Q1 2021 Sequans Communications SA Earnings Call
Greetings and welcome to seek once communications first quarter 2021 financial results.
All participants are in a listen only mode of question answer session will follow the formal presentation.
Much of require operator assistance during the conference. Please press star zero on the telephone keypad as a reminder, this conference is being recorded.
I would now like true conference over to your host Kim Rogers Hayden IR.
Thank you Joe thank.
Thank you to everyone participating in today's call joining me on the call from sequence communication of Georgetown, Chairman and Chief Executive Officer, and Deborah Choate Finance, Chief Financial Officer before I turn the call of George I would like to remind our participants of the following important information.
On behalf of sequence.
The Kwanza issued the press release this morning.
Posted to the company's website at Www C Corns dotcom backslash investors under the news section.
Before we start I'd like to remind everyone that this conference call contains projections and other forward looking statements regarding future events or our future financial performance and potential financing sources, all statements other than present and historical facts and conditions.
Contained in this call, including any statements regarding future results of operations and financial positions business strategy and plans ex.
Dictations for massive Iot and broadband and critical Iot sales the impact of the Corona virus on the manufacturing operations supply chain and on customer demand the impact of component shortages and manufacturing capacity and our objective.
As for future operations are forward looking statements within the meaning of the private Securities Litigation Litigation Reform Act of 1995 section 27, a of the Securities Act of 1933 as amended.
And section 21 E of the Securities Exchange Act of 1930 for as amended these statements are only predictions and reflect our current beliefs and expectations with respect of future events and are based on assumptions and subject to risks and uncertainties and subject to change at any time.
We operate in a very competitive and rapidly changing environment, new risks of emerge from time to time, given these risks and uncertainties you should not rely on or place undue reliance on these forward looking statements actual events or results may differ materially from those contained.
<unk> 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 and Exchange Commission.
And now I'd like to hand, the call over to George Crumb. Please go ahead George.
Thank you Kim.
Good morning, ladies and gentlemen.
Welcome to all of our first quarter 2021 financial results Conference call.
We hope everyone under the Hood P&C.
Sequences for what do you think globally with local regulations to ensure that all of our people are safe.
We continue to operate with efficiency and effectiveness. Despite the constraints, we are facing and because of the pandemic.
Hopefully soon this crisis will be behind us as the the explanation is expanding worldwide.
First quarter revenue grew by 40% year over year, driven by significant gains in our massive Iot business that offsets the decline in the mobile at all sort of is this.
At the same time supply chain constraints that delayed the approximately $2 billion don't mess of Iot product shipments.
Factored all of our first quarter revenue.
The other thing and it's one to 'twenty, two 'twenty, but the 2% sequential decline.
Module shipments were the most affected because of the PCB shortages.
The related lead time increase.
As a result, we had higher percentage of chip sales in Q1.
Which lifted the gross margin of 51%.
500 basis points from the prior quarter.
Despite the 22% sequential decline of revenue for first quarter operating loss.
The increased by 7%.
Helped by stronger gross margin and lower operating expenses.
On the year over year basis, the 40% revenue growth.
The delivery of 10, 5% improvement in our operating loss.
Since the beginning of 'twenty to 'twenty one.
She wants has seen momentum in our sales channel.
Our three year lifetime product revenue pipeline.
But all of those by 20%.
$600 million during the first quarter.
Which included a similar increase in design wins.
Growing to $240 million.
Most of our U D represents 80% of this funnel as it is.
Currently the main growth driver of harvest.
We also had growth of in the quarter from C. Brs business and we continue expecting CBRE has to become an important portion of whole lot of broadband and Iot business.
Note that this pipeline does.
Does not include services the revenue generated mainly by our large farm the five G strategic deal.
And vertical business that continues through the below.
I will discuss in further detail the performance of each category at the moment.
The buildup of our revenue by key.
Keeps us on track to achieve our stated goal of an average of 50% annual growth for the 2020 'twenty to 'twenty for the period.
Even if 2021 the growth will be below the average in particular due to the supply chain issues.
As we indicated on the prior investment events, we offered speeds are sort of market to grow at about 40% of the year on average through 2025.
We expect the additional growth to come from market share gains with our second generation mess of Iot products, and then used and our high end five G in our tourist platform.
The later half of the time range.
Before I move on to cover of the business categories I want to discuss the recently announced the financing.
Earlier this month, we closed the $50 million of private financing.
And then Linda or plate, comprising 10 billion the lot of equity and the $40 million convertible bond.
We are pleased to have linear oak team as investors.
Whose long term value oriented investment strategy.
And the investor experience in the semiconductor industry demonstrates confidence in all of our product offering and business strategy.
The financing removes any concerns regarding our balance sheet and sequence of the ability of the long term play out in the market.
We are now well positioned for the ongoing discussions with strategic partners customers and suppliers to maximize our opportunities and measures of Iot and the broadband.
David I wouldn't provide in depth commenced around the financial results and the impact of the financing of her commenced the fault.
We grew year over year and sequentially and massive Iot and vertical.
As expected the broadband category declined year over year.
Sequentially due to lower the portable related revenue.
For the relative related revenue.
For the remainder of this year, we expect the reduced demand for portable routers to be offset by the ongoing <unk>.
