Q1 2022 Sequans Communications SA Earnings Call
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Kim Rogers with Hayden IR. Thank you you may begin.
Thank you Melissa and thank you to everyone participating in today's call joining me on the call today from sequence Communications are George Karam, Chairman and Chief Executive Officer, and Deborah Choate, Chief Financial Officer before turning the call over to George I would like to remind all participants of the following.
Information on behalf of CCAR.
Sequence issued their earnings press release, this morning, which was posted to the company's website at Www <unk> com under the news room section before we start I would like to remind everyone that this conference call contains projections and other forward looking statements regarding future events or our future.
<unk> 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, including financing alternatives for our.
<unk> cheap business expectations for massive Iot and portable router sales the impact of COVID-19 on our supply chain and on customer demand the impact of component shortages and manufacturing capacity, our ability to convert our pipeline to revenue and our objectives for future.
Operations are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 section 27, a of the Securities Act of 1990 1933 as amended and section 21 E of the Securities Exchange Act of 19.
34 as amended these statements are only predictions and reflect our current beliefs and expectations with respect to 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.
Emerge from time to time, given these risks and uncertainties you should not rely a place undue reliance on these forward looking statements actual events or results may differ materially from those contained in the projections or forward looking statements more information on factors that could affect our business and financial.
Salt are included in our public filings made with the security and Exchange Commission.
And now I'd like to hand, the call over to Georgetown. Please go ahead sure.
Thank you Kim.
Good morning, ladies and gentlemen, welcome to our first quarter 'twenty to 'twenty two financial results conference call.
C class is off to a strong start and consistently.
First quarter revenue grew by more than 12% year over year.
And when adjusted to exclude the $1 $1 million of the Verizon Jetpack contribution from the first quarter 2021 revenue and grew by 23, 7% year over year.
The main revenue growth driver was our LTM NB Iot business with all of our monarch product family.
She grew more than 24% sequentially.
125% year over year, driven by design wins moving into mass production.
Also the broadband category grew 5% year over year.
It's easier to.
Attributable to increased services and licensing revenue from our existing five year agreements with our strategic partner.
Yes.
This increase in service and electricity revenue significantly boosted our gross margin in the first quarter to 68, 1% from 51% in the same quarter last year.
And just a seven 1% in the prior quarter.
The increased margin contribution narrowed our operational loss reduced our non <unk> net loss to $1.8 million.
From an online for a stop loss.
$5 1 million in the first quarter of 'twenty to 'twenty one.
Most of our U T and specifically the monarch N P. M product family remains the primary near term a growth lever for sequels.
Product revenue pipeline now exceeds $320 million of design wins with over 80% for vessel Iot applications.
Keep in mind that our pipeline represents expected revenue contribution over three years of design life, where seven on large projects having longer lifetimes Spence.
In some cases up to 10 years, which is not reflected in our pipeline number.
In March we completed $29 million of equity raise.
Which improved our balance sheet and enhanced our position for negotiating a new five G strategic exit.
Let me start by providing an update on the five strategic initiatives.
We launched late last year and referenced on our last call.
We successfully executed an mou within use strategic partner.
Once finalized is expected to fully fund the balance of our fiber investment.
And the total surplus.
These divisions has been completed and the.
The definitive agreement is currently being finalized.
With the goal of closing by June 30.
In parallel with this new strategic partnership.
Our strong position in five she has led to other additional non exclusive high potential strategic discussions.
These are opportunities that would further expand our addressable market.
By increasing penetration in existing markets, while providing access to new ones that we don't cut off the shelf.
We expect to have further clarity on these initiatives over the course of the.
Switching now to our massive Iot and broadband categories.
Typically.
We see seasonality in our first quarter product revenue.
And that was the case with all of our product categories. This quarter, except for our LTM NB Iot category that help to compensate for such effect and allow us to deliver over a 12% sequential growth in terms of total number of units all the categories.
Shifting to quote.
Massive Iot revenue represented around 45% of our total revenue in the first quarter.
The varied performance.
Yes, and ESP of the Cat, one and cat M and big categories of the massive Iot.
Other than flat revenue sequentially.
As I started in my operating commands the LTM NB Iot category once again delivered strong revenue growth.
Sequentially and year over year, reflecting the layering in of a number of new design wins that moved into the mass production and shipment phase into court.
The growth and kept the kind of and be offsets the contraction in the <unk> category related to lower module sales to our knee has caused customer.
So shipments spike last year in the first quarter related to Covid.
And the buildup of inventory levels by another customer in 'twenty to 'twenty one.
It affected the sequential growth in Q1 2022.
