Q4 2020 Sequans Communications SA Earnings Call
Welcome to the sequence for call for 'twenty 'twenty Conference call.
At this time, all participants on a listen only mode.
The nature, we will conduct a question and answer session.
Instructions will be given at that time.
As a reminder of this conference is the Cortez.
Before I turn the conference over to our host Mr. George Karam I would like to remind you of the following important information on behalf of sequence.
This call contains projects and other forward looking statements regarding future events.
Our future financial.
Performance on potential financing sources.
All statements other than present Anixter article of Fox and conditions discussed in this call, including any statements regarding our expected seasonal revenue decline for the first quarter of 'twenty to 'twenty one line.
On the term of vehicles future results of operations and financial position.
That's the strategy and plans expectations for mass of Blas on broadband and critical of lost sales the penalty.
The two continue to operate remotely as required.
High levels of talk to the <unk>, Inc.
Increasing backlog of orders on.
On the impact of the coronavirus on her.
The manufacturing operations.
Supply chain and other cost worked event the impact it didnt come from coal mines.
Shortages on our manufacturing capacity and our operation objectives for future operations are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 of section 27 of.
The Securities Act of 19 charter three of our management and section 21 E of the Securities Exchange Act of 19 chart two for asthma.
These statements are.
The link predictions and reflect our current beliefs and expectations with <unk>.
With respect to future events and true up based on assumptions on.
The checked shirt.
The risks and uncertainties.
Any change of any time.
We undertake no obligation to update the information needs in this release.
Faxed or suck consensus.
But the <unk> change after the date of this call for you.
Operating cash in and are very competitive and rocks the changing environment.
New risks the barge from time to time.
Given these risks and uncertainties you should not rely on our place on Choo reliance on these forward looking statements.
Actual events or results may differ materially from those contained in the projections or forward looking statements.
For information on the factors that could affect our bonuses on financial results are included in our public filings made with the Securities and Exchange Commission.
Please go ahead Sir.
Okay.
Thank you operator.
Good morning, ladies and gentlemen, this is the drawer speaking.
I'm with Deborah Choate, our Chief Financial Officer, welcome to all of our fourth quarter and full year pointed to one of the results conference call.
We hope everyone has the remaining healthy.
Our global organization continues to take the necessity of steps according to local conditions to ensure the safety of all of them.
A lot of people and we continue to function very well.
As you have seen by our press release, we exceeded our revenue targets in Q4.
Even if the demand related to parts of it alters had begun to return to pre COVID-19 levels.
Leading to full year revenue growth of 65% compared to 2019.
This is a very good start towards our goal of on average of 50% annual growth.
For the 2020 'twenty 'twenty for period.
As we indicated during our investor event the months ago.
We're expecting our sort of market to grow a little above 40% the year on average through 2025.
We set our five year target for an average annual growth above the expected market the growth rate because we believe the two will be in a strong position to gain market share with our second generation must of Iot products.
The later with all of the high end of <unk>, New radio tourist platform.
The remainder of our results for the fourth quarter and full year.
In line with or better than our expectations.
And we've strengthened our balance sheet as well.
David I will give you all of the specific financial details.
Our focus here on the business aspects and share with you. What we think is significant from this perspective.
The highlights some key accomplishments and the exciting new developments.
And so on the 'twenty I'm pleased to say we grew in each major category.
Most of our UT grew 8%.
With the impact of Covid on the automotive related business.
And the timing of some projects.
Partially offset by stronger demand from <unk> customers.
Broadband on <unk> grew one 5%.
Mainly due to the huge demand generated by initiatives with schools related to supplying parts of what orders for this Tesla.
By year end the part of it also related demand had already begun to return to pre COVID-19 levels with some excess inventory of the operator.
The vertical category grew over 50%.
None of that this vertical category includes the revenue contributed by our measure of strategic deal with the Fortune Global 500 company for three plus years signed in Q4 2019.
In 2021, the reduction of demand for portable routers.
Should it be more than offset by the acceleration in the ramp in demand for the rest of our Ut.
Especially relative to the last year and.
And we expect this category to be the primary driver.
Well for growth for <unk> and 'twenty to 'twenty one.
You will see that business and more revenue from emerging markets within the broadband category will also highlight the copel I'll say it for that SaaS officers and part of our auto related business.
And the rest of the category will also grow year over the year with a higher revenue contribution from the large strategic deal.
And the new deals we expect to close.
Gross margin for both products and services.
In 2020.
Meanwhile, our operating expenses reflected the head count increase necessary to support our <unk> development.
Given the higher than expected the revenue on the gross margin our net loss was less than expected in 2020.
And after adjusting for all the non cash accounting items and.
And foreign exchange differences, we had the smaller loss than in 2019.
So it was a year to be proud of from the execution of standpoint.
So as it wasn't there was also an excellent year from the sales and business development perspective.
We ended the year with the large pipe of design wins and advance opportunities and we close 2020 with the highest level of bookings.
The strong indication that momentum is building.
And since the end of the year, we secured multiple additional design wins on <unk>.
More about those in a moment.
Let me start by highlighting some other important accomplishment in 2020, the thought of not captured by the financial system.
We made an important step of sustaining our technology leadership and massive Iot by introducing the second generation of whole lot of more of a plateau.
Optimized for LTM NB Iot.
Which has been sampling since the beginning of 2020.
In Q4, we introduced a module based on monarch two.
As we noted during our January investor event.
The customer reception has been excellent.
Largely because we have built on the maturity of monarch, one and its reputation.
