Q3 2022 Sequans Communications SA Earnings Call
[music].
Greetings and welcome to the sequence communications third quarter 2022 financial results conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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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 Kimberly <unk> of Investor Relations. Please go ahead.
Thank you background 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.
Chief Financial Officer before turning the call of discharge I'd like to remind all participants of the following important information on behalf of sequence sequence issue that the earnings press release. This morning, which was posted to the Companys website at Www <unk> Dot com under the news shrimp 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 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.
The operations and financial positions business strategy and plans expectations for future sales the impact of COVID-19 on our supply chain and on our customer demand the impact of component shortages and manufacturing capacity, our ability to convert our pipeline to revenue and our objective.
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 1933 as amended and section 21 E of the stack.
Securities Exchange Act of 1934 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 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 in the projections or forward looking statements.
More information on factors that could affect our business and financial results are located in our public filings made with the Securities and Exchange Commission.
And now I'd like to hand, the call over to George Karam. Please go ahead charge.
Thank you Kim.
Good morning, everybody.
I come to our third quarter 2022 financial results conference call.
Before we jump into my comments that our some of our highlights I want to emphasize.
First we had a great quarter from a consolidated revenue and profitability perspective.
Number two is that the new five strategic theme is going very well.
Number three our pipeline for massive Iot products continue to grow.
And we are lending design wins with new and existing customers.
Number four is that.
Cat one calliope two.
He is off to a grid sops and its future looks bright.
And last but not least our <unk> partnerships are doing very well.
Particularly Renaissance who is introducing some cost to the largest brands in this space.
Let's just start with a quick look at the third quarter results.
Third quarter revenue rose by 39% year over year.
16% sequentially.
Selecting the significant increase in our licensing and services.
Which included revenue from our new <unk> <unk>.
Uh huh.
For the IP delivered in the quarter.
Yeah.
The growth from licensing revenue in the quarter.
Lifted our gross margin to 77, 6%.
In turn the company to non <unk> profitability of one cents per <unk> on a.
Fully diluted basis.
The higher licensing licensing revenue offsets the lower product revenue in the quarter.
But as we said last quarter, we expected our product revenue to be impacted by ongoing macroeconomic factor.
Specifically.
<unk> dollars related to the China is zero Covid policy and other supply chain challenges have hampered our customers the ability to ship or lunch products on time.
In a moment I will discuss why the delay in our product shipment will not impact our growth potential.
Turning to an update on our new <unk> partnership.
As expected we received the first payment of $13 $5 million in October net of withholding tax.
The third quarter revenue.
We recognized a significant portion of this first payment milestone.
As the revenue for the IP, we deliver to them.
This caused our licensing and services revenue this quarter.
It'd be higher than normal.
The following two quarters revenue recognition from this deal will be lower but remains significant.
In the future the licensing revenue will continue at a reasonable rate for the remainder of the agri.
Our team at <unk>.
Closely engaged with our partner.
And I'm happy to say that the partnership is very solid with a potential for further engagement.
By the way.
That has been a local press recently regarding the expansion of U S restrictions on chip exports.
Right.
As it stands today based on discussions with our advisors and the scope of a whole lot of the year, we do not anticipate our future revenue stream from this partnership being.
Being impacted by the new export control rooms.
Now, let's discuss our message.
Almost all of our products shipped in the third quarter related to the massive Iot business.
Which was impacted by the macro factors I mentioned.
Yeah.
The cat M product family.
Similarly <unk>.
As it represents most of our design win progress ramping to mass Brian .
Obviously wed like things to be happening faster.
All of the elements regarding the timing of product shipments.
Beyond our control.
And the metering segment for example, where we have over a dozen design win projects.
The launch dates have shifted to 'twenty to 'twenty three.
And the other applications, we had several big projects that.
Let's move to production and started shipping in the first half of 2022.
All leads to decelerate because of the manufacturing disruption.
We also speed that once that all block are removed, we'll see that presume in 'twenty to 'twenty three with expected growth over the next three to five years.
Yeah.
Looking at the trend year to date.
We can see that remains our strongest product category.
Driven by the success of second generation monarch products.
And year to date, Kent has grown 62% despite the delay.
