Q1 2023 Sequans Communications SA Earnings Call
Ladies and gentlemen, good morning, and welcome to the sequence communication Q1, FY2023 earnings conference call.
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Now I'd like to turn the conference over domestic embryologist investor relation for sequence. Please go ahead.
Yeah.
Thank you Ryan.
Thank you to everyone participating in today's call joining me on the call today from sequence Communications I, George Karam, Chairman and Chief Executive Officer, and Debra Chen Chief Financial Officer before turning the call over to George I'd like to remind all participants that the following important information on behalf of sequence.
The Kwanza should the earnings press release, this morning, which was posted to the company's website at www sequence dot com under the newsroom section.
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 our fee.
The results of operations and financial positions business strategy plans, including the ability to enter into a new five G strategic agreements the exploration of strategic options expectations for massive Iot sales, our ability to convert our pipeline to revenue and our objectives for future.
<unk> 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.
The 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 and uncertainties you should not rely on our 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 or information on factors that could affect our business and financial results are included in our public filings.
Made with the Securities and Exchange Commission.
And now I'd like to hand, the call over to George Karam. Please go ahead George.
Thank you Kim good morning, ladies and gentlemen, and thank you for joining our first quarter pointed to the <unk> financial results conference call and welcome.
Our first quarter revenue was $11 $9 million.
In line with our guidance with the record gross margin of 75%.
Reflecting the contribution from our high margin licensing revenue.
Product revenue this quarter reflects the factors we discussed on our Q4 earnings call.
One the impact of the large customers inventory rationalization.
Ooh delayed LTM project launch.
Before I dive into this.
Gosh the business details.
I'd like to update you on a few important strategic developments following the quarter's end, we strengthened our balance sheet with the $20 million private placement.
With several existing shareholders.
Note that despite the challenging market environment.
To close this deal very rapidly and reinforce the company's position and our ongoing strategic discussions.
The strategic committee appointed by the Board is actively evaluating the various options.
And we expect to share more on this subject on our second quarter earnings call.
In addition, we are making strides towards sampling our <unk> totals chipsets later this year.
And are actively engaging with customers you got to get the five G in our platform.
Optimized by design for broadband and Iot applications.
Our progress on those as a highly beneficial.
Our ongoing discussions regarding <unk> IP license.
And we are optimistic that we will be able to reach a new licensing agreement before the end of the year.
Our newest <unk> partnership.
Which began last year.
<unk> to evolve and depot.
She is very encouraging.
I am delighted by how closely our teams are collaborating.
We are confident in our ability to deliver outstanding results.
And I am excited about the future potential of this partnership.
Including the possible expansion of our relationship.
Before delving into the dynamics of.
Each of you think category in the first quarter, let's look at the order pipeline.
I provided a detailed overview on this topic last quarter.
And now I'd like to give an update on our pipeline composition.
As you May recall, we measure the revenue potential of our pipeline.
Three year life revenue basis.
But many of the projects could remain in the market for over five years and in some cases up to 10 years.
The largest portion of the revenue pipeline build is.
With leaders in <unk>.
Addressing various market segments, such as smart metering.
Martin Hall tracking devices and medical.
I'm excited to share that in the first quarter.
While the total pipeline increased to over $750 million of three year life.
Mainly driven by the contribution of the recently launched Calliope two.
And the initial interest in the <unk> told us.
Which will begin sampling later this.
Almost half of our pipeline.
Represents business that has been awarded as design wins.
And the other half is.
Advanced design and <unk>.
We are working on to secure through the remainder of the year.
While some of these design win projects.
I have reached mass production.
Most of these projects are still under development and are expected to reach the production fees in the second half of 'twenty to 'twenty, three and four some influence plentiful.
So about 85% of the design wins for massive Iot.
Mainly monarch, two and Calliope two projects.
<unk> new design wins have been secured at this point.
Mainly in smart city, smart home and tracking applications.
Also we are very close to selling a large deal with the module partner.
Market traction for Calliope, two as shown by the number of designs secured.
Close to be secured in the last six months.
This is particularly exciting.
S. P. M monarch, two is still the largest contributor to the massive Iot design wins, but kept one is catching up thanks to the large deal sizes.
Calliope tools higher ASP.
We expect this trend to continue.
Advanced design in projects.
Reflect the opportunities, where we have a high level of engagement with customers with a greater than 50% probability of converting to a design win.