Adding advanced features and significantly reducing power consumption.
During the event, we spent considerable time discussing of the major opportunities we see in meter Inc. We also discussed our relationship with Ita on the largest company the metering space. So I won't repeat it all here except to note debt in Q4, and so far in Q1.
We have landed many new design wins in the metering space as well as other massive Iot applications.
Meanwhile, during 2020, we also announced our second generation Calliope platform for the category, one which will be sampling of the first half of this year.
As mentioned during the Investor event.
This is a unique offering with the huge potential.
And we expect Calliope two to drive market share gains in the category one portion of the market beginning next year.
During Q4, we secured the proof of concept sales of the project with the large customer of electronics company.
For the products using calliope two.
And extended our runners us engagement and massive Iot to cover the catch one in addition to LTM and values.
Then in January we were very pleased to announce that dilutes. Your margin will adopt bus one has to think of likely too.
<unk> for its the new LTM and cat one modules for the rest of our U.
It's always a confirmation of our portfolios and leadership.
And the gratifying to win repeat customer.
In this case for the third of time.
There is also interest strong interest and calliope two from other module makers as well.
And we have recently engaged with the major OEM on this the product.
Got it.
Meanwhile, we are pleased that we are seeing strong demand for our current cat one platform, which is the calliope one more.
Much of stronger than we expected from existing cash.
On top of out of work on second generation mess of Iot products were also managed to reach all of our major of five few milestones on schedule.
And the relationship with our major of five strategic partner is progressing very well.
As announced last month in addition to monarch, two and Calliope two well the NSE.
<unk> has chosen to work with us on taught US a lot of high end <unk> for <unk> platform.
We are seeing very strong interest in Taurus from bus potential strategic partners and potential of alpha customers.
We expect this interest to increase.
As we get closer to sampling because everyone is looking for the more fully optimized and cost effective solution for the broadband and critical Iot applications.
That is currently available in the market with the existing solutions.
Optimized for smartphones.
Finally.
During the lengthy we implemented the very important go to market the initiatives designed to scale, our direct sales capability with the addition of seven out of apps.
The scale of our channel capabilities with the addition of several large distributors and several microcontroller companies as the partners.
All of the years have already borne fruit in the form of design wins for us.
The significant new business opportunities and we expect even more traction as times goes on.
Expanding our reach on positioning the company to sort of the segmented market through these distributors and channel partners will be a key factor on our ability to reach the scale.
The.
The important takeaway from this is from.
This somebody is all of these accomplishments will lead the business that will turn to revenue in the future periods.
During our virtual event last month, we will also share the snapshot of our pipeline of potential business.
Five $500 million.
<unk> revenue.
Assuming a three year revenue cycle from the day the customers device goes into initial production.
Also have indicated that we have another $100 million and the potential services. The revenue that we track separately because it tends to convert to revenue a bit differently than products.
Oh for this pipe of opportunity, we indicated that day event that 40% of the product pipeline has been secured by design wins and will turn to revenue.
The percentage of potential services revenue secured by design wins is a little higher than 40%.
Today, we are very excited to highlight for the design win.
Progress since the beginning of the year.
Let me start with the message of our youth.
We announced the design win with the Rethinks in January of.
This well known company is the spinoff of Nokia all debt provides smart health devices.
We are pleased to report that we have already received our first of order from this customer.
He has is an important market within massive Iot.
And we have a great traction there with many of advanced opportunities.
Specifically, we are finalizing and are about the kick off to projects with the other scared division of from Asia conglomerate.
Meanwhile, our existing he has the business driven mainly by day of infectious disease testing application.
Can you still have strong demand.
We continue to enjoy success in the metering market, we have secured the second phase of deployment with <unk> in Japan.
We are working to launch the first I'd throw on project.
And one with the new metering customer we secured in Q4.
Since our virtual Investor event, we have landed another measure of the metering design win.
Plus we have a strong interest and ongoing discussions with two new big deals.
So we believe metering is going to be the source of strong growth for the company.
In the smart home and security space, We have recently secured two new design wins bus using our monarch two platform.
The development has started and they are targeting the lunch in Q4 this year.
And the we had all the here of the area served by category. The one we have the major design win in Europe scheduled to begin the initial shipment this quarter.
Also we expect to move the design win we have in the U S from the proof of concept phase to the follow on phase with the arrival of Calliope two.
Engagements on Calliope, two we'll be developing through the year and we feel very confident that we can end this year with multiple design wins in this space specifically.
Specifically for.
Through the partnership of Palace, Jim Alto and the Renaissance.
In tracking and monitoring we recently secured several other smaller deals and we are working to close some larger ones as well.
In January we also announced a demo of the joint solution with the EPS.
Pioneering the energy Harvest, Inc. The technology that would enable Iot devices to run without batteries.
While we are far away from generating revenue from from the joint solution.
Collaborating with this type of company shows our commitment to remain at the cutting edge of technology and also demonstrates our commitment to sustainability and a better environment.
In summary.
We are entering 2021 with it with the strong feeling about the ramp of massive Iot and.
When we see our business developing in the following for markets.
One tracking of fleet management tool.
Total medical and wellbeing three.
Three security on the smart home.
And for meter Inc, followed quickly by way of interval and ahead of all is the fifth market segment.
And we believe most of this business is very sticky and will deploy all of our six or seven years, if not more.
Let me now go a little bit on some detail on the broadband and critical assets.
We are seeing seep out at the beginning to generate revenue on we expect this from to accelerate during the second half of this year.
Last week, we announced two design wins with EMEA to wireless so for.