Most of our youth.
The category, we expect to be the primary growth drivers for seek losses in 2021.
You will see about ex business and revenue growth from emerging markets.
Within the broadband Iot category should also help compensate for the reduced portable router related revenue.
The rest of your category is anticipated to grow year over year with the revenue contribution from our large strategic deal.
And then you start the complex.
If you key takeaways from the first quarter.
The massive Iot grew by 30% sequentially and all of our 100% year over year.
But kept one and cash.
And the categories all the contributing to this growth.
Broadband Iot decreased by nearly 70% from the prior quarter.
8% from Q1 last year.
Primarily due to lower of portable router sales as we expected.
The vertical category grew nearly 20% sequentially and 15% year of what are you.
This category includes then.
Revenue from the strategic deal with the Fortune Global 500 company for the three plus years that we signed in Q4 2019.
We saw solid bookings with customers, placing advanced purchase orders with some covering the whole of 2021 and into early 2022.
Improving our visibility and the ability to address the supply challenges.
The $2 million of delayed product shipments was due to supply chain issues.
The reduced some material that reduced some material availability.
We anticipate recovering these sales and the future of course.
Supply challenges remain a concern for the whole industry, but we don't expect this to result of lots of business only potential delays.
Let's take a closer look at each category.
Starting with massive are huge.
In the first quarter.
Bus kept one hand kept them and the sales and grew significantly.
Most of the revenue here is driven by our first generation <unk>.
All IP and monarch platforms.
Although we started shipping our second generation capex might be monarch two platform for some initial.
The.
The cat one Calliope business is ahead of plan with good visibility for 2021.
That is from Alto a lot of module partners. In this category is shipping to many of end customers in the U S and Japan for the various applications such as metering.
The machines security and asset tracking.
Also our direct kept one business and the fleet management and medical applications is exceeding our expectations.
In Q1, we started the initial shipment for the European design win for the connected speaker.
We expect this project for scale in the second half of 2021.
As we explained previously.
One category is required for the specific massive Iot applications.
But he guaranteed the speed above how does the kilobits per second.
And all of voice feature as needed.
Functionality is not supported by cash.
Such applications include specific security and metering devices.
And consumer terminals, such as wearable non heritable supporting voice and the streaming of music.
Sequences developing our second generation cat one platform.
Calliope two to better address this market segment and expand our cat one market share.
Glad to do is the highly optimized and cost and power with additional advanced and integrate the teachers.
Since the product announcement early this year, we secured tallies your multiple and the Renaissance as our first module partners of cash.
Slightly too.
Also the large consumer electronics company.
Designing connected the hero device followed by Calliope two.
And we are pursuing other target customers and partners.
The chip as taped out and we should receive samples for testing this quarter.
For something to customers in Q3.
I remain confident that by year end, we will receive multiple design wins using calliope two.
This product is expected to fuel the growth of all of our cat one business in 2022 and beyond.
On the other front, we have made progress in the cat and the category of massive Iot with the growing revenue stream from monarch, our first generation <unk> platform.
One of our monarch is now shipping to several design wind projects for the various Iot applications, such as smart home security and asset and cash and car track.
That is your multiple is one of our major cat M and the module partners serving the smoke.
The Renaissance now has its own model based module certified.
Accelerating sales engagement with the new opportunities.
One of us to our second generation Capex <unk> is now in the production and shipping.
Things the design win we secured and Genuity.
It is now in production with the smart body of skill device shipping in the U S.
The monarch two platform is the primary driver of our sales pipeline and design win growth.
Customer traction remains excellent and the conversion of free.
From design and the design win is impressive thanks.
Thanks to the advanced integration.
And power consumption advantage of monarch.
During the first quarter with.
We secured more design wins with monarch two.
Including two new project with the major health care company.
Two new design wins in the metering segment.
And secure the recent design win for a net of monitoring device.
In the smart home and security space design wins secured in January with building six.
The wholly owned subsidiary of alarm Dot Com and net pool are progressing nicely.
We also won a new tracker design for.
Provide buy here pay here service for the car retailers.
Most of these design wins will be launching in Q4 2021.
Also the pipeline continues to grow weekly with the new opportunities with several deals landed in Q1 now in the advanced stage.
Specifically, we are working on three new opportunities too in the metering segment and one for four and he has application.
On the go to market front.
That is Jim Antal, our module partner on the first generations of bus cat, one and cat M NB products.
<unk> has expanded the partnership adopting our second generation platforms.
With the Skyros, we are shipping the system in package the tiny design integrating the skywalk RF front end with monarch.
Now we are co developing the second generation offset.
Based on monarch, two to bring to market this years.
The integration level, we can achieve with such is simple.
Combined with its unique packaging characteristics make.
It makes this product ideal for the water and gas metering applications.
The continued to grow with our existing <unk> partners.
Microchip NXP and Renesas.
And we are developing relationships with the few others the.
These partnerships and the several large distributors, we added last year have delivered of design wins and significant new business opportunities.
They are a key growth driver.
Expanding our reach and better positioning seek wants to serve the massive Iot market.
In summary, our massive Iot business is ramping as planned and our targeted segments.
At the at Inc.
Smart home and security.
Being in medical.
Asset tracking.
And last but not least wearable unheard of.