Since the launch of Calliope two.
This platform has also had a significant impact on our growing their advanced design in portion of the pipeline.
What is the size of kept one opportunities is now approaching those four LTM.
In addition to cat one calliope two growth.
And continuous success, we've kept our monarch to IMAX.
I'm excited about the number of new Taurus five G project engagements that are beginning to feed into the design in portion of our revenue pipeline.
The pharmacy Taurus platform.
They mainly be the biggest contributor to our future pipeline.
And I anticipate seeing a significant increase in the pipeline around the time, we start something sort of stomach.
And then the street, our near term growth potential.
And as I mentioned last quarter.
We see a path to 100 million dollar.
And unrealized product revenue starting in 2025 from only.
Design win portion of the pipeline.
As this time at this time, we estimate that over 20%.
This annualized revenue target is already secured by projects in mass production and then ship it more now.
Just by adding the design win projects.
Forecasted to launch during the remainder of the year.
Should start 'twenty to 'twenty four would that almost 70% of this revenue target secured.
The balance of the 100 million dollar run rate will.
It will be a shift where the design wins projects lunching in 'twenty to 'twenty four.
As a reminder, this run rate figure is only for a product that does not include licensing or NRT.
Let's look at the revenue dynamics.
First of all U D and a broadband Iot categories this quarter.
How are we can continue to grow.
<unk> has several developments and the progress that position us for a rebound in the second half of 'twenty to 'twenty three.
And to continue the revenue acceleration in 2024 as I just outlined.
This lays the ground work for the robust year over year growth recovery.
Delayed monarch, two projects move into production and our design wins with Calliope two start Rob.
Let me walk you through some details.
First on our massive Iot segment.
As predicted the sequential decline in our massive Iot segment this quarter.
Was due to lower cat, one revenue related to all of our customers inventory rationalization.
That carried over from 'twenty to 'twenty two.
This estimate is expected to resume ordering in the second half of 2023.
Got it and then be revenue grew grew sequentially.
Although it was impacted as guided by the delay of product launches last year.
However.
What is crucial at this point is to assess the progress made on these customer projects and ensure that we are on schedule to meet our production and shipment targets.
I'm pleased to report that three customers are confirmed to resume production in 2023.
One customer has received certification on their tracking device and is now ready to move to production in Q3.
Another large tracker project for buy here pay here automotive business.
Which was delayed by the China shutdown last year.
No pain product certification and approval.
Shipping will resume in Q3 as the customer consumes the carried over inventory from 'twenty to 'twenty two.
Finally, a significant medical industrial customer.
Whose production was disrupted by internal challenges last year.
Intends to resume operations in Q4.
Also we are on track for the other forecasted product launches and the remainder of 2023.
The most important ones are for smart metering application.
For new projects.
Plans to launch in the second half of the.
This is the fast growing Iot.
Yeah.
We have strengthened our position with numerous design wins and with more expected.
We secured this.
Keep in mind that.
These are multiyear projects and when lunch that will generate.
Revenue for more than five years.
Also we are making great progress on our first Calliope two design wind projects and we expect the first calliope two shipments to start in Q4.
And plugged it in before we expect more monarch two projects to move into production.
Adding to observe and kept our momentum.
Additionally, the launch of Calliope two projects <unk>.
Mass production will provide us with an extra boost in 2024.
And transplant.
Now onto the broadband segment.
How does your licensing revenue made a broadband our strongest category in the first quarter.
However, we expect lower licensing revenue in Q2.
Due to that.
On the broadband Iot fronts on the broadband products from <unk>.
We have several interesting cat four cat six engagements.
This quarter, we announced the partnership with Enthetic.
To introduce an LTE cat for multi band comes module.
Using our cassiopeia platform.
And addressing the private LTE networks for utility companies.
Also we announced a design win with Sky five four.
Or to put on air to ground terminal.
Which is being used by flight sell in Australia.
In addition, new guests to be opportunities for video surveillance applications, requiring at full speed power into work.
However.
The future of our broadband category and the biggest potential kick us.
So longer term growth is our Taurus flagship labs.
As this will expand our addressable market by an extra $2 billion in 2025.
We expect to begin testing, our Taurus chipset platform by the end of Q3 and start engaging alpha customers later this year.
With our total is five <unk>.
Your solution.
Demand for cost and performance.
Can address a wide range of broadband and Iot applications.