Largely the cat one business is performing in line with our expectations as we are shipping to a variety of established products in the U S and Japan.
One of which is for our metering products.
The cat one revenue was down this quarter and this was related to the timing of some shipments and is expected to return to normal in the fourth quarter.
We anticipate this product family returning to growth in the second half of 2023.
Once you start shipping Calliope two.
Our next generation of <unk> <unk>.
Enabling a significant product cost reduction with lower power and many other advanced features.
She crosses uniquely positioned in the cat one category as the only non Chinese company that has invested in a next generation product.
With the many massive Iot applications.
Quieting kept one speed and performance.
We believe our kept one addressable market.
Which excludes China.
It will be well above $400 million by 2025.
Based on the size and the scope of the design wins I will discuss in a moment.
We anticipate strong performance from gas one in 'twenty to 'twenty, four and beyond what do we expect to capture a significant market share.
Let's now did you on the growth potential of our pipeline.
And why we are so optimistic about our future.
Our pipeline representing.
Representing unexpected product revenue contribution over the first three years of each design life.
Continues to grow and this has accelerated with something called <unk>.
We now have a pipeline of design wins and advance design and close to 700 million almost half of it and secured design wins.
I remind you that our pipeline does not include services and licensing it out.
The expansion of design wins reinforces our confidence in our outlook.
The vast majority of the design wins are for massive Iot applications with the.
Monarch two platform.
And we added more this quarter.
The strong reception of the new generation.
That's one calliope two.
The us to secure our first two significant design wins there.
Representing over $30 million.
Three year aggregate level.
Good afternoon.
Working on about seven additional big Calliope two opportunities.
Could add over $100 million aggregate all of our catch one revenue pipeline.
That means in the upcoming two quarters.
You could see an acceleration and calliope two design wins.
Adding a new growth lever our massive Iot business.
Well, if all our key message about your vertical markets.
<unk> remains our strongest segment for design wins.
So my asset tracking smart home he has and a few other industrial applications.
We are confident we will increase our market share in these growing markets.
We are successfully leveraging our technology leadership and they kept them and kept one categories and large metering applications whether <unk>.
The coal gas or water.
Okay.
Given our engagement with the most prominent brands.
With the expected growth in these markets and the expected growth in these markets.
We expect to significantly expand our market share in metering.
The largest vertical.
That all 10% today to close to 50% market share in the next three years.
To conclude on this topic.
Let me give you some more color on our design win pipeline.
The top 10 customers in terms of revenue potential at full ramp.
It represents only about 20 million in 2020.
As most are still designing their products.
They could generate over $80 million in annual revenue.
So this is forex.
In addition, this business is highly sticky.
The product lifecycle of up to 10 years for most of the design wins even longer in some cases.
This level of growth potential from only 10 secured customers give us gives us tremendous.
Optimism about our future.
Shifting to the broadband category.
Broadband revenue grew significantly in the quarter, thanks to the increase in licensing revenue right.
Primarily driven by the new <unk>.
Looking ahead, the broadband product category remains promising with.
So the cat four cat six U S business expected to grow in 2023.
Followed by that told Us <unk> launch in 2020.
You bet, Ed has yet to meet our expectation this year.
Partially because our two largest projects did not ship as planned due to the Lockdowns in China.
In addition to these two big projects, we are pursuing private networks <unk> applications with utilities.
Last quarter I discussed in UC bad <expletive> module.
Designing that offered as private networks connectivity with fall back to public.
This is a new forecast secrecy about S solution.
Combined with our cat, one and kept them and deep product categories.
Thus with a comprehensive differentiated offering that reinforces our leadership in the metering sector.
Yeah.
The future resolve sequenced broadband segment is our first generation <unk> tours, which is in development and our new strategic deal has strengthen our execution capabilities.
This development is progressing as expected.
And we are on track to sample the full solution in London.
Yeah.
Our new <unk> licensing deal.
The remaining investment needed to launch stores.
The Taurus platform with targets fixed wireless access mobile computing.
Private networks and the high end markets.
It's designed and optimized to deliver cost effective <unk> solution.
The performance required for these applications.
The tremendous growth we see in connected devices is expected to rise dramatically with five <unk> and.