And all of these segments, we have tier one customers.
Some currently shipping products.
Some designing products for launch in 2021 over the next year and others working on the closing.
Most of this business has a long cycled before going to production, but tends to be sticky as must of it typically deployed over five years.
Shifting now to broadband.
Our broadband business is ramping according to plan and we expect the segment to growth sequentially. This year, making CBRE as a new growth engine for the Robin are huge.
In addition to the design wins, we announced with immediate wireless we further expanded our Crs revenue pipe with two new customers.
Oh I see that as customers are building devices to sort of of private networks for factories.
Abilities campuses stadiums and transportation hubs, such as airports and train stations.
Private networks for school district for.
<unk> distance learning is now the critical application in the U S. What few customers are already shipping products integrating our seabed as Curt for cat six modules.
Also we are working with customers focused on mobile computing applications and building seabed S tablet or Wi Fi device.
Although the ODM customers building cash forecast six CP.
We are gaining traction in the emerging markets.
As such our revenue generated from this business should grow this year and has the potential for doubled from last year's loss.
Regarding the legacy of broadband portable router business.
We forecasted the sales decline at the end of 2020.
Due to excess inventory and.
And expect the diminishment of demand from the COVID-19 peaks of 2020.
However, the new development of this month's may further impact the slide.
But as an analysis of voluntary recall of the jetpack the.
Part of it also manufactured by Frank on the wireless that includes the sequence more of them.
Do you do a battery heating issue.
At this time, we're not true when shipments of the jetpack will resume in house sales to Franklin will trend in the second half of 2021.
We're forecasting that the growth potential of our message of Iot and CBS and the emerging broadband Iot would offset the decline in portable router related business. So this is the new factor may impact 2021 revenue by up to $6 billion.
Looking ahead to the <unk> broadband Iot front, we continued to progress on our <unk> Taurus platform development.
Our focus applications of here.
The fixed wireless access and mobile computing, followed by high end industrial Iot and the private <unk> networks.
Our strategic partnership with the Fortune Global 500 company.
Remains on track with NRT revenue forecasted to increase in 2021 of our two.
Plenty of 'twenty.
This revenue is going to be recognized in the vertical category.
We expect to sample the storage platform next year and begin generating <unk> product revenue in 2023.
We are also working with Renaissance.
The optimize the <unk> module solution as our partnership with them has been expanded from <unk> to five <unk> broadband.
As you know the French government selected sequence to lead the consortium of seven French companies and was awarded a grant of approximately $6 8 million.
The first payment of the grant was received on April 1st.
The key takeaway that I want to leave you with today is that the interest in our <unk> solution continues to grow.
Currently that are ongoing discussions with potential customers and partners that we expect will deliver additional strategic deals as we of course, the sampling deed of the Taurus platform.
Strategically sequences well positioned in <unk>.
Evidenced by our partnerships the numerous companies interested in being tourist alpha customers and the French government of grant.
<unk> offers a unique solution in front of G fully optimized for Iot applications.
And the scarcity factor related to this technology strengthens our position.
Switching gears the vertical category.
As I stated the net revenue from our large strategic partner that has the dominant contributor to this category.
Category also contains the revenue from satellite.
<unk> public safety and military customers.
We will rely on the sequence ability to modify the software for a whole lot for free and five new platforms for the requirements.
For the next few years growth in the schedule. The category is primarily from NRT revenue.
But we will also have some product shipments.
As it is now the case with Lockheed Martin for the satellite product.
On our last earnings call.
I stated that we anticipated the winning a large satellite project.
We won the business with the prime contractor however of the Prime contractor was not awarded the contract.
While we are disappointed.
We received the smaller some of its contract with Echostar and.
And we are finalizing another vertical deal that can offset the miss the revenue opportunity this year.
Also we are engaged in two new projects in the satellite and military space.
As I referenced in my opening comments the current snapshot of our pipeline of potential business in the broadband and mess of Iot has grown to $600 million and the product revenue assuming the three year revenue cycle from the deep the customers device goes into initial production.
The design wins increased as well and now represent 40% of the product pipeline or slotted for $2 million.
We can add to this services revenue secured by design wins that exceed 40 million the.
With more of a potential opportunities fueling the pipe every quarter.
In summary.
We have a record backlog the growing pipeline.
And the increasing design wins, which we see contributing to revenue later this year, along with continued strategic traction in our <unk>.
Overall sequence is well positioned to achieve our stated goal of an average of 50% annual growth for the 2020 'twenty 'twenty for period.
From this vantage point we are.
The modeling revenue to approach or exceed how does the million dollars in 2022 and the reach of scale on a quarterly basis in 2020.
We continue to execute our long term growth strategy on three fronts.
Continued growth in massive Iot and Cvs IUD.
Expansion of our go to market channels.
Ongoing development on our <unk> product line.
I will now turn the call over to the EBITDA to.
To take you through the financial section.
Thank you John good morning, everyone.
I'll make some comments there that the details of our first quarter 2021 results and other get all of it.
Our revenue for the first quarter of last $12 $3 million, an increase of 45% versus Q1 of 2020.
So short of our revenue gone the shortfall was primarily due to the delayed shipments, resulting for the supply chain issues George discussed.