<unk> Calliope kept one demand remains solid we expect this platform to return to growth over the balance of the year.
Where the growth acceleration in 2023, driven by the ramp of our second generation platform <unk>.
But all of our last earnings call I outlined our prospects and several massive Iot markets.
Three of our segments.
Smart city, and specifically, Missouri.
As Seth and car tracking.
Martin Homeland security.
And two smaller segments medical and fitness.
And people.
And each of these growing markets.
Quanta is well positioned to expand and in some cases double our market share with our massive Iot platforms and kept them and kept one products.
During Q1, we made measurable progress towards this goal by adding design wins and metering the largest segment with more projects moving to mass production.
We are one of the few pure plays in cellular Iot in terms of the breadth and depth of our portfolio with all the advantages of our solution in terms of power.
Security and category coverage and are now partnered with leading MCU vendors.
Thus, we anticipate increasing our market share to 30% of our addressable market on average in each of these segments as they expect.
Put another way, we believe that our growth rate and the cellular Iot can exceed the 40% five year CAGR forecasted for them and us.
Our broadband category showed modest sequential growth this quarter.
But the increase by 35% year over year.
When adjusted for the Jetpack revenue in the first quarter of 2021.
Annual growth for broadband rose by 66%.
The significant growth in services and licensing revenue offset the seasonal decline in product revenue, we typically experience in this category in the first quarter.
And see that as we are experiencing a delay on one big project and the demand on others to address projects remains lumpy with the private networks market is still developing.
As a result see bad as revenue will be muted in the first half of 'twenty to 'twenty two.
We expect this business to pick up in the second half of the year.
Although flat the cat four cat six emerging market business remains productive.
While our differentiated <unk> offering helped us re establish our broadband Iot business.
Our focus for this category remains on a private networks application.
What we are progressing on a key strategic initiative.
Creating a new design opportunities that we could secure this year.
We'll talk more about this initiative is in the near future as it could boost our revenue growth in the legacy Cat four cat six business.
The new five she Taurus platform is the major long term growth driver.
All of our broadband or Youtube.
This.
We're addressing a significant opportunity.
Potentially exceeding $2 billion by 2025, that's good Trimble, our addressable market.
The five she taught us platform development, which is the largest segment of our R&D spending.
Is progressing at full speed.
We expect to have all the RF chip back for testing <unk>.
The end of May and we are on track with the development of the other photos platform components.
Our goal is to begin full product sampling in 2023.
Given the progress we are achieving with strategic partners.
We are highly optimistic about the next major growth lever for sequels.
Our cellular Iot.
Klein.
Looking at our backlog and pipeline.
Entering 2022 with a record backlog of noncancelable orders that continue to grow in Q1.
Also our business pipeline keeps building with a new design wins and new opportunities.
Its now well above $650 million of three year product revenue was that all it's 50% in the design win stage.
Over 80% of our design wins are for massive Iot application.
Predominantly for the monarch two goddamn platform.
The broad success of our second generation monarch two platform.
Has been a significant driver of <unk>.
Pipeline growth.
Along with the Renaissance LTM NB Iot module product line.
We continue to expand our pipeline and Mr Inc, and.
I'd expect to see continuous inflow of new engagements in this large growth sector.
We added three new metering design wins in the first quarter.
Two of which are with new customers.
Our existing cat one business is very solid with a strong backlog and our next generation kept one calliope two platform.
Continues to receive substantial interest.
As evidenced by the successful launch of collected too.
The positive market reception and ongoing interest prior to creating a strong revenue pipeline percolate.
We expect to close several new deals in the near future as we turn to mass production on this product.
Given the reception we are confident that cat one calliope two will be a new growth lever in 2023.
If we analyze our pipeline we still have a majority of the design win projects in the development phase with modest revenue contribution.
Many of these are anticipated to move into mass production later in 2022.
We have three significant projects potentially having an entry a run rate of over 1 million units each.
This quarter, we began shipping one of them.
It has secured the backlog for the second one that will move to production in Q3.
However, some of the design win projects are moving into mass production of slower than had been initially planned.
Due to supply chain issues, our customers are experiencing another execution challenges. They are facing this may affect our 2022 growth targets for the rest of our U T is.
Some shipments could push into late 2022 or early next year.
These possible delays are not expected to impact our 'twenty to 'twenty three revenue growth forecast.
Overall, a lot of backlog continue continues to grow and our potential sources for future revenue streams continue to expect.
This is expected to accelerate further.
Clarity two starts to add to our pipeline.
As more projects progress towards mass production.
You'll see an expansion in our revenue even if some external variables could affect the timing of certain projects in 2020.
