.

I was wondering could you provide a little bit of color in terms of how some of the M.T. relationships should ramp up as we go into 2021 also monarch to a key new product it sounds like you're starting to enter carrier certification just want to clarify the timeline on that and I turn as well, it's nice to see you being able to announce that customer.

Big can that be when does that start to ramp up.

[noise] and starting with the you know obviously would then she'll partnership.

You know again are you. If you if you look to the partners that that each one has its own strategy how to go to market and where to go with US. If you walk the baseline as always see so far which is common for all of them is designated dissolution and get the software for the integrated and use them as a check.

Well to market. So this is you can kiss it up like this is a.

Almost similarly at all obviously, when you look as well to the position of NXP versus Renaissance versus microchip.

You know you're booking but on MCR between a bit stupid to two bits the various segments. Each one has some strength and some of the segments less than others and this is really good for us because they complement each other really we're seeing and it's accelerating our you know so go to market engine and then of course the brings.

More design win they also can look some kind you know it it could be also help us winning big deals one see glosses challenged as a small company you know that because obviously, having a does the company back and got US help ourselves say closing the deals and avoid any any.

He should that can be considered like a from financial strength I will say that if this is a <unk> for the customers with us that's what I want to say, which is a little bit at least I'd add that I'm being different from the other guys. What NSS wanted to move much faster than indeed, and they go to market strategy.

Okay and offer directly under the better brands modules integrating sick lots to Congress and the partnership is really starting from this point not only integrating the software that they want to integrate into hardgoods and have their own modules branded renesas what sequence chip is inside and when it was sold to the market obviously there.

No it will not be only integrating see cost it's already that will add that on M.C., you won and that on a bhutto's on song to make a variety of module or and this is in other words. They can look in the future, but NSS can be a customer Sean from discipline to do because that was your buying chips from us and it will be a you know.

Ah so anything that I can business versus the other guys. It to the index, because that's really coming from the end customer.

And again, you know very very hard to quantify it you know for the time being all what they could say they are going to be you know taught us a lot in the growth of my best about your d. because it give us reach.

And obviously acceleration off that design win on.

On monarch, two timeline or the chip is sampling took us somewhat as I said, we are giving discuss what.

We're expecting and if this year or two to go through the certification process, which will be like in Q1, we should be done but already before reaching the certification before going with a certification because you know we have the certified software and so on we already assembled this too.

Somebody for customers.

And already I mentioned two of them selected the product sector that should for the future revenue.

Nobody is giving us extremely good feedback on the part of consumption on the cost of the solution globally. Because then integration we have done and we have some advanced feature that Boeing has like we are engaging with the carriers on this which is then ticketed Sim so quite happy about this product and and this is again will be a key driver for next year.

And how about iPhone.

You know I I don't want to comment much about the nature of the project just to to keep it confidential for our customer, but you know nothing to hide that it will be it's a metering, but the timeline at all for that a timeline in terms of revenue.

All it takes the time to qualify their meter so for US we expect this you know.

No more beginning of slide 22 in terms of Oh revenue then that next year, but that's a it's a big project because you could imagine the size of those deals that we can be you know how much I phone can generate in terms of number off because they can do.

Perfect and lastly, just on Fiveg it sounds like you're you're on or ahead of schedule in terms of your product development. Just wanted to confirm that timeline of when you would expect to sample and I think you said several engagements in terms of customers that you're actively engaged with on the Fiveg front just want to confirm that thanks, so much nice job.

Yeah. Thanks, Scott I mean, obviously our funds you plan you know it expecting to.

To start sampling and those next year or beginning of 2022, you know I mean, it wouldn't be making tape out next year and depending on the definitional something but would have silicon in hand to show up and for the next year.

And regarding you know Dan put us on the dentists really long run, but honestly, it's at all levels from regular customer what they call them really pushing us to give them the solution because as you can imagine de de <unk> ecosystem is putting us in a unique position here and but also with the strategic angle.

So were the one we have engaged a we've made the progress that this was one of them and we are quite confident that this will conclude but also we have couple of other engagement moving very very well and I consider them very likely to happen if you will.

Thank you Sir well, let me to my next question, which comes from Craig and its a B. Riley Securities. Please go ahead.

Yes, thanks for taking the question and good morning, good afternoon, everybody and congrats on the nice results.

George It was helpful to get the quantification around your view on CBR as potential for next year I'm wondering if you could do the same thing with no you're seeing what the pipeline in emerging market broadband can you give us a sense for how big that could be in calendar two anymore.