Including fixed wireless.
Mobile computing private networks on a high end industrial applications.
Although it has not yet been formally launched.
This has generated significant interest from many tier one customers.
I'm excited about the number of tourists engagements, we already have half feeding into all of our revenue pipeline.
Since the mobile World Congress show in February .
We have a strong conviction that Taurus will be the key driver of substantial growth for sequence commencing from 'twenty to 'twenty five.
Let me provide an update on our channel partners.
Our partnership with Renaissance continues to deepen and we remain highly engaged.
And we are unfortunately.
Have them as a second source to solidify our supply capabilities.
They have recently announced the expansion of their activities in India.
New markets for us.
With the focus on NB Iot technology, leveraging our monarch two to come.
A lot of other <unk> partnerships continue to be valuable to <unk> as well.
As most of the Iot projects require the use of an MCU and additions to our <unk> cellular connectivity solution.
Finally.
We continue developing our partnership with module vendors.
Increasing our go to market.
We are working on two new deals as I mentioned previously one of them is very advanced.
It should close soon.
This would allow us to secure a new channel for our massive Iot products capable of generating all of the results.
Millions of units per year, starting in 2024.
In summary.
Couldn't be more excited about the future of sic was.
Given our expanding pipeline.
Positive developments on existing design wind projects.
Progress on five G licensing deals.
Another important and in some cases.
Formation of strategic opportunities being executed.
<unk> is well positioned to increase its market share.
With the plans to return to revenue growth in the second half of 'twenty to 'twenty, three and ultimately achieve profitability profitability.
We extend our gratitude to all.
All of our shareholders for their commitment to C class.
We'd like to think of.
Our global team for their hard work and dedication.
I will now turn the call over to them.
Thank you Gerard and good morning, everyone.
As we expected and roughly in line with our guidance.
For the first quarter at 2023 was $11 $9 million.
This compares to $13 9 million in Q1, 2022, a decrease of 14, 3% year over year and $15 9 million in Q4 of 2022.
As George stated our first quarter revenue reflects the impact of inventory rationalization with a key customer delayed product launches and seasonally low activity in the first quarter.
Revenue for massive Iot in Q1, 2023 accounted for approximately 28% of our total revenue with cat one driving the sequential decline caused by the inventory issue as previously explained.
Revenue from broadband Iot accounted for 72% of our total revenue and license and services revenue generated by our <unk> licensing deals increased year over year, but declined sequentially as expected due to the structure of the most recent 19 strategic agreement.
For the quarter, we had two customers that each represented 10% or more of our revenue in one of these is that strategic.
Strategic partner.
Gross margin in Q1, 2023, with an historic high of 78, 5%.
68, 1% in Q1, 2022 and up from 75, 3%.
Yeah.
The improvement was primarily driven by the higher proportion of licensing revenue in the revenue mix.
I am sorry, I M. R. S. Operating expenses were $13 3 million at the minus two 9% and $13 million in Q4 of 2022.
An increase in R&D expense.
$27000, an increase of $472000 in sales and marketing expense. This was partially offset by a 220000 decrease.
General and administrative expense.
Year over year operating expenses increased by $1 9 million compared to $11 4 million in Q1 2022.
Yes.
Non <unk> operating expenses, which exclude stock based compensation expense were $11 $6 million in Q1, 2023, that's slightly compared with 11 2 million in Q4 2022.
Our first quarter 2023, operating loss was $4 million compared to an operating loss of $1 million in the fourth quarter of 2022 and $2 million operating loss in the first quarter of last year.
Net loss in Q1 2023, it was $5 million.
<unk> regulated aes.
And it includes a noncash benefit of $2 3 million for the revaluation as at the end.
Did you ever it is related to our convertible debt.
Offset by $2 5 million and interest expense.
This compares to a net loss also cycling.
10 cents per diluted EPS in Q4 of 2022, which included a noncash benefit of $1 million, we reevaluate it.
Related to the embedded derivatives.
This compares to net income in the first quarter of last year $2 million or <unk>, where the ABS.
But that included.
And that noncash benefit totaling $6 4 million from the revaluation of the embedded derivatives.
In Q1, we had a loss on foreign exchange and a $65000 primarily related to the revaluation of euro denominated net liabilities on the balance sheet.
This compares to foreign exchange losses of $1 5 million in Q4, and a foreign exchange gain of $370000 in Q1 2022.