An exciting opportunity for CECO our stores perhaps.
We believe tours will be the only <unk> chip optimized for Iot, giving us a significant competitive advantage in a market that could potentially exceed $2 billion.
By 2025.
In addition to the tourist secondary product business.
The new <unk> strategically, we'll expand the <unk>, Sam to China with licensing and royalty revenue.
Beyond this there are other potential strategic partners.
Our <unk> platform.
New market segments that makes sense that SBS such partners.
Discussions are happening.
It's too early to define the longer term outcomes of these talks at this time.
What's important is that there is active interest and we are following up with interested parties.
Our partnerships continue to play a key role in our growth.
We are pleased with our MCU partners and enhanced market access they provide for sequels.
Microchip released its more act II product platform.
And this has received very good traction in the market.
You see this generating more design win opportunities.
Will further support our growth next year.
Our relationship with Renaissance continues to deepen.
And they now have a road map with all our products.
They have launched their first LTM module using our first generation of walnuts.
And that will be launching new modules platform with monarch, two and later calliope two indeed.
And then next year.
Also.
Brent assesses promoting all of our <unk> broadband portfolio.
Correct.
As a broad range of cellular Iot opportunities.
We are engaged with Renaissance in ongoing projects worldwide.
And that is contributing to our pipeline and design wins.
They have strong relationships with the biggest brand in the electronics and industrial space.
In Japan, the U S Europe and India.
We are successfully leveraging those relationships to secure new design wins.
This is a big funnel, we can continuously access through our partnership to build their line of business that otherwise would be much more difficult for us.
We are confident that <unk> contribution will be another pillar of product growth and our message about your DRAM starting in 2020.
In summary.
Q3 was a strong quarter.
Despite the headwinds on project timing.
Licensing and services revenue was very strong.
By the first revenue recognition from our new <unk> strategy.
In addition, this deal has help us reduce our cash burn and the profitability gap this year.
I'm pleased with the growth in our pipeline.
Particularly happy with the reception to collect it.
We will enter 2023.
The strong message of our youth business primed for growth over many years.
And if five G life testing deal that funds, our <unk> development.
That will generate future royalty revenue.
As a result of our work on this deal sequels could develop a five year licensing and royalty business for similar deals another potential growth left.
The cost is leveraging its comprehensive product line.
Optimized for Iot, our strong brand and our valuable channel partners to increase market share grow revenue and improve profitability.
I'd like to thank our global team for their loyalty and hard work and our shareholders for their ongoing commitment to sequel.
I will now turn the call over to Debra.
Thank you George and good morning, everyone.
Our revenues for the third quarter was $16 $5 million, an increase of 39% versus Q3, 2021 and up 16, 2% sequentially.
As George mentioned, our product sales were impacted by shipment and fulfillment delays related to lockdowns in China and other supply chain issues as long as the impact of our customers continuing to continuing to work through their inventory from prior shipments.
Revenue for massive Iot product sales in Q3 continue to account for nearly all total cash revenue.
Revenue from broadband Iot increased from Q2 and from Q3 of last year due to the revenue recognized in the new strategic licensing deal.
As George mentioned this deal is expected to continue to contribute significantly and somewhat less in Q4, and again somewhat less in Q1, and then contribute around $3 million to $4 million per quarter for the remainder of the chairman of the agreement.
For the quarter, we had one customer and one channel partner that each represented 10% or more of our revenues.
There's massive Iot design wins and customers moving into production, we still expect to see some concentration of our revenues with our channel partners.
Gross margin in Q3, 2022 with 77, 6%.
I'm 49, 2% in Q3, 2021 and up from 67% in the second quarter of this year.
The year over year and sequential improvements were due to higher contribution from licensing revenue.
We have quarter to quarter fluctuations in our gross margin due to shifts in our revenue mix that way.
We are confident that the overall gross margin for 2022 will be about 65%.
I am sorry, operating expenses were $11 6 million in the quarter.
That's from $10 7 million in Q2.
And increased from $10 9 million in Q3 of 2021.
No I know I asked various operating expenses, which excludes stock based compensation expense were $10 $5 million in Q3 up sequentially from $9 6 million in Q2.