That's the switch now taller and few partnerships.
Our MCU partners considerably strengthened our go to market strategy and the value of <unk> contribution to their offerings.
She wants to bring cellular technology to each of them who need this expertise to have a competitive comprehensive Iot solutions.
Each partner has its unique strategy for working with us.
Which removes the need for exclusivity in our agreements.
This broadens our addressable school, giving.
Giving us access to opportunities that would not have otherwise.
The expanded partnership with Renaissance has been successful on buff the business development side.
As evidenced by the growth in revenue pipeline as well as on the second sourcing of manufacturing options.
Solidify our supply capacity.
Our other <unk> partnerships continue to be valuable to <unk> as well and we have numerous exciting projects under discussion with that with design wins in the pipeline.
Yesterday, Microchip lunched, a tiny cellular Iot platform.
Adrenal compatible integrating a lot of monarch, two based G M zero to us module.
With the Microchip AVR MCU.
But that's when we'd be distributed micro chip's extensive distribution network.
And as a result could further expand our design pipeline.
Let me provide a quick update on our supply chain.
We are closely monitoring potential business hard goals for the remainder of 2022 include.
Including the recent Lockdowns in China.
Depths are.
In the Russia, Ukraine War, and our wafer supply from TSMC.
Regarding the lockdown in China, we have managed to limit to limit the impact on our shipments in Q1.
That said, we continue to monitor this closely.
This could impact the delivery of modules in Q2 and affect our customers' manufacturing devices in China.
In terms of our small R&D team located in Ukraine.
Continue to work as successfully meet their deliverables the impact of the Ukrainian crisis on our execution was minimal.
Lastly, with the help of TSMC, we have sufficient wafer supply to meet our customers' demand for 12 to 22 <unk> has a close working relationship with the team at TSMC, who supports our goals and our cellular Iot search.
So in summary.
Q1 was strong with growth in monarch, LTM, NB, Iot and high interest and Calliope two.
Both of which remain important sources.
Operator.
Ladies and gentlemen, it seems we are having some technical difficulties one moment. Please.
Ladies and gentlemen, please continue to standby.
Okay.
Yes.
Yeah.
Yes.
Thank you Kim Please go ahead.
Hi, everyone sorry for the interruption there I'm just kind of finished charges section in summary, Q1 was strong with growth in monarch, LTE M and NB Iot and high interest in Calif, Calliope, two both of which remain important sources of future product growth for <unk>, we do have.
Some fluidity and the timing of a few projects moving to mass production later this year, but we remain on track to deliver nice growth in 2022.
Our <unk> services and licensing delivered strong growth in the quarter and help narrow our operating loss.
With the new <unk> strategic engagement expected to progress close to closing in Q2, we should have the vast majority of the funding for the remaining development of our tourist <unk> platform.
Key long term growth lever for seek lunch disagreement would also bring high margin revenue for the next few years, which will improve our financial performance and strengthen our balance sheet.
Today with a growing pipeline and the new <unk> strategic deal under discussion we have increased confidence that we can deliver sustained long term growth.
<unk> is in an excellent position to expand market share grow revenue and improve profitability.
I'd like to thank all our shareholders for their ongoing commitment to seek lines and I'd like to thank my global team for their hard work and dedication.
I'll now turn the call over to Debra.
While they're working on getting that Brian charge back on the line I will continue with Deborah section.
And read the CFO comments until she has joined back in.
Our revenue for the first quarter was $13 9 million, an increase of $12 seven versus Q1, 2021 and up slightly compared to $13 8 million in Q4 2021.
Quarter includes an increase in service and licensing revenue, primarily driven by revenue recognition under our five G deals with Renaissance and our existing strategic partner.
Product revenue accounted for 43% of total.
A 14, 4% decrease versus Q4, we are expecting lower product sales of CPE RF and cat one modules that have higher asps.
Revenue from massive Iot T. In Q1, 2022 accounted for approximately 45% our total revenue with cat M and b growth compensating for the lower shipment of cat one modules.
New from broadband Iot increased from Q4 2021 as service and licensing revenue generated by our five key strategic deals increased sequentially and year over year.
As expected compared to Q1 2021 product revenue from this portion of our business declined due to the absence of jet pack sales.
For the quarter, we had three customers that each represented 10% or more of our revenue. One of these is a channel partner with multiple end customers.
Gross margin in Q1, 2022 was 68, 1% up from 51% in Q1, 2021 and up from 57, one in the prior quarter.
I'm just going to pause here for one second operator, do we have George and Deborah back on the line.
Yes, that's correct.
Yes, okay.
Thanks.
Debbie.
Thanks Scott.