Dave just a slower on ink using the <unk> private networks.
As we've mentioned previously we have more than it doesn't customers, including tell it as the module partner.
Intending to sort of of private networks for factories utilities campuses stadia and transportation hubs, such as airports and train stations.
Over time, we think the shipyard as market has very good potential, but it's a good at least since we are beginning to see some mobile computing applications for tablet and Mifi devices.
To repeat what we said the month ago.
But gaining traction in emerging markets as expected our business from emerging markets.
All of it in 2020 from the very low base in 2019, you see the potential for it to double again in 2021 and make a more significant contribution for broadband.
We are working to close a couple of sizable new projects for our cat four cat six products.
On the existing customers in the U S.
And we are engaged with the few others in Europe as well.
We continue to expect to expect that the digest back of demand to be at pre COVID-19 levels during 2021.
And in the very short term there is also some excess inventory that will need towards the.
We saw some impact from this in Q4 of the jetpack related revenue declined from the peak of Q3.
We never expected jetpack demand to remain at Covid sort of levels. Therefore, all of our previously communicated long term growth targets.
So the primary demand drivers in 2021 would be massive Iot and net broadband on <unk> you would be the best.
Case flat versus 2020, but more likely somewhat lower because the growth of <unk> in the emerging markets may not be enough to completely offset the decline in portable router related business.
For this reason we are especially pleased by the recent good news of just discussed within massive Iot because it gives us additional comfort us the demand for massive Iot will more will be more than compensate for a lack of growth in the broadband Iot.
On the broadband front, we are making very good progress on our <unk> total <unk> platform development.
The major strategic deal, we have with our of Fortune Global 500 partner is on track since Q4 of 2019.
And we expect to recognize more revenue from this deal in 'twenty to 'twenty one than we did in 2020.
No debt we track this revenue in the vertical category because of the services. The project is solar of it would distort the broadband category of from quarter to quarter.
And the likelihood of category is typically lumpy anyway.
Once we start on our product revenue from discussed some of it will be counted in the broadband category as of <unk>.
Also as mentioned earlier in Q4 of NSS.
The module partner for <unk> and the deal at all on $5 million with revenue to be recognized over 2021 and 2022.
This new deal expense our go to market partnership for massive Iot to cover also the <unk> broadened our youth.
Finally, we recently announced the two of our Susan to leave the consortium of seven French companies.
And one of only for projects awarded by the Finnish government to support technologies the deemed the strategic for the national interest.
Our comments with funding in the form of a grant of approximate the $6 7 million net.
The work of the consortium will be aimed at securing the national sourcing for the strategic technology for the critical industrial medical and scientific markets and delivering end to end the <unk> solution for public and private networks.
But with particular focus on the enterprise market.
From the strategic perspective, the partnerships the.
Company is interested in being the <unk> alpha customer.
The government the grant all of these illustrate the point we've been making.
Which is the scarce resource weighted.
But the collateral when it comes to <unk> the debt.
<unk> discussed the effective at the beginning to be recognized and our values.
I'll turn now to vertical business.
There is a lot of traction in the sunset on public safety and military spaces.
Customers are relying on our ability to modify the software of all of our <unk> and <unk> platforms.
Fifth with the requirements of such applications.
Hence we continue to be confident the 'twenty to 'twenty, one will show higher revenue and divestitures.
As I just mentioned, we count services revenue recognized from our large strategic deal in this category and this will grow in 2021.
In addition, a lot of confidence is growing that our vertical market customers in the satellite space will be successful in winning the large project, which has been waiting for the formal decision for some time now.
The decision is expected any day now and we hope it will come in time to finalize the deal.
Recognize some initial revenue in Q1.
We have active discussions on the additional vertical of the deals.
Well, we are optimistic because debt extending our work was satisfied the existing customers and some odd with the potential new customers.
Okay.
To recap all of these positive developments.
We not only have a backlog.
That's the strongest we've seen but we have a new design wins that could move fast enough to kind.
Reviewed the revenue this year and will certainly contribute to the next year.
Beyond <unk>.
Plus the new strategic projects that will help fuel the next wave of growth related to <unk>.
We expect this will constitute the enough demand to achieve 2021 revenue cash.
Assistant with our long term of growth object.
To elaborate on our growth objectives, we believe our company can.
B, 50% per year of grower for at least five years.
Not necessarily every year, but on average is on order of magnitude the indication of what we think all of our business can deliver.
In 2020, we grew our above the trend line with almost 65 per cent of growth.
We are not particularly concerned about whether our revenue in the given period is slightly above or below the trend line since the timing of revenue recognition can be a major factor in addition to demand.
We now have the line of sight that says we should expect to exceed $100 million on revenue next year and to reach of scale on a quarterly basis the year off stuff.
With the all with the all new growth engines of presented by our <unk> Taurus platform beginning to contribute in 2023, the cat realistically expect to reach the scale for the full year in 2024 with revenue of over $200 million.
This is the growth trajectory, we keep on our sites.
Net debt quarter to quarter fluctuation due to the season seasonality for.
The timing factor.
Yeah.
So given our backlog on the strong design win momentum we are comfortable with debt ends of analyst estimates for this year.
Actually from the perspective of demand.
However, the like the rest of the industry, we are facing sourcing challenges in the form of the global shortage of some assembly of material like PCB and substrate and silicon capacity constraints at TSMC.
We are working on various initiatives to mitigate the bottlenecks in our supply chain, but Meanwhile, the does the risk that some shipments could be delayed since the entire industry is in the same boat. We don't expect this to result in loss of business all of the potential delays.