Sequentially revenue in the quarter declined 22%, primarily due to the expected seasonality and the wife portable router related revenue as well due to the shipment delays for the supply chain constraints.
Revenue for massive Iot in Q1, 2021 doubled compared to the first quarter at 2020 and increased about 30% from Q4 2020.
The other cat, one and cat M and the revenue increased in 2021 and massive Iot accounted for the other half of total revenue in the quarter.
As expected broadband Iot revenue decreased significantly from Q4, primarily due to lower revenue related to portable routers.
The vertical category, which includes service revenue generated by our major strategic deal increased in Q1 2021 compared to the Q4 and Q1 2020.
In the first quarter, we again had three greater than 10% customers.
Yes.
Gross margin in Q1, 2021 decreased slightly to 51% consisting of one 3% in Q1 2020 and increased from 45, 1% in the fourth quarter of 2020 Gateway revenue mix.
A higher proportion of chip sales and license and service revenues in Q1, 2021, Katanga of Q4, and the higher deflation of chips that mentioned earlier at the portion of the service revenues compared to the Q1 2020.
I had thought of as operating expenses for $12 million in Q1 down from $12 5 million Q for pre.
Primarily due to higher capitalization of R&D as we began capitalizing finding and development costs lower fees related to convertible debt conversions and the more favorable euro dollar exchange rate compared to Q4.
Partially offset by higher staff costs.
Non <unk> operating expense.
Without stock based compensation expense were $10 $8 million in Q1 2021 and for the.
The 11 7 million in Q4.
Our first quarter operating loss was $5 $8 million compared to the operating loss of $5 4 million in the fourth quarter of 2020.
And then $7 8 million lives got million dollar loss in the first quarter of 2020.
Our net loss in Q1 was $11 $4 million or 33 cents.
Pick a weighted Etfs.
And included a noncash loss at $4 $1 million and the revaluation of the embedded derivatives related to our convertible debt.
This compares to a net loss of $11 $3 million or 36 cents per diluted ads in the.
The fourth quarter of 2020, which included a noncash gain on revaluation of the embedded derivative.
As in dollars.
And the net loss for the first quarter last year was $15 3 million or 64 cents per eds and the.
That included a non cash loss I mean, the valuation of the embedded derivatives of $5 6 million ties.
On a non isos basis, our net loss for Q1 was $5 $1 million or 15 cents per diluted EPS.
The non <unk>.
Net loss of $8 $5 million or 28.
Yes in the fourth player.
And the net loss of $8 $7 million.36 per unit.
In the first quarter of 2020.
In Q1, 2021, we had a foreign exchange gain of.
Almost $1 $4 million or for the.
Most of which was unrealized non cash related to the revaluation of euro denominated net liabilities on the balance sheet.
Investors should be aware of that possible changes in 2000 exchange rates related to the balance sheet items and the marking to market as the embedded derivatives related to the convertible debt can cause significant differences in net income of our loss from quarter to quarter.
And while the impact of the swings in the value of the embedded derivatives are excluded from our non iron for edge presentation for.
The exchange gains and losses, whether realized or unrealized are not exclusive.
Cash flow generated by operations during Q1 was $9 $2 million compared to $1 4 million used in operations in Q4, and $7 7 million used in operations in the first quarter of 2020.
We received a substantial portion of the $5 million strategic deal with manifests at an advance payment in Q1.
The cash related to the graph from the French government will be paid every three milestones with 25% of France, which was received on April 1st and therefore excluded from the cash balance at the end of March.
On April 9th we closed the $50 million of hybrid equity and convertible debt financing in a private transaction with an institutional investor in the not quake.
Just under $19 million of these proceeds were used to repay the remaining amount of the existing convertible debt that was due on April <unk> as.
As far as prepayment of adventure that otherwise would have been paid down to the April 2022.
Taking into account the new sources of cash received in April and the repayment of debt, our cash and short term deposits on a pro forma basis total of approximately $46 million compared to $18 5 million at the end of Q1.
And 2021.
And if I could.
Thanks for taking place by the lean at the end of Q1, 2021 and $18 5 million at the end of 2020.
Turning to some other balance sheet items. The accounts receivable at March 31st for 2021 decreased to $7 $1 million for $17 3 million at the end of Q4 for.
Primarily reflecting the fact that most of our service and license revenues in the quarter with prepaid as well as the improvement in the online payment performance by customers buying product.
Each of the prepayment of servicing of Rob payment performance and treatment.
As for 27 days compared to 73 days at the end of Q4.
Inventories decreased to $4 $6 million compared to $6 2 million at the end of Q4, reflecting the only finished goods and components due to the industry supply chain situation.
Current trade payables decreased to $14 $7 million versus $15 7 million at the end of Q4.
So I cant debts of financing receivables decreased to $11 million for 14 to $14 $2 million at the end of Q4.
Our convertible debt, which is classified as long term and I asked for it.
The decrease to $16 1 million and $26 1 million, reflecting the partial conversions in January and February.
On the issued in 2016.
Turning to the outlook for Q2 of our pipeline and backlog continued to build and despite the continued supply chain constraints and factoring the risk related to the point of our router business.
We're getting an approximate 10% sequential increase of revenues.
For those of you developing financial models, you can make your own top line assumptions that can help you with your modeling we will share some of the Opex and financial expense essentially.