On a non <unk> basis, our net loss was $4 2 million or.
Or nine figure where the ABS for the first quarter of 2023.
This compares to non lung.
Non <unk> net losses of $2 8 million or six cents per diluted ads in the fourth quarter and $1 8 million or four cents per diluted EPS in the first quarter 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 they fluctuate from quarter to quarter.
Specifically, the financial income and expense category on the income statement, which is below our operating results, including 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 may be more exchange during periods of increased market volatility and foreign exchange rates or in the company's share price.
Well swings in the value of the embedded derivative are excluded from our non <unk> presentation, foreign exchange gains and losses, whether realized or unrealized or not.
And please remember that our ifr S. Net loss includes significant noncash interest expense related to our convertible debt most of which is excluded in the non I FRS presentation.
Turning to the balance sheet cash and short term deposits totaled $5 $3 million at the end of Q1 2023 compared to $10 $7 million at the end of 2022.
The Q1, 2023 closing and that reflects the cash used in the quarter, primarily for capital expenditures related to our internal development expenses as well as debt service costs.
At March 31st 2023 down cash balance does not reflect the $20 million prestige or the private placement, which was funded on April 11 2023.
Cash provided by operations for the first quarter of 2000 $23.5 million.
Compared with cash used by operations of $2 7 million in the first quarter of 2022.
Presently we are exploring alternative non dilutive funding levels and it's one that market rate loans.
European Government and research project financing from the French government, which would be a combination of grants and serial link interest lax.
Because we can see ultimately eligibility requirements for that.
We're currently initiating the European loan process and a proposal for the French financing has been sitting at it.
It's possible for us to secure funds for those sources, which could provide up to $50 million or more in total.
Regarding the outlook for Q2 as a result of our primary <unk>.
I T agreement structure licensing revenue is expected to normalize to a lower quarterly level beginning to sit here.
And as product shipments are not expected to accelerate before Q3, we expect revenue to be in the range of $9 million to $11 million with gross margin expected to be around 65% for the quarter ending June 32023.
We expect non interest operating expenses in 2023 to average about $12 million per quarter, assuming a stable with euro dollar exchange rate.
We expect total interest expense in Q2 on it I FRS basis to be approximately $2 $8 million.
This comprises the contractual interest.
Fence component is about $1 1 million and the Isos adjustment is about $1 7 million that we see that's come to our non address that at all.
Most of our interest expense is pik interest related to our convertible debt and has not paid in cash.
We are not providing guidance on any impact of revaluing, the embedded derivatives, nor possible foreign exchange gains or losses, given that this is largely determined by market conditions.
Finally for modeling purposes. The number of 80 S is outstanding today is 58.3 million adss.
Reflecting the private placement in April .
At the conclusion of this call we will post a written version of our formal remarks in the Investor Relations section of our website under webcast and presentations page. The same location, where you will find the audio replay.
And now I'll turn the call back to George.
Thank you Debra.
Operator, we are now ready to open the call for journey.
Thank you.
I will begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Scott.
On block M. Kim Please go ahead.
Hey, good morning, Thanks for taking my questions Pete.
A quick clarification and a couple of questions on the cash front Deborah.
Just wanted to know whether or not I think there was a $7 million scheduled payment that was supposed to come in from the China relationship did that happened in the first quarter and I believe there was another one scheduled in the second quarter is that remaining on track and then wanted to clarify the comments around European <unk> French a low did you say 15 million one five or <unk>.
<unk> zero and then George.
On the five G front it seems like the timeline in terms of product development sampling is on track for later this year.
But it sounds like the discussions in terms of the near term strategic may have slipped a little bit I was wondering if you could clarify that any sort of issues around it I think you'd also talked about three.
Three customers or potential strategic partners that were lower in the funnel is that still the number we're talking about where has the number of relationships there expanded.
Hi, Scott So just with respect to your question the payments that were scheduled to come in in the first quarter did in fact come in and we are on track for the scheduled payments.
At the end of Q2 as well in terms of me if I am.
European and French financing options that we're pursuing are if everything came in at the high end it would be in excess of 55 zero.
The funding.
We should probably come in quite as much would probably come from a couple of years.
A couple of years, okay. Thank you.
Yeah, Scott just on the other question.
Did you know the <unk>.
Execution is on track as I mentioned.
We start with engaged customers and WC, we didn't announced yet the product publicly.