Alright third quarter operating income was $1 $2 million compared to an operating loss of $2 1 million in the second quarter of 2022.
$5 1 million operating loss in the third quarter of 2021.
Our net loss in Q3 was $2 $9 million.
Lots of six cents per diluted ads and included a net noncash loss of $700000 from the revaluation of the embedded derivatives related to our convertible debt, partially offset by the noncash gain on the extension of one convertible note.
In the third quarter of 2022, we also recognized income tax expense of $1 6 million, which included $1 5 million related to withholding tax on licensing revenue.
In Q2 of this year, we had a net loss of $3 $2 million.
Seven cents, Craig Dowdy, Avs, which included a noncash gain on revaluation of the embedded derivatives totaling $663000 and income tax expense of $120000.
The net income in the third quarter of last year was $192000 or <unk>, yes, which included a noncash gain on revaluation of the embedded derivatives of $7 $7 million.
On a non <unk> basis, our net income for Q3 was $424000 or one cent per diluted EPS compared to a non <unk> net loss of $1 $2 million or a loss of two cents per share.
Graduated MBS in the second quarter, and a net loss of $5 3 million or 15 cents per diluted EPS in the third quarter of 2021.
Yeah.
In Q3, we had a gain on foreign exchange of $1 million or two cents per ADR.
Yes.
Primarily related to the revaluation of euro denominated net liabilities on the balance sheet.
This compares to foreign exchange gains of one 2 million in Q.
Two and $400000 in Q3 of 'twenty.
One.
Yes, you should be aware that possible changes in foreign exchange rates related to balance sheet items, and the marking to market of the embedded derivative related to the convertible debt can cause significant differences in net income or loss from quarter to quarter, while the impact of swings in the value of the embedded derivatives.
Excluded from our non Ifr S presentation foreign exchange gains and losses, whether they are realized or unrealized are not great.
Cash and short term deposits totaled $5 $8 million at the end of Q3 compared to $16 8 million at the end of Q2.
And in October we received $13 $5 million that is withholding taxes from our strategic partner as it first payment.
Our three year agreement.
Cash flow used by operations for the third quarter of 2022 was $2 $9 million.
$3 1 million came from the buildup of inventories in the quarter, primarily due to purchases of wafers.
Additionally, short term financing.
Short term debt from financing receivables decreased to $9 9 million from $12 1 million at the end of Q2.
Turning to the outlook for Q4, we expect revenue to be flat to slightly down compared to Q3, reflecting an increase in product revenues offset by a decrease in licensing revenues.
However, as the revenue mix should still be weighted toward the light toward licensing and service revenue, we expect gross margin to be about 65%.
We expect non interest operating expenses to be at least $500000 higher than the third and the fourth quarter, assuming a stable in euro dollar exchange rate.
Should be close to or at breakeven at the operating level.
We expect I FRS interest expense in Q4, 2022 to be approximately $2 $8 million, but non Io for S interest non interest expense to be around $1 3 million, meaning that we expect our non <unk> net result, which reflects lower interest expense by $1 5 million.
We are not providing guidance on any impact to be dialing up at the embedded derivative nor possible foreign exchange gains or losses.
This is largely determined by market conditions.
Okay.
Finally for modeling purposes, the number I E D. S outstanding today is $48 million.
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 to George.
Thank you David.
Operator, we are now ready to open the call for Q&A.
Thank you very much.
Ladies and gentlemen.
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One moment, please why do we poll for questions.
We have a first question from the line of Scott Searle with Roth Capital. Please go ahead.
Hey, good morning, good afternoon, and thanks for taking the questions nice job on the results of the strategic and the pipeline that's building.
George maybe to start just in terms of the supply chain certainly impacted the near term, but it sounds like it's starting to get better as well you're building some inventories from a wafer level I wonder if you could kind of walk us through how you see that normalizing over the next couple of quarters and in particular on the wafer level as we start to look out to 2023.
Can you kind of update us on your early thoughts in terms of how that wafer availability is working.
Hi, Scott.
Yeah, I mean on the other side.
On the macro at all what you are hearing on I believe you got all this news and obviously discussing with TSMC.
The but on the other side of the cycle I tend to say and there is there is some relief in terms of <unk>.