The improvement was primarily due to the increase of services and licensing in the broadband category.
The increase in the product mix that chipset revenue versus module revenue compared to prior periods.
<unk> operating expenses were $11 $4 million down four 1% from $11 9 million in.
In Q4 of 2021.
The decrease in R&D expense of $264000 and a decrease in general and administrative expense of $405000, which was partially offset by an increase in sales and marketing.
$79000.
Year over year, <unk> operating expenses decreased $581000 compared to $12 million in Q1 2021.
Non <unk> operating expenses, which exclude stock based compensation expense.
Finally in Q1 2020, Q in line with $10 1 million in the prior quarter.
Our first quarter 2022, operating loss was $2 million, an increase when compared to an operating loss of $4 million in the fourth quarter of 2021, and a $5 8 million dollar loss in the first quarter totaled 21.
We posted net income in Q1 of $2 million or <unk> <unk> per diluted avs, which included a noncash benefit of $6 $4 million from the revaluation of the embedded derivatives related to our convertible debt offset partially by one by 1.1 point 2 million of noncash interest expense.
This compares to a net loss of $7 $7 million or 21 cents per diluted ads in Q4, which included noncash charges of $2 4 million of noncash interest expense and the revaluation of the embedded derivatives and the.
The net loss in the first quarter of last year was $11 4 million or 33 cents per diluted Avs, which also included noncash charges totaling $5 2 million on a revaluation of the embedded derivatives and noncash interest expense.
On a non <unk> basis, our net loss for Q1 was $1 $8 million or four cents per diluted ads again, an improvement compared to a non <unk> net loss of $3 5 million, our ninth expect diluted EPS in the fourth quarter and a non <unk> net loss of $5 1 million.
<unk> 15 cents.
Diluted EPS in the first quarter of last year.
In Q1, we had a gain on foreign exchange of $370000, primarily related to the revaluation of euro denominated net liabilities on the balance sheet.
Theres to foreign exchange gains of 135000 in Q4, and $1 4 million in Q1 of last year.
Investors should be aware that the company's results are subject to certain market risks and as a result, our net profit and loss may fluctuate quarter to quarter, specifically in the financial income or expense category on the income statement, which is below operating results.
Foreign exchange gains or losses, and the marking to market of the embedded derivatives related to the convertible debt, which can cause significant differences in net income or loss from quarter to quarter.
These fluctuations maybe more extreme during periods of increased market volatility in foreign exchange rates or in the company's share price.
Lastly, within the value of the embedded derivatives are X.
<unk> from our non <unk> presentation, foreign exchange gains or losses, whether realized or unrealized or not.
And please remember that our <unk> net loss includes significant noncash interest expense related to our convertible debt.
Much of which is excluded in the non <unk> presentation.
Turning to the balance sheet cash and short term deposits totaled $26 $3 million at the end of Q1 compared to $4 8 million at the end of 2021.
The Q1 'twenty two closing amount reflects the proceeds from our equity raises during the quarter.
Cash used by operations for the first quarter of 2022 with $2 8 million an improvement over the $4 7 million used by operations in the fourth quarter of 2021.
Short term debt from financing if you will increased modestly to $9 7 million versus $9 5 million at the end of Q4.
As George mentioned, we successfully executed an Mou with a new five year strategic partner effective March 31st that once executed is expected to fully fund the balance of our <unk> investment and the first choice platform and minimize its cash burden, while reinforcing our balance sheet.
Thanks to equity deals completed in Q1, we believe we have sufficient resources to fund our operations, even without the Newpage ABL that we would likely invest in our <unk> development at a slower rate.
Regarding the outlook for Q2, we are currently targeting sequential growth in the quarter. Although we continue to monitor the potential impacts on revenue and China's pandemic lockdown.
Supply chain disruptions on the timing of product shipments and project advancement.
We expect service and licensing revenue to continue to be a large part of the revenue mix in Q2, and therefore, we expect gross margin to be above 55% and recorded.
We expect that non <unk> operating expenses, which exclude stock compensation expense and soon a stable Euro dollar exchange rate will average close to $10 5 million per quarter over the next few quarters.
And we expect interest expense in Q2 to be approximately $2 6 million and non interest expense to be around $1 4 million, meaning that we expect our non <unk> results to have lower interest expense by $1 2 million.
We are not providing guidance on any impact as resigning embedded derivative nor possible foreign exchange gains or losses. Given this is largely determined by market conditions.
And for modeling purposes, the number of ads outstanding today.
$7.7 million.
We plan to update our outlook once we finalize the strategic <unk> agreement as this is expected to have a significant positive impact on our future revenue and gross margin profile as George mentioned, we are targeting to close and fund by the end of the quarter.