No the pipeline in the emerging markets. You know my estimation was you know that this is a way to go to some of the order of magnitude that somewhere between $4 million to $5 million. This ought to get Oh, let's say next year.

But honestly there is some dynamic in the emerging markets happening with the pressure that I've always getting on getting access to silicon and as you know this is a space. That's why we're doing it in general.

And obviously that is I'm seeing more and more opening a tall at existing customers on the new customer we have added in this space or what I see them competing on new deals and being able to win large chunk of business, but because of the challenges. There. So we are not get all well, maybe we'll hopefully we could have you know some nice.

Surprises that but we can get more broadband and emerging next year, but our target is really like four or 5 million Bucks.

That's helpful. And then the next question really goes.

Goes it's about.

And so your partnerships that you've established so you've got four partners now I think about 40% to balk and see use gets applied to the industrial end markets. So Lakota auto.

Yeah, there's there's a significant portion that goes from industrial I'm wondering if you can give us a sense for what the application exposure might be what some of your end Si partners, where do they expect to deploy.

The capability that you have a website MC use that they have been and will be selling.

Ah Ah Ah.

Greg I mean in general and it's really matching you know its really industrial in general I know that a big name to be definition of industrial but also what we're seeing is essentially smart home and smart cities. You know this is one application and all the security related to the home and song obviously, all the metering you can put it.

Under this this brand as well as like a the smart home occasion, or we're seeing a lot of demand as well and.

Health and wellbeing.

Devices.

And last but not least read all the attacking ER and John or what else I can go for.

Oh.

Good to have assets of food you know all this system is really a lot of demand.

So it's not different from the application or were pursuing if you want but obviously going with damsio partner give us access to the you know to the thousands and tens of thousands of customers doing this because they have that existing channels that existing distribution networks and data relationship and the customer is he was really.

So did would that I'm sue.

Softer environment, so that helps us to get access to this group.

And if we were to looking ahead to next year George well.

Would you expect a greater contribution for massive Irish T to come from these new M.C. you partners or from the distribution partners that you've developed this year.

Matt and Richardson RPD.

Oh, well you know I mean scope, we get it because you know some of them there would be less water without nuts [laughter] video subs.

Even though sales they go through this sort of Utica, so and and as I said I've met by for example, it's it's a it's a key distributor for most all of them but.

No I I believe you know the distributor can bring some of the you know they had actually what I would call. It a because you know I've not for example, you saw the data coming with some combination of solution data plane. So make its more than just wanted them to an environment that could be helpful or RFP. For example, we use them to sell the Sip.

With the Skyworks and they have some channel, which I believe it to be a privileged to them that's very different from the others, but.

But oh, we were hoping that it can be original guidance here what are the bigger you know in Jones, if I have to clarify cactus.

Got it and then lastly, any further color on that strategic partner partner that you mentioned potentially getting something signed with moderate revenue. This year and then if we got that done would you expect that the larger revenue contribution to be in the first quarter of next year or is there a chance that it will come.

Later that say in the second quarter.

Thanks, Tim no avail.

No I don't want to not to give I mean, the challenge when I give timing and I know that all of the markets would be waiting for me to make the best cities all the time and if they don't do it everybody is going to happen to stock would go down so I don't want to jump through this but but but honestly. The short term stuff is happening you know and so there is no risk on this and were expecting really you know to grow.

Those views got a very advance on what I'm talking about should happen in the first half of the year and nothing about the second half. So that really you know very hot deals now they could happen beginning of Q1 end of Q1, you know I don't want to go with timing on this but for me. They are early beginning early next year.

Got it thank you.

Thank you, we'll now move to my next question from David Yeah, Chairman of Needham and company. Please go ahead.

Hi, Thanks for taking my question some assets on behalf of Roger Guillaume could you. Please talk about.

How are we going to think about kind of the fiveg impact on adoption of cat M and kind of the narrowband aiotv as we enter 2021 and the next phase of Fiveg deployment.

Hide any I mean, you know they are.

It's very important to keep in mind, because you know this the branding of Fiveg and all its really a brands you know behind it you have religious off to GPP and so on and kept and N.B. ought to parts of the Fiveg data not like Okay. This is the old I think end of five years, the new thing.

The fiveg by definition has to happen, but not a lot. If you want that piece not to say three but to make it simple. It has to have about a one really oriented for massive I UTI and Andrew.