Supply, but you know it's not like normalized do you still see some tension here and there some component of missing here.
On the other side you see some extra inventory in some situations. So it's is it kind of.
Still I believe not really normalizing back to normal, but it's in the right direction now if I look the sequels for US it was very important too.
Secure because you know we have we have a lot of demand.
Demand for next year, and we didn't want really to.
Mrs.
And Helane just on their own on some protection for next year. So we are building inventory is a bit more than usual.
And also you know you have some price increase.
Which is happening beginning of the next year and obviously this inventory is cheaper if you won't put us buying things in Q4, two solid in Q1, you will make some better margin I would say for the company. So the two combined you know horse a little bit too.
Take our capacity this year.
Neglected.
If I look to 'twenty three I believe we are in good shape I'm not nervous on the supply.
Speaking today for us at least.
Right very helpful and maybe looking out into the pipeline in 2023, it sounds like a lot of good things are ongoing I think last quarter, you talked about at full ramp in 2023, there would be $70 million in product opportunity, but that's going to get are going to ramp over the course of 2023. It sounds like you are continuing to add to that.
Particularly with some cat one design win so I'm wondering if there's an updated number on that front and then as well the pipeline.
Of opportunities as it relates to cat one I believe you said 700 million wanted to confirm that again and kind of how you're defining that I think historically when you talked about the $300 million design win pipeline was about three years or using the same metrics on that front because I know some of the cat one deals went over a longer time period, but still big numbers and <unk>.
Absolutely the 400 million dollar Tam that you're talking about for cat. One in 2025 I'm wondering if you're you know the share figure we should be thinking about for you is 50% kind of given how the design win ramp activity is going.
Okay.
Yeah I mean.
So what about the pipeline first of all just to go on the basic number we're still using the same metric which is by the way when you compare to other companies. Some other company in the Iot space on industrial.
They use domestic which is five years. She wants you see yours. So please.
And we didn't change this and just only we don't want to lose.
The reference wholesale so we're still counting only three years and even though those projects are typically for seven years, I will say and often more than 10, because when you talk about metering definitely is 10 years.
And the pipeline here is 700 million barrels so indeed this.
It's cost their design win secured which as we said almost half of it so somehow $350 million and design win for three years revenue and design win and the remaining 350 are really advanced projects.
We believe we have very high.
High likelihood don't seem to turn them from design in to design.
So this is really when I speak about that I am now the I tried to give you as well as a picture, which is an interesting way of looking through the pipe, which as I put this in my script really to give you more color.
Because I know that many of the investors can see okay.
350 million dollar potential.
Potential product line. So over three years divide this slide three so in average we have more than $100 million why youre going to have 100 million product revenue now or next year and why this is not happening now a reality.
No.
I wanted to share with you a just only a big.
Ben.
Just on the tank customers that they have I consider them the highest potential in terms of three years.
Some of them they are doing zero with us just to be clear on this and if you look how much all of those guys. They do this year, they do around $20 million.
I say, how much they do a full room another rosemary because the pipe is AP. So you see a 20 million multiplied by four at four <unk>. So the question is when this will happen for me. It definitely it's happening I mean, there is no doubt about that they have zero doubts about any projects in the pipe.
In terms of design win dollars in terms of the potential or if it's happening or not because many of those customers. They give us more projects and we win more projects with them because they select a sequencer as a key platform for Iot.
The point, which is I call it but I don't like but this is the reality of the IUD and journal that thinks the projects takes longer to go from design win to mass production and generate revenue and you add to this the headwinds we have in China and other supply chain challenges, adding more complexity for us.
But when you take those leads me another sooner or later that would be on full year revenue when other responsible supply.
So this is very important to not to give you a to give you the color on that specifically I mentioned are kept one success.
This is indeed I'm very excited that this is one of the key message of this quarter and I was possible only previous quadrennial thinks we're looking one but I can say today and clearly that they have secured two big guys. I can say one in the U S. One in Europe .
All on this new product so in other words. They appreciate a lot of the value of this product positioning pricing on songs.
It's really each one of them.
That would be due more than $30 million to do.
Hmm.
In terms of does that end up pipe in terms of design win.
And when I look to the pipe of Cat one.