At the conclusion of this call we will post a written version of our formal remarks in the Investor Relations section of our website on the webcast and presentations page the same location, where you will find the audio replay.
Now I'll turn the call back over to George.
Operator, we are now ready to open the call for Q&A. Please.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Scott purely with Roth Capital. Please proceed with your question Hey, Good morning, Thanks for taking my questions.
George Deborah Congrats on getting the <unk> Mou to this point and it's nice to see the wafer progress at TSMC.
Maybe maybe.
George Firstly to <unk>.
Dive in on the five G.
Strategic Mou it seems like your level of confidence is high I was wondering if you could.
Expand on that a little bit what the gating factors and also just broadly speaking are there any exclusivity is here and to clarify whether or not there's any equity component in terms of how you guys are approaching the deal now.
Okay.
Yes, Scott.
Obviously, the data is really business. If there is no equity component at all it's a it's a licensing deal.
Opening a new application for sequels, that's what I could say for the time being in public spending in our market. So it's really a plus from the angle of the market as well.
It's not limited angle is taking anything off the table from sequences to the counseling spending say close business and as I said, it's pure licensing deal and I I'd rather.
Rather don't commence much yet on <unk> and so on but obviously some debt on one I'm talking about.
Covering all the complement to the spending on <unk> you can imagine that this is a sizable deal.
And would it be would it be in terms of amount that will.
Covered completely the financing missing wonder if RG under the same time, obviously give us.
Some improvement on the gross margin is one on the balance sheet because as we explained.
And obviously the deal is very advanced.
One for you from where you would do diligence and.
And we are finalizing between.
Any other deal and hopefully we can close within the quarter.
Hey, George just too quickly on TSMC front from a wafer standpoint, it sounded like previously third quarter was the area, where you were a little concerned, but I guess 90 days ago. You thought you were about 90% covered youre pretty confident than you've been able to fill in that third quarter GAAP from TSMC wafer standpoint.
So we feel good to know.
Obviously, you know we don't have extra capacity in other words absorbing some unpredictable upside or some acceleration in the business.
We'll have a limit so it's not like we have access to plenty of wafer long, but versus where we were at the beginning of the year we.
On our demand, we feel very good and no other.
No no no impact so far even the Ukrainian crisis.
While the check we have done everything seem to be.
Moving positively.
We remain cautious because no one knows but we feel very good versus loss last quarter.
And lastly, if I could it sounds like the.
The cat M momentum is continuing to build particularly in the near term, but cat one it seems like Theres a lot of design traction or momentum I'm wondering if you could dive in there a little bit more in terms of the magnitude of the impact as we get out into 2023, what kind of win rates, you're seeing and kind of cat one coming back into the forefront of a little bit more given what Kelly will be 2.0.
<unk> delivers in terms of performance price power whats attuned to the landscape and market share on that front.
And then I'll get back in the queue, but congrats again on the Mou looking forward to the definitive conclusion to that agreement.
Okay.
We have already very good business quite solid and good visibility for the next year, even though our cat one business we continue to ship.
In Japan, we have visibility on metering project, because you know that we have big projects at least one big project in metering using our existing kept one on rehab visibility.
Towards the end of 24, if not 2025 you can also just just to say that we are in a good portion of it. That's why did we have many strong customer has <unk> in there.
The tracking food finish lab and so on.
And our market share currently is in the low teen existing kits on however, the new platform what do we add all the improvements in terms of our opening a new market, but also.
Improve the cost of the solution globally is opening for US now the game to win a new SKU with this solution because it has really.
No equivalent I tend to say outside of China in terms of competitive.
Landscape and we have a lot of production out of it for security application for new metering application and many projects you know what are we talking about projects and the.
The smallest one we talk about 300000 soon at the year end and we have many projects that you will be above 1 million units a year. So this is really.
We're quite happy about what we have done that the pipe is very strong I don't qualify we have we are in very advanced stage with many deal I don't qualify them yet design win because I'd, rather wait for the full shipment of the mass production product with <unk> that we are planning to do in Q3 and by then we could talk.
More about design win and I'm expecting that to increase in design win just before the end of the year driven by discipline.
Great. Thank you.
Thank you. Our next question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.
Great. Thank you and best wishes on finalizing that <unk> Mou.
I guess George just just for you given we all know about the tough supply environment out there and it sounds like some of them are impacting your customer timing for ramps in 2022.
How should we think about maybe second half 2022 product revenue versus first half of 2022 and then the follow up would be you said, it's not going to impact your 2023 growth rates could you remind us how you're thinking about product revenue growth in 2023.