As we work on mitigation plans for the near term sourcing issues, we continue to develop greater confidence on our long term growth.
As we secure more of business via design wins, and you don't find new opportunities and gain more of interest from our <unk> platform. So how does the fuel our growth via all of the next two years.
I will now turn the call over to the CFO.
Thank you George and Hello, everyone I'd like to add some details of that our Q4 on full year 2020 results every day.
Yes.
Our revenue for the full year was $50 $9 million, an increase of 65% versus 2019.
Exceeding our goal is over 50% year over year Grad.
Revenue increased in all categories in 2020 compared to 2019.
Broadband Iot accounted for about 50% of the total revenue in 2020, primarily due to the surge in demand related to portable routers.
The cat, one and cat M revenue increased in 2020 and massive Iot accounted for about 30% of total revenue.
The vertical category, which includes the service revenue generated by other major strategic deal interest in 'twenty 'twenty compared to 2019 as well.
Gross margin in 2020 increase of 46, 1% from 41% in 2019.
Product gross margin was $32 four per cent compared to 23, 9% in 2019, even though with the high proportion of modulus and the revenue mix.
The increase in operating expenses, mainly in R&D and resulted primarily from an increase in head count.
Recruiting fees.
Financial expenses were higher than 2019.
Higher interest expense and non res.
Sales of nearly a full year of interest on the convertible debt issued in 2019.
And the fear of value of the embedded derivative and convertible debt.
Allowing represented a non cash loss of $13 $1 million plus of less favorable foreign exchange rate, causing foreign exchange losses.
As a result of Ifr has no net loss increased to $54 $5 million Alright dollar 90 for it for diluted EPS compared to $36 7 million alright. Thank you for for ABS in 2019.
On a non price basis, our net loss for 2020 increased from $33 million or $1 17 for Ats the terex.
<unk> 31 $26 million.
The one for ABS in 2019.
Our non <unk> net loss excludes non cash items related to stock based compensation expense and the non cash impact of the.
The fair value and the effective interest adjustments related to the convertible debt.
Net of derivatives and other financing and the noncash impact of convertible debt amendments and the noncash deferred tax benefit or expense related to the convertible debt and other financing.
Adjusting for foreign exchange lives in 2020, and the foreign exchange gain in 2019 on.
Non <unk> loss in 2020 declined year to year and was the better result, the most analysts' expectations.
Neither we nor the analyst attempt to forecast changes in foreign exchange rates.
Turning to the results of Q4 on a revenue was $15 $8 million. The sequential increase of 11, 8% from the third quarter, which was above our target of at least 10 per cent grid.
Revenue in Q4 increased 58, four percentage compared to the same quarter of a year ago.
In the quarter, we again had three greater than 10% customers one of an early on and to our audience.
Gross margin in Q4 was $45 one per cent compared to 42% in the third quarter.
And compared to 51, 2% in the fourth quarter of 2019, when there was a higher proportion of license and service revenue in the mix.
The Q4 2020 gross margin reflects the I'll have the question of chips and the product mix in Q3 as well as the high proportion of service revenue.
<unk> operating expenses were $12 5 million in Q4. After the 11 8 million in Q3, primarily due to higher noncash stock compensation expense.
Can you just related to the convertible debt conversion in December.
The unfavorable euro dollar exchange rate compared to Q3.
Non I address the operating expenses were $11 $4 million basically flat compared with $11 3 million for Q3.
Our fourth quarter operating loss was $5 4 million compared to the operating loss of $5 9 million in the third quarter any for 6 million line in the fourth quarter of 2019.
Our net loss in Q4 was $11 3 million 36 cents per diluted EPS included a noncash gain of the Huntington.
$11000 from the revaluation of the embedded derivative arising from the March 2020 minutes of the convertible debt agreements.
This compares to the net loss of $9 million for 30 cents per diluted EPS in the third quarter, which included a noncash gain on the revaluation of the embedded derivative of $1 $5 million.
The net loss in the fourth quarter of last year was $8 $1 million like are the four cents per ADR.
On a non <unk> basis, our net loss for Q4 was $8 $5 million or 28 cents per diluted EPS compared to the non I address the net loss of $8 4 million for 28 cents per share.
The way the ABS in the third quarter and net loss of $6 8 million weighted any sense because of the D. S. In the fourth quarter of 2019.
In Q4, we had a foreign exchange losses of almost $1 9 million or six cents per ABS notes of which with unrealized and non cash related to the revaluation of the euro denominated liabilities on the balance sheet.
Adjusting for the foreign exchange losses, our non I O for asking of us.
Other than expected.
Investors should be aware the possible changes in foreign exchange rates related to balance sheet items and the mark to market.
Net of derivatives from the convertible debt amendments can cause significant differences in net income the net income or loss from quarter to quarter.
While the impact of swings in the value of the embedded derivative.
Excluded from our non iron for his presentation foreign exchange gains and losses, whether realized or unrealized or not.
Cash flow used in operations during Q4 was $1 4 million compared.
Compared to $7 9 million in the third quarter.
Cash and short term deposits at December 31, 2020 totaled $18 $5 million compared to $25 $3 million at the end of Q3.
As noted during the Investor event, we expect to receive a substantial portion of the $5 million of strategic deal with Renaissance as an upfront payment in Q1.
Also is the final decision is reached on the vertical deal of the satellite project.
We could also expected receipt of a substantial upfront payment during two atlanta or the chicken.