I have like as I said seven other big deals.
All of them are big so we are very positive on get to one <unk>.
But do they kept one didn't catch up in the pipe when you convert that that May get one is still lagging in terms of.
Our size, if you want versus cut them, because you need to keep in mind that the kept one is smaller in quantity they can get them, but the higher ASP. So over time, maybe we could end by having.
50% of the design win kept one in dollar amount than 50 odd get them. So this is what my target is I will say, what I want to see.
And then we see ourself in very good position I spoke about $400 million.
The.
The addressable market for us in 2025 this is almost counting.
You know like someone ships, a little bit more than chips, if we sell the Muslims the number would be bigger you can double it so.
The number could be around half a billion dollars if you make it mixed.
Assuming that we will be doing half of our business chips half of our business model, we could be above a half a billion dollar.
And we are starting to go into new deals to be honest to be well above 50% on the annuities now if you project. This is 2025, how do we going to be a 50% market share maybe not that there is some of the projects the project still shipping.
The trend will be to be above, 50% and counsel and we are in good shape.
This is Lisa.
Great. Thank you really appreciate the color on the detail very exciting what's going on and just just lastly, if I could on the strategic front, you've got the China deal done it sounds like Theres other activity going on in the pipeline could you just give us some more thoughts and details on that front are these similar types of deals that we could see how are we thinking about 'twenty 'twenty three or is it something on the longer term horizon.
So much nice job on the quarter.
Yeah, I mean, there's.
First of all just for any deal as I said.
It's moving but it wasn't like they know that maybe.
Maybe some people they have some doubt or whatever I mean, the deal is really happening, but it will create a relationship and.
These are respecting the terms that we are moving very well and it is maybe more.
More things to do together on this partnership I mean, I don't want to comment more on this but we feel very positive on it and obviously this has really strengthened our position in it.
Model, where we can get licensing and royalty.
There are some segments in the market were to pass is bustling Tonight.
Maybe other partners potential partners.
Muscle of them that I should say are missing cellulite. It because you know if you need a seller is very hard to get for you to get fiber technology.
It really will be the ideal partner, yes, we have discussion.
It was more than three guys I said and progressing very positive I'm very optimistic about this I'm optimistic if we say that our land maybe even.
And next year, but they don't want to comment more if you want because I believe with the number of engagements we have that.
The great position, we have the fact that we are moving to have product in hand.
Fully working all of this is converging to reinforce our position for those partnership.
And many people are missing this five year technology and there will be they have no other option if I say other than partnering with so I'm very optimistic on this.
Great. Thanks, so much.
Thank you Scott Thank you.
We have next question from the line of Craig Ellis with B Riley. Please go ahead.
Yeah. Thanks for taking the question and echoing the congratulations on getting the new strategic deal in the income statement and in your color for the outlook Deborah I wanted to follow up on that point. It was real helpful to get your view that the new deal could be $3 million to $4 million of quarterly revenues begin.
Next year, but the question is just can you help us with the specific number that Rev. Rec in the third quarter and and what is the specific expectation for the fourth quarter.
Oh, we're not we haven't been giving us the specific number I really went just wanted to give the color one two or three stores. These initial.
Three quarters.
Clearly a large a large contribution to the third quarter.
That could get to be slightly less in the fourth quarter.
Lately, that's again in that.
In the first quarter, but in all quarters in excess of that Dan when rates were expected to be $3 million to $4 million.
Okay got it Okay and then Greg when you look go ahead, Greg when you look to the licensing.
Component I mean, you haven't obviously, the licensing and it's separated the business versus product.
Obviously, it's not the only D. You should remember that we have other views there.
In this quarter its a big portion of that.
Revenue recognized this quarter was coming from this.
When I say, let's say above 70% from what you see is coming from Disney and this will be a little bit slower in Q4 is that when I said that in Q1, and then it will go down to $3 4 million per quarter.
Got it Okay. That's helpful and then George popping up on the supply dynamics as we look to 'twenty to 'twenty three so clearly yeah. We're on the favorable side of the cycle and and I think that shapes all up our view is for what's possible with TSMC I'm cognizant that there is still supply chain issues out there. My question is more on.