Yes, hi.
Hi, Mike.
Obviously, you're adding.
Our visibility the way we are looking to this that will be growing every quarter in terms of product towards the end of the this is just my target we have growth.
Our product every quarter and this is really related to the fact that we have a lot of those product turning to domestic production and accelerating.
It's very important as well you know when you look to the product that they don't behave the same way.
You imagine that the growth is really driven by the cut them category, which is what do we have the majority of the design win journey.
With the projects starting to mass production and obviously this category is adding the growth the capped one the existing cat one is more or less stable I don't quantify it like major growth was very solid we have backlog and so on but the growth is not expected to be big minor growth every quarter, because we have existing customer and we continue.
We're shipping to them in and we could have fluctuation at all that all those quarter the growth on cat one needs to come from the Calliope two platform and and this is more towards the end of the year, maybe we see some currency to shipment in Q4.
But in any case next year definitely and obviously the other element, which is a little bit Ken Ken can give different perspective, which is the <unk> business, but this is going well.
And we have even some opportunity.
I hinted a little bit on my.
On the call by talking about the new initiatives that with the new deal. We are very unique in a strong position to see that our space. The market is moving but it is like we get big order then it slowed down a little bit until all of this is consumed.
So it's very hard to predict if you want the quarter after quarter growth too on the seabed.
But in any case, we see second half much better than the first.
So again, even if the product revenue could look.
If you want them.
In Q1, we're expecting this to go back to growth.
Q2, and beyond the couture definitely with acceleration in Q3 Q4.
Great. Thanks, and maybe for my follow up Mike. The luck on about 23, if I don't honestly today, we continue we see continuous strong content transitory obviously.
Okay, any supply or any any situation out of control, but if I look to the demand and the number of projects. We have in hand, we have a little bit of fluidity. This year, because you know a project I assume to be originally launched in Q2 shift to Q3 will impact our revenue in the short term, but once it's shipping.
In Q3 as shipping three it will continue in Q4 and next year. So we have much better I'll say confidence if you're at about 23, just only looking to the design win in hand, turning to production because even if they could have some slippage here in that distribution remains under control I mean for the majority of those projects today and some of this.
As I mentioned you know we have for example, some customer.
We're not able to get in a few parts.
So we can ship to them, but they miss other components. So you have those kind of challenges delaying some of the.
Of.
The ramp of some of the project for a customer but we.
Nothing really.
That is.
Good good has kept us for the future because this is really recovering just only a quarter and it's already covered and we continue ramping from there.
Great. Thanks, and just a follow up question the services and licensing revenue really strong should stay at these levels in Q2, and if you signed a Mou does it go to even higher levels in the back half of the year.
Any color you can give us in modeling that higher margin business. Thank you.
Yeah in Q2 I think.
It maybe not quite as high as it was in Q1, but still a significant question. So that's why we're saying that gross margin will still be quite high in Q2.
Absent the new deal, we would expect it to be.
Yeah.
Lower in the second half of the year with the new deal that would be that would we would expect that that would add quite a bit to the to the topline.
Ken will provide a more precise update on that once their work is executed.
Great. Thanks for taking my questions and I hope your employees in Ukraine stay safe.
Thank you.
Yes.
Thank you. Our next question comes from the line of Craig Ellis with B Riley Securities. Please proceed with your question.
Yes, thanks for taking the question and echoing that congratulations on the Mou progress just great news there George I wanted to move over to the product side, you've talked in your prepared remarks, a little bit in Q&A on the success Youre seeing in metering, but that seems like it's something that really is.
Kind of a tipping point.
<unk> for your technology and your solution. So I was hoping you could provide a little bit more color on the breadth of.
Of wins that you have across different.
Metering customers and add a little bit more color on some of the new wins that you saw in the quarter. So we can calibrate what's possible as we look out to 2023 and 2024 there.
Yes, Hi, Craig I mean definitely this is a segment where we are quite excited about you know and we believe we are very comfortable to say that we can project, 50% market share.
<unk> to happen in this market if not more.
We have all the big names you know tier one engage with us and many of them have project for us.
Even in this quarter as I said, we added two new customers.
One existing customer.
Project. So we are talking about maybe more than 10 projects and you didn't go to the floor for sequels.
Using the <unk> platform.
Some by the way in the future will be as well as requesting kept one and solution that sequence is able to provide from cap.
And b to kept one even in substitution the request cat four and CBS for private.
Utility for private network applications, while this puts us in a unique position.
We are developing this August also the relationship with some partners like Renaissance helps as well and Scott walks.
And some of that calls.