The cash related to the grants from the French government will be paid over three milestones with the first line of Frank also expected late Q1 early Q2.
Considering that we also have more strategic deals that would likely have some excellent payment as part of the terms and more of vertical with you on that could provide additional cushion we are feeling good about our cash situation.
Turning to some other balance sheet items. The accounts receivable at December 31st 2020 increased to $17 3 million from 14 2 million.
At the end of Q3.
Primarily reflecting invoices related to the new strategic projects with Ventas assets.
Dsos were 73 days compared to 91 days at the end of Q3, excluding the impact of this new strategic project, which distorts the picture.
Inventories increased to $6 2 million compared to $5 8 million at the end of day.
The the project revenue glass.
The current trade payables decreased to $15 7 million versus $17 2 million at the end of Q3.
I'm, sorry to index of the financing here both on sales.
The slightly to $14 2 million from $14 4 million at the end of Q3.
Our convertible debt, which is on classified as long term decreased to $26 1 million, reflecting the conversion of $12 4 million in principal and accrued paid in kind of interest in Q4.
In January this year, and you kind of as converted an additional $5 5 million in principal and accrued interest related to the notes issued in 2015.
As George explained we entered this year with our highest ever level of order orders on hand, and we're expecting strong overall demand to continue.
One tends to be seasonally lower than Q4, even in the normal year and we would expect it for the same pattern this year.
However, we are not giving specific quarterly revenue guidance on a revenue target for 2021 at this time due to the lack of visibility regarding the impact of the various bottlenecks on the supply chain, which could delay some shipments and the related revenue.
Excluding the potential for ongoing impact of the industry wide pricing challenges, we would expect to grow revenue sequentially in Q2 and throughout the remainder of the year.
For those of you developing financial models, you can make your own top line assumptions. The to help you with your modeling will share some margin opex assumptions based on assumed revenue level similar to the average of analyst current revenue estimates, which is $71 million for 2020 line.
On this basis as seen on line.
As for as gross margin in 2021 will average about 48 per cent for the year.
Based on the system.
On our assumed the mix.
Non address operating expenses are expected to average of 11 million to 11 5 million per quarter in 2021, as we begin to capitalize the <unk> R&D expense in Q1.
And this assumes a stable euro dollar exchange rate.
We expect non <unk> for his financial expenses to the around one 3 million per quarter in 2021 <unk>.
Excluding any foreign exchange gain or loss.
And we expect about $600000 per quarter of that interest expense to be in cash payments.
Finally for modeling purposes, the exact number of Ads's on January 31, 2021 was 34.352 million.
Yes.
Before I turn the call back to George I would just like to remind you that at the conclusion of this call. We will post a written version of our formal remarks on the Investor Relations section of our website on the webcast and presentations page.
Same location, where you will find the audio replay.
Also of George and I will be participating in the virtual of Roth Conference in March.
We look forward to speaking with you if you plan to participate and now I'll turn the call back to George.
Thank you Debra.
So to wrap up the.
The likelihood the stress the key point I mean, a few key points here.
The first line, which is really to keep in mind that we are really.
The next 'twenty 'twenty, one with very very positive momentum and very confident about the on our future and our ability to grow this company.
The 60% CAGR of I will say for the coming five year period at least the.
This is really the b is on two remarks, there what you know the the two the drivers of this growth is coming from one which is most of my message of our U T is now ramping and as I said, we see very strong demand. The company of the company is very very strong with the technology of practical point of view of <unk>.
Generational product on LTM and kept one and strong acceptance by the market.
Our design wins accelerating and I don't know if you realize that when.
When we spoke in January I spoke I announced almost all of what we had in hand.
Already as the design win for Q4 and since then just on any of the four weeks' time I had more of a $5 six new deals that we landed in January.
The period and I mentioned this in my on the.
Of course previously.
So all of this to say the <unk>.
<unk> of mass of Iot is building with marquee customers and in the diversity of diversified markets. You know I mentioned at least five strong market, where we are strongly that oh this really make a.
On the rest of Iot you know of major engine of growth for many of our with the sticky business and the other angle on which you know our assumption of growth is coming is really the driver of the <unk> and all of the <unk> position.
Our position in the <unk> market is very unique we're attracting many partners.
And you see many of them on helping us financing all of the R&D investment.
And with this also those part of.
Going to be potential customers for us in the future. So this really accelerated the time for market of this product line told us the two out of building so again.
The second engine of our growth and will help.
The company to reach the scale and extend beyond the scale in 'twenty to 'twenty for so.
So this is really on the long term on the average picture the for sure. If we focus on the short term as we've said we're entering 2021 with the very strong demand for really a record versus the previous years, we've seen of the in the past all of this coming from a lot of demand and the massive Iot by the way dissipate the Wii.
The jetpack, Oh, let's say the level versus last year the.
We feel very good about the year in terms of demand, but at the same time, we are facing the supply constraint issue many issues there.
On the market, but we are handling the this as we are progressing.
But in any case any supply issue the way we see it it will be of slippage of revenue and net loss of business. So this will not impact I would say the the potential of the company on the business, we can generate even if from quarter to quarter, we could see we could see some slippage related to this.
On the same time, we're working very hard not to get impacted.
As we are speaking so this is really my concluding remarks, I will turn it now to questions. Many thanks for listening.
Okay.
Thank you Sir if you would like to ask the question. Please signal of pressing star one on your telephone keypad.
If the speaker phone. Please make sure your mute function is terms of til.
Have your signal to reach our equipment.
We will now take our first question from Scott Searle from.