We continue to expect that non <unk> operating expenses should average of 11 to $11 $5 million per quarter in the 'twenty, one assuming a stable euro dollar exchange rate.
We expect non <unk> financial expenses to be around $2 $4 million in Q2, excluding any foreign exchange gain or loss.
This takes into accounts the conversions entertainment.
At the previous convertible debt.
Payment of an adventure debt with about $500000 every meeting interest.
And the issuance of the new convertible debt with interest of created at the take rate of 6%.
Unless we exercised our option to pay the annual coupon on the need that in cash the bank.
And the lower rate of interest of just over 5%.
The quarterly cash payments of interest expense going forward will be minimal given the other way to the interest on our government debt and receivable financing.
Finally for modeling purposes, the number at Aes at the outstanding today is 37 million of 275000.
Before I turn the call back to George I have a few housekeeping items to cover.
First in connection with the private placement with wind Rock Lake We agreed to grant registration rights sales will be filing of form S. Three registration statement within the next two weeks. She can pilot this obligation.
There will not be any sale of shares at this time of any new equity issuance associated with this registration statement.
I'd like to remind you that at the conclusion of this call we will test.
Version of our formal remarks in the Investor Relations section of our website on the webcast and presentations page.
At the same location, where you can find the audio replay.
I'll start George and I will participate in the Needham virtual technology and media conference in May and the Roth Virtual lending conference in June and we look forward to speaking with you.
Sorry of in person if you plan to participate.
So now I'll turn the call back to judge the thank.
Thank you Debra for.
Operator, we are now ready to open the call for Q&A. Please.
Okay.
At this time, we'll be conducting a question. That's the session. If you would like to ask a question. Please press star one on yourself and keep that a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
All participants using speaker equipment, it may be necessary the pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Well. The first question is from Scott Searle from Roth Capital. Please proceed hey, good.
Good afternoon. Thanks for taking my questions. Thank you for the detail a lot in there George and Deborah He maybe maybe just to start some quick housekeeping I just want to make sure understand fully where the balance sheet is today on a pro forma basis, we of $40 million of the new converts roughly 5 million of the August 22 converts outstanding government.
Debt or loans or grants.
With no cash on the balance sheet post the $50 million hybrid rays of 40 plus million of cash is that is that roughly where the balance sheet stands today.
Yes, and in our Investor presentation that we'll be posting at the end of the call. We have performed out of the presentation as well as they should have clarified the perfect and Deborah interest going forward on a quarterly basis. Therefore, it should be less than a million dollars versus what we've seen in the past.
And so the interest expense includes a lot of different items are what we said is for Q2, we're expecting it to be $2 4 million that income into a 500000 clean up with the venture debt so all of them.
Likely all of the ought to be a $1 9 million on a.
The first phases, okay, great and then looking forward into the second quarter that a 10% ish sequential increase what are you factoring in at the current time on the broadband front you know there's there's been headwinds just in general in terms of normalization.
The surge work from home demand, but on top of that and then we've had the Franklin battery issue. So are you are you factoring in any recovery there whatsoever and just to clarify.
Rich I think you said 6 million potential impact from that but being offset by you know demand denial of Iot I want to make sure that youre seeing that massive Iot demand is offsetting any of that the potential annualized impact of of $6 million related to broadband issues with Franklin.
Yeah, I mean, Scott, obviously for the quarter and all of the assumption.
Fluid any any of portable relative you know it will be the.
You know I mean, but honestly, we don't know I mean, we don't have I cannot get into maybe there is a little bit of chance of getting some upside, but it's negligible in my opinion for the current quarter. So thats why we are assuming zero in the.
Zero shipment in the.
Portable router and Q2 still.
Phil a question of moderate for the second half.
So this means the growth is coming you know for if we look to Q2.
You could see like the decline in the broadband because even if we have the emerging in the sea about us in Q1, we did the little bit of broadband, we do like more than $1 million for portable router.
The two thanks again and this will go away in Q2.
And obviously this means the.
The massive growth for massive Iot and.
The more than 10 per cent of the growth in vertical as well quarter to quarter.
So this is this is the I will say for the picture in the first time, if you look for the for the full year. The 6 million is really the worst case, what they consider the.
Because you know we always said like we could be we have we're doing you know 8 million dollar on the on a normal situation, which was like $2 million per quarter on imports of Altera business, I mean, and sometimes we get a little bit below but sometimes a little bit above so nobody likes to so the six sort of looks like a two three quarter assuming this.
It will not we'll not see any recovery.
But still you know him.
Maybe in the second half so we could we could see some of the recovery of and maybe will not go to the worst institution with all of those 6 million the latter.
Less than revenue and obviously the growth engine in mess of IUD as I said, we are extremely pleased weather kept one of them get them and this is really in a much more than 10 per cent per quarter of the growth with sharpening and obviously with the vertical going world. So all of them all.
And all of you know, we have been able to offset the the slots of ports of world.
And lastly, if I could and then I'll jump back in the queue, but looking at the second half of this year. The pipeline is building really well of convergence on that pipeline in terms of the design winds up 20 per cent in the first quarter. It sounds like Youre incredibly positive in terms of what youre seeing going into the second half you you've given us a lot of the drivers can you talk a little bit about how you're managing some of the supply chain aspects of.