So all of this let us feel like you know if I have to go back you know why not even being about 40% market share in this segment and this is this is what we hope if we conclude all of those the execution of those design win because the design are in hand, just a question of execution on shutting down to two <unk>.
In the quarter that I just mentioned.
As I said, three new design win but three new projects, but also one of them.
We did the first shipments to this customer because it does that will in turn to production.
So quite excited about the opportunity today.
That's very helpful. The second question is related to manufacturing supply and the Renaissance agreement can you comment on whether or not you will have supply from that partner later this year and if not then how would you handicap the prospects for.
Supply from them in 2023.
Yes, I mean definitely.
We are you know and this is one of the important relationship we have with Renaissance is really.
To provide second source for our concern about Hawaii and.
Second supply capacity I tend to say for sea glass Andrew This is combined.
Leveraging the buying power and air pollution in Denmark.
Today, we're implementing all the manufacturing pass through around us. So in other words, we'll be able to get to.
To have them buying from TSMC wafers are building their trips and I think all the power center.
And even going down to the module all built by Renaissance in parallel to <unk>.
And this is today and call it into the NPI stage in other words just suddenly.
Cleaning the process checking that everything is fine and making the Q&A of this.
I would say the path of manufacturing.
And this should be ready in the second half of the year.
I don't know how much we would use it this year, we'll have maybe a little bit of production going through them. This year, but definitely next year would be.
It seems to be the attention on the supply is going to continue. So this could be very helpful. Knowing that next year, we'll have as well as the ramp of <unk> and the ramp of the pipe of Oh furnace has stem cell site I mean.
Do you have as well as type of design win not yet turning to production. This year and this will add as well about demand next year. So definitely it's a it's a good strategic move that we have.
About and I'm sure it will help us next year.
Very helpful. And then finally before I hop back in the queue very encourage you here that with the new partner that you're engaged with under the Mou.
Could offer a new application for the company. My question is just around the partner and I know you can't identify who it is but can you provide any color on whether this was an entity that was known and kind of in your ecosystem before or net new win any geographic color and any color on that.
The application that's et cetera, so that we can get a fuller picture of what you're seeing there.
Yes.
I mean, obviously, it's a known entity and it's part of the ecosystem that we used to always say.
Uh huh.
It's not like a discovery start coming out of the blue.
But again.
It is important to keep in mind I spoke about this time, we will but you know I stress as well as the fact that since we launched this initiatives we have more than one deal under discussion I can.
Have to shortlist volatile shortlist four including one in December so we have three other initiatives going on and also the other thing that we are able with our unique positioning <unk> discussed today will just technology into old. So we really like the center of many guys looking for this technology in one way or another way to answer it was played.
Really an important role that to expand again to access their go to market and what's also interesting that those at least on the surface. They don't look.
Requiring exclusivity issue in other words, nothing prevents us from making for deals like this.
If I had to project obviously.
There is a limit of what you can do in a given timeframe as a company, but on the principal nothing prevents us from doing more than one deal. The closing this would lead to a definitive agreement and close another one maybe towards the end of the so which is again.
Interest debt, maybe even in the short term was really two.
So hard to find somewhat helping us funding the R&D, but if you exclude this on this slide and you look to the real picture, it's really expanding the market of sequence and.
This is meta smaller I tend to say because this will be future growth for the company with more business that we can get that thanks to this investment into the fund.
Thank you. Our next question comes from the line of Tristan <unk> with Baird. Please proceed with your question.
Hi, guys.
I know that.
U C.
Not really guiding for the full year, given all the uncertainties and you've talked about you know the design win pipeline, which is very encouraging.
My question on this was really more about.
In terms of the real demand so if we exclude.
The potential disruption from the Lockdowns.
And send the disc.
Disruptions in terms of the supply of certain components, how do you see the real end demand shaping up in this type of environment is the higher uncertainty.
Actually heading any impact on the timing of deployments of Iot project or is it the opposite that you.
Shortage of labor is actually accelerating those projects. So if you could touch on on it.
You are seeing to do.
Actual timing.
Iot initiatives relative to your expectation, let's say.
Beginning of this year were hitting and ask here and also touch maybe on the on the maturity of the ecosystem with what's what's left that.
It needs to be done to to eventually get to a higher turn for Iot in general and in some of your products.
Hi Tech and thanks, Thanks for the question.
I mean, what was very interesting.
A question that you're raising here to Chris then we are not we need to keep in mind that <unk> is not really consumer business. So we see obviously, we are nervous about the macro condition in general because you know what sometimes if that is the big one in Europe . You know I don't know if something will happen right. I mean, you could not say it will be will be will not feel anything about all this but if we.