Roth capital. Please go ahead.
Hey, good morning, good afternoon, thanks for taking my questions.
George Deborah really nice job on a very difficult operating environment and I Hope you your family and your teams are doing well in the the current Covid environment, Hey, George just for a quick clarification to make sure I heard everything correctly.
Still looking for the 50% compound annual growth over the next five year period, you've got comfort with the current existing street expectations on the pipeline has grown from when you hosted the analyst event in early January is that correct.
Absolutely, Yeah, Hi, Scott Alright.
The good and quickly just a clarification on the interest commentary Deborah did you say $1 3 million in interest of average over the course of this year just want make sure I heard that correctly and on the vertical market deal with George It sounds like Youre very close your your confidence levels continued to increase.
That is very close are there any numbers you could put around it at this point in time, and then I had a couple of quick follow ups.
On the on the interest that's the expected interest in Q1 with $1 3 million on a non price basis.
And of that but.
But honestly go down on later in the year.
The rest of the convertible debt is.
Yeah.
Okay.
And on the vertical of the question, yes, indeed, the sort of idea we are the well.
And very bullish on I could say you know things sort of accelerating every day and we feel like a 99, 9% of it.
<unk> done obviously, if nothing is done before the official award so we're waiting for the official on and the amount of this project remains as I said, that's the perfect. What it has the service.
The service component that will will will go over almost two years with.
With the more than $12 million was some upfront obviously the strong upfront on every quarter, we'll have some cash and if you look to the cash but the revenue wise will be recognizing this over all of two.
For two years.
In addition, after those two years, we entered into the production phase will have product revenue for almost 10 years. You know after this that could go up to $1 million per year. So it's the big.
Great Perfect 99, 9% percentage of its a nice one.
Hey, George looking at the.
On the massive Iot pipeline than in later on this year it sounds like Youre seeing demand kind of across the board from a product standpoint, it sounds like monarch, one is ramping up you're seeing a recovery in cat one but also monarch. Two was had a lot of design traction I was wondering if you could.
And of provide a little bit more color on that front, particularly around them on our two it sounds like that's a game changing next generation leap forward for you guys ahead of the competition.
So what are you seeing in terms of the design opportunity there when that starts to contribute and lastly, just the throne as well she barrage it sounds like the tone of the outlook from an industry standpoint continues to improve pretty dramatically you've talked about a million per quarter over the course of this year.
I was wondering if you're starting to see that creep up now in terms of the orders that are starting to filter in.
Yeah, I mean on the on <unk>.
[noise] of Iot absolutely, what we are seeing really strong demand on existing platform sold I mean somehow the ramp is happening you know you know the weighted very very long to C. C.
Started feeling this on its happening I do know of.
The Covid was delaying this a little bit of low last year end and finally post COVID-19. The even if we cannot talk about post COVID-19, but let's say the new normal, but we are seeing demand.
But the good news debt as well as what you mentioned on you know all of the monarch two platform is getting very very strong.
The reception of the market. If you if you remember we spoke like AR in Q4 about more than dozen of projects engage with this.
And if you look to those projects are 90% of them all of the design win today and we have of new projects engagement. So I have two feelings of Europe on one side of them feeling like the customer of making decision quicker then moving to the other projects faster.
As if I compare it to last year I don't know if the them moving faster or just only because we have the greater product and they jump on it quicker, but the two out of contributing to make things for the more faster.
And in terms of timeline of the revenue of this obviously.
Some of them what are the main longer run, which is more revenue and executing on all of those big projects. They they they tend to take more than 12 months to get the product credit because of big customers of the company and they want to go through all of the qualification process. How long do we have some of them generally think of and you already you know we mentioned that we have ordered already for shipment in Q2.
On monarch, two monarch, two will be shipping to one customer of at least in Q2 and others will follow on Q3 Q4. So we will see revenue from one or two this year of definitely in addition, obviously for the more like one and I'll see that as really the attraction in the day that is the remain the same I could not give more you know I cannot say more.
Then we mentioned the $1 million per quarter I have for the feeling that this we could have some upside debt give me one more quarter I will say more about it at the affiliates and handle on it but for the time being I would like to stay a little bit conservative, saying, it's the developing and developing a great on we're seeing a lot of opportunity every day by the way, it's developing with them.
The demand.
But I I needed a bit more time to see if this will convert.
For the size of the order of Microsoft Festival will be the same.
Great. Thanks, so much nice quarter.
Thanks for thanks, Scott.
We will now take our next question from Mike Walkley from the kind of quarter.
The newest please go ahead.
Great. Thanks for taking my question.
Great quarter, and I hope everybody is healthy also.
Just wanted to touch a little bit.
Thanks, so much good detail on all of the design win.
On the short term I guess, George and Deborah you know given the well known supply constraints in the industry did it impacted all the shipments in Q4 and how much do you think it could impact maybe the first half of the year it sounds.
Sounds like it would just be slippage, but any any thoughts on the supply constraints impacting the in the intermediate term.
Uh huh.
Hi, Mike.
In Q4, we had some impact already integrated somehow so I could not say that we had real surprises.
The surprises in Q4 from supply point of view.
The integrated if you want if you remember we had a lot of demand on the Covid and we factor of the sand and we went fine.
For but we started seeing this really for all of the order of Q1 really starting end of December and it was more for the Q1 timeframe.
And.
We're seeing triangles on one side of TSMC, obviously, everyone knows that they are really the receiving more than 25 per cent of the capacity. We have all of our locations. So I'm not none of us and it sounds like saying, okay. The <unk> TSMC played play the partnership very well they are very long part of the cost and I have my allocation. If you want debt obviously, it's on allocation.