Of that because that seems like it's more of the gating factor than anything else from a demand standpoint or design win standpoint, where you're winning the business whats your whats youre able to do on that front and the recent financing how that's impacting your ability to really execute against the thanks.
Thanks, Scott I mean on the on the supply chain. Obviously, you know the the industry I mean, it's really very critical institution in the all the industry not only seek losses impacted the all out of the you know I would say even competitors I'd have to say, even sometimes the time, we see some upside because of some of the customer of yours.
<unk> that they depend on the.
Some other competitor out of where their focus is not a U T. They come like second the list and they realize that the their exact sequence and they come back for us. So we're seeing some positive I would say from design win potential I, it's very hard to quantify it but we are seeing very positive feedback from customers coming from this angle.
For US you know all of the challenge is really on all angles, whether the PCB.
Substrates was the major issue on obviously the foundry.
What I was struggling with in the short term was really PCB on substrate.
And I mentioned I might challenge zone on the foundry is more in the second half we are working daily with the TSMC to get the little bit of upside to get on the as soon as we see some free capacity we ticket.
The GAAP is not that big of TSMC and I immuno moderately optimistic I would say that I can all of them up.
All of the Oh, let's say of shortage and maybe some of it will be recovered in the second half with TSMC and the.
Regarding the substrate is really a major issue because of the time went to kind of 300 days or so overnight and we had to address this was the second source. So we worked all of the item in all of the chips, where we have shortages challenges almost like a four four ships get impacted to the substrate and we built the second source for <unk>.
At.
The three of them are behind me in terms of problems and the salt lost one.
Fixing the snow and I believe we should be fine based on the recent the work we have done is the team.
So we know it's the challenge is really shifting from quarter to quarter or managing.
The priority between customers that's how the.
Dealing with this we're not losing business I tend to say, we are even gaining business because of the shortage because some customer realize that they need to bet on the company focusing of 100% on Iot and can think of them like the product.
Great. Thank you.
Oh for.
Our next question is from Mike Walkley from Canaccord Genuity. Please proceed.
Oh, great. Thank you.
Just building on some of the Scotts questions.
For the kind of non product revenue of the other revenue line items, you know with that large satellite customer not winning the business. How are you thinking about growth in that line item. This year relative to what it might have been with that contract.
Hi, Mike Yeah, I mean, you know as we said first of all of the vertical even of what we called on the other line. We are part of the the it's included inside as well as the <unk> strategic.
And this is alone is ensuring the nice growth here to you first of all on top of this obviously.
We have a lot of opportunity in the vertical not going away, so and what the national on the call.
Yes. This this deal not happening, but reducing our forecast from one angle, but on the other side I mentioned that we closed the deal with Echostar and where the clothing and all of another deal.
It's not as large as the first one but the impact for the year in terms of revenue is equal because of this happened in got shorter.
For the shorter period the so.
So all in all we.
We believe the one of the.
The vertical business will be it will be in line with a lot of I would say the faster.
The percentage of growth year over year of at least.
Okay, Great. That's helpful and just a follow up question and I'll pass the line on the on the supply chain issues you.
You talked about.
Spillover demand from customers coming to you with the second source or you're seeing because your customers can't get their own components of any kind of pushed out in the orders or is it really just just the order book.
Staying pretty similar for the year. Thank you.
I mean, we have.
Getting the orderly, we're receiving out of our sing the same whatnot. The we're not seeing any pushout, even people are pushing us to accelerate shipment.
And you know as I said, the we have the backlog is quite solid and we see we have order placed order for even the beginning of 2022.
Just to cover this.
So again, it's the.
Painful the supply chain and a sense of like managing delay will not people really even even independent of the financial reporting I will say that even with the customer you know we.
Until the last minute to could have problem not tripping of demands we need to ship second months, we have the lay of couple of weeks here and there but.
But overall.
You know I'm not the panic mode, we fixed a lot of official so far with second source of the subsidized and tsmc's treating us fairly well.
I believe we can go through without any major major impact.
Great. Thanks for taking my questions.
Okay.
Yeah.
Thank you for our next question is from Craig Ellis from B Riley.
Please proceed.
Yeah. Thanks for taking the question and team. Thanks for all of the color in the prepared remarks and the Q&A for my first question is just a follow up to the first quarter strong gross margin performance.
The question is this with with the mix of business in the second quarter Chilton significantly to massive Iot and with continued vertical strength and with those trends seeming pretty predominant through the year should we expect gross margins to remain near 50 per cent. As we proceed through the year or would there be some gives and takes them.
Of the back half of the year and if so Deborah to what extent would we see that.
So I think for the for the time being we're still sticking to what we had said I think of the last quarter, which is the overall for the year.
Getting a at least a 48% gross margin I think it's all of <unk> seen in Q2 the keisha.
We don't have.
Other impacts in terms of next or sort of side effects of the supply chain issues.
Got it and then I'm sure it's nice to see the C. B R. S business gaining traction. The question is as you look out to the fourth quarter of this year can you help us qualitatively or even quantitatively.
Quantitatively scope, how big you think that business could be in and as we think about calendar 'twenty. Two does the C. P. R. S hit that you know 50 ish percent growth level or or would it be above that just given its base from calendar 'twenty one.