This means the cat M and NB as we use it to the end of foresee with some softer evolution to the future or where your shipments to be capable of achieving this and this is what we said because our platform whether it be two or one or two they are fun to do that in and out able to continue supporting this and you have the other I'm not at all five G which is really.

The high speed low level to see this is really about motor speed and here, we talk about what you call. The new radio, but do you have a new wave form an annuity due to enable those kind of capacity and this is our total platform, but when you look from Netlist point of view, what the offering that are doing a really deploying this high end annuity do if you all.

At the same time, keeping men thinning Dms evaluate these software on evolution, that's going to go up so it's not like it's not going to be any interruption and it's not going to have a conflict. If you will so between between that.

Got it thank you and I just one follow up question could you talk little bit about the up kind of the satellite customer push.

Push out that had happened before I die. If you think that's going to come back in the next.

Part of it though I mean people are sort of update on that.

Sure I mean first of all I mentioned just to clarify it if the script was not clear. So we have a new deal which is smaller deals and the first one I mean smaller I mean nice for us I mean, we like it and a this is a new deal that came to us and the end of Q2 and we concluded thing.

And we're concluding this now you know it's under signature. So this is one deal more however that out for us to the sublet BARDA to booking gets really that big Sublet project. What I said this can generate a two digit revenue will fall for sales. This is progressing very well as well because our customer in what they call. It in the last.

Negotiation of pricing best Oh do call it the unless something else negotiation and this is happening now so its not delaying could see as we expected that get delayed mid last do you have a little bit but now it's still on time.

To come to conclusion.

Q4.

Why do we we we've got the conclusion of our customer gets elected and if so this means we will have the big project ER, our thoughts as well.

But in the meantime, as they said discussing about to ask us to start of the war in anticipation this quarter. So he doesn't want to lose the timing and for this we we had sort of the indoors small agreement just to start of the work in Q4 and was he got they are big or get end to an hour plus the big project.

That was signed maybe end of Q4 or beginning of Q1.

But that was all for me. Thank you.

Thanks, Andy.

Well, Matt it sounds like the question <unk> I believe.

My capital. Please go ahead.

Hi, Thank you for taking my question.

You're talking about a lot of why the pending applications or better in your pipeline. If you look farther out say three to five years could you help sort of.

Rank, which ones you think will what will be the largest and if there's any application that you haven't discussed today that you think will be meaningful in that timeframe that you haven't mentioned so far on this call. Thank you.

Yeah, I mean, you know.

Let's just say, it's very very complicated.

A question because to confer between them you know what I could say some of them are less risky. Another horse when you look at all those application all of them make sense.

The challenge we have you know what you look to some new application, but you don't know the adoption you didn't know how much is going it's exciting to be successful the timing on song, but I could say today for sure that the meeting will be a big Big segment, a interesting because Oh, let me setting company are moving I'm seeing this everywhere everywhere and on.

The worldwide business not only in the U.S., but those who asked Japan Europe and we are engaged with all the net metering company and we have already some good business there and this will continue.

Security system, this would be another or a big play as well.

And you know the that tracking device that is still a question mark in a sense how big it is everything tend to be I mean, I tend to be if this would be maybe the biggest that tracking if this will happen. This should be the biggest because you know the number of things that you need to track. Our you know that we are talking about and hundreds of millions of units or so for that effort.

Addition, the challenge there is that all this is a new one are you going to you know stick it back out on everything and is it going to happen or not we're seeing very good progress that into space, but this is maybe that they wanted a lagging in terms of found in my opinion. So this just to give it to you I know obviously I'm discussing.

He had all those consumer application because obviously, that's going to any of consumer application. This could be big in general, but it gets sort of ratification kind off you know depends on the brand depends fluctuated a launching depending on the technology, but like a you know Oh, we have a lot to kitchen and so on but.

It's a little bit.

You know are hard to estimate how big it was so.

Okay, Thanks, and maybe one more with whats getting to Fiveg opportunity.

Could you just characterize what you think your knee should your advantages in certain applications.

Well you know our five you what's clear is that what we are doing is that we have the comprehensive solution for non Henson. This is whats out of doing another sort of time to optimize our solution completely for anything outside the phone. When you see today you know if you take a they are an iPhone and you looked at the five year solution inside how to put the millimeter wave inside.

Sean you do it's completely different if you had to building this 46 that alter or sort of portable device or for industrial machine that so those are the three different if you want some paccars parts of your allow us to optimize the solution make it cheaper.