Debt I don't like I would like to have more and more flexibility on the song but on working this daily on every months with them to get my capacity, but what we had on top of this and the industrial all of the offset you know all of the substrate the PCB.
A lot of factory as you heard the they've got the under fire and and created another stress in the market other than the extra demand.
Of the reduction of Capex that we saw last year on all impacting impacting the industry.
So all of this to say its very complicated situation because it's not only one angle line component of many many component really impacting the margin level not the chip we have some impact on the chip, but Jeff is one of the impact on the module and we have a lot of demand but honestly.
Even we went to our customer by saying you need to place orders for the full year to get the the socio.
The CCAR ask a secure so we entered into the official notification for all our customer and the one by one of securing as well on location for them in the year, which gives us on the other side more of visibility. If you want on it's nice to have but on the other.
Still struggling with the capacity so if you're telling me now how much of this will impact first half for I believe the.
Hopefully in Q3 this will be we will have less problem and it's going to be of problem. Indeed in the first half of the year I Didnt look at for Q2, you know about but the value of focus on Q1.
Hum.
I have it constrains, what I'm working on it on to maybe $2 $5 million, if you want to what I consider the.
On challenge of it doesn't mean that we will not be able to sort of it but like in revenue I have bookings. If you want to have $2 $5 million that I'm working on.
To see how to minimize the impact on this hmm.
Okay great.
That's up from just my follow up question and I'll pass the line.
Yeah, just on the development and also you know just just to say, we're working on as well, but are working sometimes with customer too to give them other flavor of product. So it's not the only capacity, but you know I gave you. The example of Cat. One you know for example, we kept the one we have many operator, so we could be better on on one line versus the other line.
For whatever reason and we would work as well as some customer to change or the so they can still get the they need the discipline. The shortage. So so that's why it's a little bit of complex. The answer if you want to the address.
Okay, great. Thanks.
And just the follow up question and I'll pass the line just on.
On the five D development, given how important that is.
For the 50 per cent.
CAGR over the next several years can you just share with us the milestones you've hit the date that you highlighted in your script of the key milestones and anything we should look out for in 2020 on in terms of the key milestones to track the progress.
The.
You know I mean, the share a little bit obviously, one we entered into the strategic deal you know we enter into with the blanket blank sheet of paper you know at the beginning so you could imagine the first see it has a lot of milestone which is confirming that the class is able to scale and get this product up and running the so obviously today, we're approaching the the did you know the design.
<unk> is very advanced and we are approaching the milestone of tape outs of the tape out will be this year. So when you look to the detail for each tape out is obviously all of the specification of the readiness on so on so this is the way out of the the milestone where a lot of the partner was looking games to check if we are really progressing on time, if you're on.
You know on channel as all of the development reach tape out towards the end of this year as we planned on right on track for it and.
And for 2021, we don't expect if you want Oh the.
Of this key milestone if if the question and so I just want to have more risk of milestone in 2021 and it says.
The milestone you need to hit the at the beginning of all for the project otherwise the relationship could be challenged but now we're entering this obviously we need to continue executing.
And if we execute we can recognize the revenue channel.
Within a few percent of versus our target we know what how much we are going to do and on display this year.
Great. Thanks for taking my questions then the switches for success with the the big pipeline this year.
Thank you.
Yeah.
I just speak operator, we will now take our next question from Craig Ellis from B Riley Securities. Please go ahead.
Hi, congratulations on the momentum.
Funnel in terms of the momentum with the various partners since the start the year.
George I wanted to start just by.
Getting some insight on monarch, two and Kelly of Youtube because it sounds like the the customer interest in both of those products is very strong the <unk>.
It's just how do you envision on.
The the ramp of those those products kind of picking up as we exit 2021, and moving into 2022 range and Debra is there.
Meaningful gross margin differential between monarch, one and two and calliope you'd wanted to debt, we would want to be aware of.
Well, I mean, hi, Craig in terms of channel.
The time that you know for free.
Revenue of somewhat of two as I mentioned, we'll start this year and has started you know I could say that even in Q1, we shipped somewhere in the two I mean, obviously of small quantity at all and thousands but since the at the beginning for the initial projects. They are lunching will accelerate the to the Q2, because they know that we have one project. So we'll be moving on and we have a lot of pressure to.
<unk> to supply the demand of debt and in Q3, Q4 will have more than one projects coming in as you saw as well even gmail toward the adopting one of our tool. So we could have both of them and so we shouldnt.
I believe we should exit the mother of two this year.
Almost.
All of the new design becomes of monarch two on monarch, one will be just only on the all of the product. If you want to tell the like phasing out net from revenue because you could have still customers going with more of like 141, but with all of them all new designs will be ongoing with monarch. Two that's how we have seen today, because it's a great product and optimize them song collapsed. The two you know the.
We'll get the product to market in Q2, and something in Q2, and we have existing customer the customer waiting for it the.
So even if we have one customer want to have the launch in Q4 I do know very honestly, if we will be ready with the customer for us in Q4 or otherwise through the Q1, but any any you know high level I don't believe collapsed the two would generate the revenue this year, but we'll we'll start ramping next year in terms of revenue so for.
For this year, if you want in other words will be.
Collaborative.
In 2022 will be like a monarch, one and this year, if you want them and we'll start ramping from debt and all of this will obviously continue to drive the up on the existing platform of collate. The one is one that's all of them.