Yeah.
Well I mean, you know obviously, we stopped shipping to see about us lead the <unk>.
Last year, we had some shipments in Q3 and a little bit to two for it I would say, but overall the the number one well below 1 million gallon of let's say for the year. The last few C met us and.
This year I mean, we are I mentioned at some time that we should be able to hit the.
More than $4 million for the year and see about us and we have good visibility on this we are working on as well, we're seeing a lot of opportunity coming I mentioned that during the quarter on the other two customers we have the some opportunity as well as you know what was the.
You know with with more and more of application of this about us.
And let us feel like this market has a nice potential.
We could have more than for this year I'm, hoping if you want that we can do the can bid. This the maybe maybe got the one or $2 million more if things will converge for the time being.
The remainder of little bit.
On my on my target, but next year should continue and the growth. Yes, I believe next year, maybe it does it should have more than 50% of the growth just to be out of this I mean, because we are at the beginning so the growth should be much more than you know more than 50% year over year, because we had at the beginning of the potential of the smoke.
That's really helpful. And then my next question is related to some of the strength that you're seeing and the design win funnel and it's great to see that move up so significantly through the first quarter, but the question is to what extent is that being driven by things that are more on the.
The <unk> side with the capabilities you have developed over the years.
Or to what extent is it really driven by some of the newer ecosystem relationships that really came into the portfolio over the last 18 months with your distribution partnerships and with the MCU partnerships with Renaissance Microchip and NXP or any color on the degree to which the broader.
The system is helping would be really useful.
I mean it.
Obviously, it's the combination of the two you know what I mean, we have a great platform.
First of all I mean with maturity of the fluctuation and the second generation really beating the competition in power consumption and and other features that you provide the unique and which is product ready and moving that but we should not neglect at all of what I'll call. It the positioning of sequence or the the the brand of sequence of getting Fatima.
The better even.
Even if by the way.
Even if a lot of winning the deal alone without even a partner like kind of obscure partner or or of distributor just only the brand and the positioning of the viability of the company as it.
Is improving every day and last year I believe we would all of those relationships help us fill up and definitely in terms of the new I'll say acceleration of the pipe.
The go to market is the key element is the one you know even if the.
If I look to the design win conversions, maybe I don't have the same ratio, but if I look for the pipe and the number of deals a lot of lot of it coming through all of our partner whether on the distribution or the MCU partners.
And I believe the.
We are we will have more and more conversion to the design win in the near the food.
So so the two factors are very important but the if.
If you tell me a year ago, all of our product was the great I would say, yes, as well of about two other willing less so I tend to favor of like the positioning of the company was really instrumental in the go to market.
Really the key you keep changing the company since last year.
That's that's great and the last week for me before I jump back in the queue of follow up to Scott's question to Deborah Deborah I wasn't clear in the <unk>.
Point on cash on a pro forma basis right now of $46 million does that include the the 5 million payment that was agreed to with Renaissance around the time of the virtual analyst day.
Or just the benefit of that payments come in sometime later and if so when.
Yeah, the the red.
The first payment was part of a predominantly in Q1. So it's all of any in the balance at the end of March.
But the other government team.
The government that's right.
Got you George Thank you.
Thank you for.
The next question is from interest in Ghana.
Please proceed.
Hi, Good afternoon, just a quick follow up question on the on the gross margin and some companies have talked about their expectations for a higher.
Material prices.
That could impact the motion in the second of heads and their plans to raise pricing. So the question is how much visibility T S and he's giving you in terms of wait for cost for the second half.
You've mentioned that so far you are still holding on your gross margin targets for the year, but I'm.
I'm, assuming you have already some visibility for the second of Hanson.
And what is your ability to patch of any type of.
For the price increases with higher asp's to customers.
Alright Christian.
You know I don't know if I should say this but you know we appreciate the love TSMC I mean to some extent.
We don't see we have good visibility on the on the cost structure with TSMC and we don't see this initial adult that's more of the capacity of what I would like a little bit more help from them then the read on the.
The one of the visibility for all the costs. However, we're seeing cash.
The increase on the other component because you don't want you go with the.
Call it like a more for substrate the relationship for those guys. It's not like a strategic as you can as we have with TSMC. So obviously here that we're seeing on all the elements of people waking up and saying if you want to get the now then you'll pay that much more of that would give the do otherwise you don't get to do we get to the three months and some of them. So we had of buying sometimes some capacity.
And there is some increase we're seeing is one of the module.
Just some cost increases related to some.
The increase of the Bill of materials for example of the memory. So we saw some component of price increase substrate challenges to rebate for lead time, if you want the much less was there some seem to be honest and overall.
This has some impact here on that on our cost structure.
We are integrating factoring in the and the targeted dividend was giving you for the 14th per center piece for the year.
But also you know regarding the question first thing just to customer and it's possible, it's not like something.
Obviously, it's part of the quality.
Policy that we adopted of some customer for those the placing all the with good visibility ahead of time and covering of the year. We were respecting all the engagement and pricing for those coming late to place orders you know of.
The reflecting some price increase definitely.
And with the passing some of it.
Okay.
That said that's good color.
And then.