And what we might expect with Renaissance is contribution to the company's supply in and revenue capability next year can you just provide some color on how that might trend through the year end and what's possible I should look at the funnel, but it's developing a based on your cooperation with that team.
Yeah.
Uh huh.
To be honest our relationship with Renaissance really great I don't want to stress this more than this but I believe it's clear.
This partnership was the.
Very very successful for sequels, because they've locked from many projects and it moves and the go to market as well into the manufacturing today by the way I can tell you that Russia is able to produce to compete.
They already produced or let's say, what we call. It the kind of preproduction units just to test.
It doesn't of wafers and see that pulled the processes under control and so far all of this is positive and we should end the year with Renaissance coupled them off reducing monarch two that's given us obviously by definition because this is what the demand will be coming is on this.
These kind of wafers.
Average I will say some of the capacity I'll still let us know if there is a need for this.
Next year. So this is really going well and I'm happy about it and honestly I don't see today.
It's not my if you asked me last year same time my first priority was really to supply today is not my first priority even it doesn't mean, it's not an issue anymore, but I feel more comfortable on it. So it's coming in that's number one number two the Tory mi.
Me, but obviously I would keep an eye on it and we are watching this and it's under control.
But the other angle as well as well as the Renaissance that you mentioned is really the success that contribution to the funnel.
<unk>.
To be honest.
You don't need to commend that going to Japan, and selling to tier one customer in Japan is very complicated. If you are not Japanese with good relationship and established network.
No doubt that Renaissance has all this easy.
Easy I should say so this is developing very very well the bad debt, but it's really beyond Japan, we have big deal with them.
Clause in the U S very big one.
And we haven't in a couple of them. They are big in the U S and Europe . So it's developing very well their relationship with their sales team marketing team is very.
This is very smooth so it's not the relationship only at the top level of the company and when you go down in the field you don't see the People's bookings, it's working very well and it was really a great partnership and we believe that what it represents.
Ah represents nice revenue for us next year, but even in the pipe over time this will keep building up and adding more potential bus tour.
Got it and then.
On longer term revenue dynamics I think in the past we've talked about the potential for around 50% year on your calendar 'twenty three 'twenty five revenue growth then.
Massive Iot share expanding you know.
From where we are now 12% up towards 30% and 40% Sam kicker there are those still the right macro numbers to look out for the bigger opportunities that the company has and then Deborah I think in the past with the new deal we thought that cash self funding could be possible in the second.
Half of 2023.
Can you just update us on the prospects for that especially given the.
The level of revenues that we can expect from the new strategic deal. Thank you.
I mean in terms of the calculated the the growth potential we are in that but it is still in the same numbers. So nothing has changed in terms of.
Hey, good and avenues, whether the market our market share your share it keeps building and just again if you go back to this example of what I consider a plenty customer dependent customer sorry, doing $20 million and their potential and at full run is.
Hum.
So you could argue that will not reach this next year that will reach at the following year.
Let's say they were issued at 80% the following year whatever it is is it gives you that we are really in the morning growth potential more than 50%.
We kept them alone now obviously when you combine them for the existing business and so on we are targeting an average of 2% which remains our target. The challenge. We have is really the timing of those products those projects moving them from design phase two really full production and this is really what.
We have the challenge when you compared year over year, and we have already we suffered already with this year. So hopefully hold those roadblocks move away and we start.
Going back to normal, but the trend is good.
Oh, yeah, and so yes, we're still expecting that the newpage ABL fully funds are fine.
<unk> development.
And Oh really.
The revenue trend for next year it is.
And as we expect.
Dan.
Did not.
We're on target for that operating cash flow breakeven in 2023.
Great. Thanks team.
Thanks, Craig.
Q.
Thank you.
We have a next question from the lineup Nicholas Doyle with Needham <unk> co. Please go ahead.
Hi, Thanks. This is Nick on for Rajeev Gil Thanks for taking my question.
I know you guys talked about rigor.
Regarding the China export rules that you you don't anticipate the future revenue stream will be impacted but could you be more specific on why Taurus as US 60 nanometer product won't be won't need a license or won't be impacted that and then just more broadly.
Why your why do you think that your <unk> technology, just will be will be allowed to move forward in China.