We look to the.
Demand in the variable we are an industrial environment industrial initiatives what are the guys I'm not questioning every day of this project is.
Needed or not to the contrary I tend to say the more you have disruption or more of these C. Noteworthy I will say in the order the more they are convinced that our U T is a must have and you need to deploy network to control it or distance and improve the efficiency of your service and.
So, but honestly, even if you think in Q1, where you have like the crisis in Ukraine, and so on and we have a new deal New project, new customer signing on for new projects. So the demand is there and no. One is questioning just now practically in terms of execution, we could face some impact because related to the.
Also the cacique loss of executing on our project the guy working to get the product of that I'm missing one component obviously it creates some problem if they're good data locked in Shanghai and they cannot get the prototype and they lose two weeks on this we see those impacts so we're seeing those.
Michael impact and definitely this impact our growth because the project instead of being ready.
To move to full production in nine months it may take one year or maybe.
Even up to one year and a half if I want to exaggerate the impact.
And this will impact us, but in and none of this you will see like our five producing and a project canceling or deferring and you'll see that our pipe keeps building and this is really the indication that demand is there and specifically for Iot. There is no question about it now if I go to the maturity of that.
Ecosystem and that honestly the picture is getting more and more clear on this and people are getting.
Now kept them is well established in the U S well established in Japan in some places.
We have in Europe , I would say some holes between cat M and NB, because you need to switch between the two technology and get one is available everywhere. So from that point of view or readiness of this that have no question. On this is still you know a cellular Iot remains complex technology to take it to market because you have the operator involved to provide.
In connectivity and so on and you have a lot of patient initiative is making a lot of progress with NV annual with ice and we're doing a lot of stuff on our side as well to accelerate I would say the adoption.
This is really moving positively, but I guess is that a bit the ecosystem is ready there is no one questioning the technology now is sometimes the the implementation of this technology is taking a little bit longer than having Wi Fi project or Bluetooth project or Zigbee project, because its cellular but again the value of the seller.
One provide which is the global coverage none of the other technology can provide and when the people they need global coverage. They have no choice to move on this.
Thank you. Our next question comes from the line of Nicholas Doyle with Needham <unk> Company. Please proceed with your question.
Okay.
Hey, this is Nick Doyle on for Rajiv can you hear me okay.
Yep.
Alright, there's been a lot of questions about supply.
Questions in the end you chatted about on the call I was just wondering what process node is the highest volume product and then also if you could remind us that node for the upcoming five G. Taurus platform and if you have capacity in place to support the program.
Yep.
I mean, you know on the.
A lot of that.
I mean, we ship today our problem product.
Majority is 40 nanometer. This is really the node, where we need the most we have a little bit in 65, but the biggest.
The northern industrial product to ship today is 14 nanometer.
And when you look to the capacity build that TSMC is building and so on but they are building more in the 28 and below they build a little bit on the 40.
The demand is really a big problem on 90 and dominated at the 65 on four do you still have a problem, but not at the same level in terms of.
Supply the ratio between demand and capacity.
The good news on the 40 is one that you have a lot of design at 40 will be moving to 28 and 22.
Because people just what they do typically some of those big company and can free some capacity on the 14 nanometer or so so it remains a little bit of.
Concern over 40, but not as a as a big problem as you can see it for higher node like the 90.
And others and for the <unk>, we are at 12 nanometer and.
22%, what we have to technology. There. So it's really there is no supply problem at all on the funds you today.
Contrary to have more and more capacity.
Okay. Thank you and.
And lastly, just how do we think about the mix of services and products as we progress through the year. He talks about two Q, but maybe a little more color on the second half.
Yes.
So as we said you know.
Excluding the Mou deal the deal annuity if we stay with the original guidance, let's say it like this.
Obviously.
We are expecting services to go down we have a peek into services related to some revenue recognition deals and because we closed the Renaissance license at the end of the year. This was impacting Q1, mainly and a little bit of Q2, and this will go back to more normal in Q3 Q4.
Which was what we used to see last year. If you want because if I had to confer services. It on the we should go down in Q3 Q4, now obviously, if we add this new deal.
This will have a major component of licensing and it will impact not only the services for the second half, but also next year and the following year, but historically to comment on this it will be we will be providing outlook on this once the deal is that and explain all the detail.
Thanks, a lot.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Dr. <unk> for any final comments.
Thank you operator, thank you again all of you for joining the call today, we look forward to catching up with you during our second quarter 'twenty two earnings call in August .
Please note that we are participating in the B Riley institutional Investor Conference on May 26 in L. A.
Look forward to speaking with you soon thank you very much.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.