Going back to the catch one of the Chi deal and you've mentioned connected speakers I'm sorry, if I missed it could you talk a little bit about the level of your potential that you see from cat one for the.
Yeah.
The growth here of a year and also how much of that higher bandwidth segments within the within cat one such as connected speakers is expected to contribute over the next few years.
Yeah, I mean first of all of the kept one you know what I mean, it's just the growing nicely.
And we will hit all of the more than 50% of this year's year over year, the already with the existing business in this for this year there the other connected speaker of element.
There's not going to be you know that big maybe it will be of like what they should say maybe.
Few percent of all of our massive Iot if you want the globally, including kept them because the the launch of the.
The the volume of the surprises happening in the second half and it's in the initial markets are still at the beginning but this will continue next year and I mentioned as lot of that we have the design win with another major.
Company make.
Making connected speak out of a choosing clarity two and this will be the next year.
So in general you know, we we believe this segment will give a lot of that is a question of Mark you know obviously about the size of the market because why do you need cellular out on the on the connected speaker and what will be the customer perception of the brand and so on so the remainder of the Midcoast is without onto the too bullish on this but definitely.
There is the demand happening there and our product is ideal for the solution and we see this helping the growth the.
What we are talking about 10 of the 50% for an average.
The year over year.
Some contribution is build the for the kept widen as well that with the disconnect we had ever relative segment and head of all segments contributing to it for us.
Great. Thank you.
Okay.
Our next question is from Dennis Coleman from Needham and company. Please proceed.
Hey, guys. Good morning, I'm, taking the question here for Rajiv Gill.
So first question I have for your guidance can you just speak a little bit more about how much of the broadband and the that of Verizon get back you're still seeing in Q1 did I understand correctly that it's just 1 million sales and its nothing to Verizon anymore, We're just going to Franklin or did I misunderstand that.
No I mean, you know obviously there is I mean.
I don't want to confuse you when we talk about the.
The end market, which is Verizon obviously, the support of it out of it. He was on the Horizon. This was this is going to Franklin and by the way not that actually the Franklin is going to an ODM and MFS and inquiry I was thinking of product, they're going to think and so we are talking about the same business and and the and this business in Q1, we did one many of them done.
It was by the way and in line with our expectation because we have some we ended the year with the little bit of inventories. So we expected Q1 to be low and start recovering in Q2 Q3 in order to go back to the normal level, which is as I said kind of reach allowed at all of two.
$2 million per <unk>.
Quarter in average.
And due to the recall, we're expecting zero in Q2.
The cut out of court and then we will see what will happen in the second half of the year.
Okay. That's helpful. Thank you and then just a bit of a bigger question around C. B R. S opportunity and the private <unk> networks could you just of a brief rundown of kind of what we can see over the next few quarters regarding either design wins or what's the ramping up.
You know this and see that as you know I have more than 15 customer already all of them. They have product you know kind of all of them I mean, the have product ready and all of its not so I believe you hear the what happened is that the market was well known the people of our work on it and do other work waiting for the regulator and salt and the frequent events for the people and stuff.
Shipping and this is as you know get the little bit delayed last year and towards the end of the year.
And the ease of towards Q4 than you know the regulator opened abandoned people stopped shipping to this and we're seeing product there.
A lot of product you know as I said.
The providing get alto capability.
For the to campus or you know I mentioned, the the distribution of.
The first learning with the school district.
Coverage, but we have an application for example for campus for the video we have one guy.
They have connected speaker all working the N.
The National League by the way the football League that he was any of this product of this product from both the debt. So we have the lots of application like this.
And it's all standing by being high speed connectivity of like more of them.
It could be done goals could be relative.
But what we are seeing as well.
Tablets Ruggedized tablets again for kind of application, where we are in the private networks and they need the tablet connection or a portion of it all day.
So these out of the kind of application, we're seeing the and obviously today, it's all for sheet kept for cat six and in the future of this kind of evolve to support the five she has one.
Great and then just lastly could you. Please speak about maybe the kind of your of the competitive landscape and.
How you are pushing against the larger players like Qualcomm or Nordic for Altair, just kind of comparing product positioning.
Yeah, I mean, you know as we mentioned you know we.
The only guy who can really compare in terms of the car.
The coverage of portfolio of product portfolio is really quite calm.
They have the they have all of the family of products. When you go to Nordic Altair, we compete with the only and kept them and they are on the first generation product and in a lot of our monarch to beat them and where they don't have kept one either call IP is not that we don't compete with them. We compete more with the Qualcomm with the cat M and can I be and finally.
And cash forecasting.
As you know all of the deferred to the differentiation of that is Qualcomm that focusing on Iot and they don't have the best product for Iot application quite often and thats, how we differentiate the all the products in front of them.
Unfortunately, I think we're gonna have to wrap it up at this point.
Got it yeah. That's all for me. Thank you very much.
Thanks Dennis.
Ladies and gentlemen.
Oh, yes.
We've reached the end of the question and answer session I would like to turn of the call back to George Grubb for closing remarks.
Well go the extra very good. Thank you and thank you all of you again for joining the call today, we look forward to catching up with you.
Again on our second quarter other income thank you very much.
Operator, we're going into the gold zone.
This ends today's conference. Thank you very much for your participation have a great day.
Thank you.