And in terms of margin.
In the similar margins on both sides of the chipset.
Yep.
Yeah.
Yeah.
We will now take our next question from Tristan <unk> from Baird. Please go ahead.
Hi, good afternoon.
Just looking back at the commensurately about cash.
Supply shortages.
Insurance for wafer price increases every day.
Here, that's proved to have some impact on the gross margin.
Uh huh.
Yeah, you should let's say the slowed in the so far on that's expecting this piece of my contract is TSMC I'm not expecting the soon to be the to be honest from the from the at least the wafers pricing I don't know if TSMC in the past they had similar phrases of similar institution with TSMC and I didn't see any.
So this is what I am hoping but.
Your question still valid for the other stuff like when you go on the module. When you go on other components like the substrate and so on when you start having very long lead time, if you want to accelerate the time for the period of time for the shortly of just to get the sort of.
We could have some money to pay a little bit more to do to get some hot run to some acceleration and secure our customers and could impact the little bit the gross margin, but we're not expecting major impact channel it would be the put it in the noise the circle.
From today feeling.
We will now take our last question from <unk> Gill from Needham and company.
Yeah. Thank you and congrats on good momentum on Georgia.
Talking about the the CBRE.
<unk> for you wondering.
If you could talk a little bit about what are some of the end market.
Correct.
Kind of move to the technology.
And secondly on.
How do you.
I think about your mom.
No.
We've been talking about debt module for based on cash for Nokia technologies developed in the world.
For a decade one of them.
Part of your.
And the technology to kind of debt.
Right.
Hi, Rajeev.
Well you know on the.
Obviously from the seabed <unk>.
You have in general.
Three ways, where you can see that as people talk about sort of ask on who's got the little bit you know big picture of the first one which is I don't believe it's the new business.
The Verizon on getting the figure I'd ask the bandwidth and just on the extra vendors for Verizon in other words of the business of Verizon remains the market of Verizon is the same but those guys. Obviously, the you'll see bad ass the offload debt the.
The capacity they have on the regular of natural currency about us is available the sole having to see bad ass with Verizon as like a nice feature of that kind of help you didnt win the design win but it's not like the new market not at all the new market for us for for anyone.
The other markets, where you are really there is a new market you go to the second category, which is the cable operator sort of like big guys. What do they have access technology day. They provide them. The I know typically of wireless wireless as MVA or no now having see about S allows them.
To expand more of that axis, the last mile of wireless and a cheap way by using debt on that work when they develop it now those networks are developing the are not there yet you know when you talk to the charter and Comcast and so on the.
The day I don't have the good feeling about the timing to get those available even if they spend a lot of money talks a lot of the C. Band is that this is definitely on your market. The third line, which is we are seeing really development now is what we call the private networks, which is essentially really beyond the.
The private network of independent of the carriers to provide the last mile access we saw a lot of activity in the schools, where the schools. They put a small access point on the school connected to the cable they have and then suddenly all of the school district can get connected to the seabed S N. The student one day.
On an as called out of connected on <unk> Wi Fi, but when they are at home. They can stay connected on the VPN The school network and they don't have to pay anything to.
For them because they are on the school network, it's for free and so we see a lot of lot of business debt and this is one of where we saw a lot of deployments go on we saw for example, as well as some private application on the stadium.
The football League of the National Football League has the business with US today on this started this which is in the on the stage on do you have like the <unk>.
Private network between all the.
Training is on day to communicate between themselves using C about us.
We saw the.
A lot of business as well there with the like of a.
Jailed for you know to connect the J of Reed.
The connect the enterprises. So these out of the kind of businesses. That's why by the way is very complicated to look to the.
The completed the size of this opportunity of very very hard. So many studied the none of them is really clear to go on say debt is 3 million unit, but here or 1 million units per year or more so the standard of a complicated we're seeing this a little bit bottom up we have a lot of demand with customers coming to us.
They talked maybe about 50000 soon at the year, but some of them. They took about 300000 student at the year end and it's too early to assess.
The credibility of each number you know two facts of the thing that's why I came by saying this year, we shouldnt be doing $4 million of minimum because they feel good about it but hopefully we'll get some upsides because they see some opportunity much bigger debt. They can drive much pretty good revenue for us.
So this is the this is about the market then and almost all of our technology that you know the cats for cat six what we have unique that the.
The RG is that the C about us.
Our biggest competitor when they add the frequency then the added on the high end platform. So if you won't see that S. Using Qualcomm solution youre going to get it on cat one cat <unk> got 18 of the product, which is expensive you are getting of module, which is in the $80 plus.
Module, while what sequence we had we had the seabed as frequency since ever net to address the seabed ask because of the three five gigahertz frequency used in the emerging market. The sequence you still have in the Wimax days I mean, we maintain this on our product. So obviously, we were able to provide a low cost of cat four cat six product.
That can have a big difference between the module that takes it out or the module at $20 you could see the gap a little of it attracted many customer whether they don't care about the high end of <unk>.
<unk> don't see bad Ass, because you don't have a lot of bandwidth and you're happy with it kept for the cat six and Thats, how we capture a lot of customers.
Okay.
[laughter].
That concludes today's question and answer session I would now like to turn the conference back to the management team for any <unk>.
For additional remarks.
Thank you all for all of the questions on for listening for the time and and the.
Looking to see you in the near future hopefully Facebook for Ace maybe it will happen in three of six months with all of those vaccines. Thank you very much guys and thanks, operator for handling the call.
This concludes today's call. Thank you for your participation you may now disconnect.
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