To address this and obviously, we should not forget as well that there is this the awfully that two out of creating outside of China or you know not too many players not able to call for Fiveg and have actually caused that create obviously, we're seeing good demand from the market to have sequenced delivering fiveg and this is also give us a a more chances always say too.

And I suppose.

Thank you very much.

Thanks.

Thank you.

Thanks, John.

Okay. Great. Please go ahead.

Hi, Thanks, very much I just had a couple of clarifications, if I could and then a question.

First one is if we look at the counter Q3 product sales trending is it fair to think that broadband outpaced that from a growth perspective.

Yeah.

Outpaced wet.

Oh, sorry, so yeah excuse me from a growth perspective product sales were up 32% quarter to quarter is it fair to say that broadband outpaced that 32.

Oh, yes, yes, yes, okay, okay great.

And then secondly, I thought in the beginning or at least in the prepared remarks. There was some commentary about broadband for calendar Q1 was 21.

Did I hear that correctly is there an expectation or say some moderation just after the very aggressive.

I have a bunch of activity as we look into early part of next year.

Yeah. I mean this is you know I mean, but honestly no. One knows you know so it's not like we have a but looking into a crystal ball with all whats happening and just condemn any kind to demand related to the spot. So where do we are seeing good add this sort of demand is a little bit tenant watch list as we are speaking with them putting ourselves in a position. That's Q1, we'd go back to normal.

From this sportswear outdoors, obviously, we'll have to see bad Ass, we'll have the emerging we have other broadband moving in and out of nothing related to the pandemic, but were putting our position a lot. A you know projection. If you want in a position that were not relying on the social demand we have seen it in Q2 Q3 and Q4.

Got your traffic I'm, sorry, just two more quick ones. The first one just on Crs.

Are you guys participating both on the access points side as well as the client side or are you more focused and concentrated at one end of the wire.

So all in all we are we are on the only on the user side, you know where you know you could if they sometimes you could have an access point, what do you have a back haul or fly less that obviously, we can play there, but we are not on the access point because you feel about always on the users got.

Gotcha, Okay. So so costs around Atlanta got you and then my last question. If we look in recent weeks you've got a competitor in Asiapac. There I think historically has not focused on markets like hotspot and T.D. that appears is though they plan to do so with a portion of their fiveg portfolio. Since my question for you here is is this something that competitively.

Do you think they will address customers that like aren't your focus or should we think about this is perhaps I'm, hoping a competitive vectoring in places like North America, maybe more core to your business.

Ah I said, if I get to the question of rights in all but.

I did.

Yeah. It was clear from the different now do you know or are you, saying, Oh, I'm, sorry, I didn't catch it.

Yes of course always stayed outside of me to be cryptic <unk> media in fact, I want to say, maybe a month ago or so made a pretty pointed announcement of their intention to cardiology things yeah, yeah with hot spot. She did you I guess my question was are they targeting say a customer's going places you don't want to go after or is that potentially something that we need to think about in say places like mark.

America, sorry for being cryptic.

Oh you. Your you know your I mean, you know, let's just say it like this here and talk about the five used to calling as you know in general.

No to name it outside of China, you have only to maybe get that kind of Quantico, and obviously that a man drivers is really to build the tbas or the technology for the phones and all this is that this is really the major business data showing and a data optimizing their solution. Obviously when you do this you ought to able on the corner.

So other businesses I'm not saying you know we always compete with the quite come even in emerging markets. You know so that there is nothing that prevents those guys. So I'm going to this market, but they don't do it to the right way with the right focus in general and this is when sequenced as all the folks on this is able to do more now on Mediatech and obviously that was good though we've come.

And visible that data data Taiwanese and in general you know they get out able to come in southern Europe, and the U.S., but you know that a main focus has a marketing automation market is China in general so.

So oh I'm, not saying, we're not see immediate that can compete with them.

But to some extent you know if we can get sort of immediate thing quite comes we'll have two instead of one Oh, we're still you know with media, it's actually a little bit jump more towards Asia than really U.S. and anyway.

Gotcha. Thanks, so much for all the up I really appreciate it.

No problem.

Thank you as there are no further questions I'd like to turn the call back to the management team for any additional or coking amags.

Thank you very much for a your questions and listening to all the time you spend on the calls. Thank you all pointed to read them.

Thank you ladies.

Ladies and gentlemen that conclude they sequence third quarter 2000 Twentys cool.

Thanks, Jim.

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