Yes, I mean, Nick how are you.
Generally speaking the salaries, it's very complicated and sometimes confusing, but if you look to the rules first of all when you talk about the geometry.
Our smaller it is.
This is going for manufacturing tools.
There's nothing in manufacturing.
Partner is a fabulous company, so it's completely clean and all the chapter where they talk about the finfet the restriction to China and so on.
Not playing by the way our partner will be buying from TSMC from outside China. So so somehow tourists if it's sold by our partners.
Got them.
But that would be buying wafer from TSMC outside of China and all of this is a clean like any other Chinese buying from TSMC now, obviously I'm not.
It's very hard for me to project, what will happen in the future I mean, you could you could maybe in two years old in one year whatsoever.
Chinese to buy anything from TSMC then there.
There will be stuck or my partner will be stuck, but but today. There is nothing related to this are conflicting with sequel and the five year such as the technology is not touch I mean, we are talking about military application and if we can use this for a minute so whether they're manufacturing for smaller zoom method of manufacturing. This is out of the scope of participants was nothing there.
Our partner was nothing there and if you're talking about the technology. Part is you are not dead I mean again as we are speaking today. If tomorrow, we have rules, saying you cannot satisfy a China anymore and no one can touch anything and then.
And then obviously it will be impacted but qualcomm would be impacted and I can tell you. The world water will be impacted largely in I don't know I don't know what really the distribution but.
But I honestly today I feel good on this you have also other angle just to give you more feedback, but the fact that seek losses about developing the R&D is not in the U S and R&D is really in Europe , but nothing in the U S. So this should give us another safety it doesn't mean that would not be impacted because.
The financial European they can follow the rule and so on but at least.
From.
The technology point of view, it's not built in the U S and this give us another safeguard with you want another level to go there and then the third one which is very important it's in IPD. This means.
If you sell something and you deliver the IP.
Not very proactive another horse whatever I'm doing today, even if tomorrow there is a deal.
But that has the second so if you build a chip the chip with this and he can use it so because it's not that attractive obviously the money would remain do for me because he is using our <unk>.
And we will not be shipping any more royalty in the future. So these are some angles I know that the subject was very complicated there's never 100% sure about anything.
But at least where we are today, we are in the green.
And I feel like we have many elements that we feel we are not the first guy rescue for this now obviously if the model that is.
Huge problem between China U S. And this is taking over everything and every component and muscle the things that will be treated like others and will be suffering like others, and we're going to be new styles.
Thank you for that very helpful. Could you just talk a little bit more about the product declines in the quarter and the guide I understand that supply chain some inventory burning in the macros impacting but do you kind of expect and I understand we have some new products ramping next year, but do you expect.
Kind of bottom in product revenue.
Revenue growth to be next quarter, or we could see that moving onto it once you earn teacher.
Nick came in and we see the product getting up next quarter should we expect in Q4 to have better product in Q3, if I have to give another guidance I'm seeing an hour number even if we had not specific in general our Dennis but indeed Q3 was the bottom and as I've said.
The issues that we have mainly relief or sequence is really we have many products all at Nissan chalk like customers, whether they start they bought the first few.
<unk> hundred thousands unit, then and they move them to production and somehow the production didn't move on time impacted by what's happening in China or some projects in design phase and the guys were planning to launch them now or launch them in September and finally launching them in January so again I can assure you none of those.
Thanks.
Has has an impact and enhance cancels are disappearing or everything as a way of thinking about delays simple delays.
Sometimes you know a couple of months or three months and sometimes maybe six months, but all are delays and thats why they remain in our pipe and Thats why we remain optimistic about renewing with the with the growth of the product.
Okay.
But Nick do you have any further questions.
No that's all thank you.
Thanks, Nick.
Thank you.
Ladies and gentlemen, this concludes our question and answer session and I'd like to turn the call back over to Dr. George Karam, President and CEO for closing remarks, how about your doctor care of them.
Thank you operator.
Thanks again for joining the call all of you. Please note that we are participating in the Needham growth Conference in New York City on January 10.
We also plan to attend the Roth Capital Conference in Orange County, California in mid March we hope to speak with you soon or me that one of these upcoming events. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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Yes.
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