But as you would hit a wall.
And of course of the year.
But all of us under NDA, we engaged with many customers.
Section is really great and we.
We obviously from the beginning of the year until now at the beginning of theater and our pipeline we had only some.
Strategic customer as you know that they are engaged with us and obviously.
There are a number in the pipeline.
It's integrated.
But since the end of Q1.
We had you know.
More than half a dozen of.
Very very serious customer with whom we have very advanced discussion on opportunity and <unk>.
And those now they start to be part of the pipeline and we start adding more new deals in the pipeline.
So they are not in the design win portion, but yet those are new deals that you are talking about.
As all of those customers are waiting for the product to sample and.
And we concluded a deal but the traction is tremendous people they love this product.
And obviously when you factor in the competitive landscape is positioning us in very good shape to to win.
Hopefully.
A couple of new deals towards the end of the year and continue next year.
Regarding the strategic obviously this development is.
On the progress to make on the chip is very positive for our strategic discussion that we continue to hub I tend to say I don't want to say it slipped because you mentioned this is we're still confident about closing this year.
But you know we have a lot of.
Strategic discussion ongoing.
Globally and as you could imagine that some of them are connected are related.
So that's why we.
We want I mean, I didn't want to do.
Closer timeline, but we are still positive about the closing something this year.
It's taking a little bit some more time, but they don't call. It slipping the small developing I'm thinking more of a complex relationship.
Got you and lastly, if I could George the product ramp I think.
In the release, you talked about a clear step up in revenue in the second half and you referenced that again growth in.
In the second half this year I was wondering if you could clarify that a little bit more it sounds like you've got some large module opportunities out there. They don't actually contribute to the revenue. These are existing design wins, but I'm wondering if you could provide a little bit more clarity when you talk about that step up in the second half of this year. It sounds like you're talking about growth on a year over year basis in the second half of this year.
Is that in each quarter was that collectively for the second half of this year that'll be very helpful. Thanks.
And so obviously the scope I'm thinking about the product because we were going to get better year. After year, we need to factor in but exclude the licensing because you have some variation last year in the second half we did a big number on ROE with a strategic deal. So so you need to normalize this will have the.
As a comparison if you want on the product and that's what's on this basis, we expect growth in the second half versus.
Year over year, I don't want to say, it's a quarter every quarter, but in general the two quarters should be coming up and this is coming from two things. So this is what I wanted to insist on the call. Obviously the pipeline is developing in this developing by having a new opportunity.
Coming in then they called them not yet won but as more and more opportunity engaged specifically as I mentioned calliope, two and Taurus, we have more opportunity to secure them designed in one another horse, we can take it to market and generate product, but the other really focused that.
That really will drive revenue this year and beginning of next year is the design wins that we have in hand since last year and we are waiting to see those product turning to mass production with the customer I mentioned that.
In Q1, just only in Q1 three product they were forecasted to become secured the product. They are now in the green.
But they are not really contributing to revenue immediately because most of them. It's not the three have some initial shipment that we did last year and we were stuck but this is now consume because the product is quantified and multiple shipment and we expect those products to generate revenue in the second half, but also all what we have planned for the second half.
Half.
To turn to our lunch.
On track I could not guarantee a 100% is going to happen on time, but from the execution. We have done at the beginning of this year all of them are on track and specifically we have forum metering project nice projects. They are developing well and as we are speaking still plan to enter into production in the second half. So obviously.
Factoring all this in and we have as well the initial shipment of <unk>.
Calliope two we have a major design win that we should ship in Q4. The first shipment have you bring all this together definitely the product revenue should come back to growth and this should one should help the second half of the year and definitely we'll be in very good position for a full year in 2024.
Great. Thanks, so much ill get back in the queue.
Thank you.
Next question comes from the line of Craig Ellis.
All.
Right.
Please go ahead.
Yeah. Thanks for taking the question and for all the color.
Deborah I wanted to follow up on Scott's question regarding.
The potential European in French government grants can you just talk a little bit more about how.
When you would expect to no Ah if those are successful and what are what the qualification or other conditions or for a.
Port Grant received in each case.
Yeah, so in and in both cases, they are basically funding what are you considering any strategic projects.
And in particular, the European financing as it related to the European equivalent of a chip that.
That's that's provided additional pool.
Our resources.
The European.
Process it's.
A longer one.
I think we'll know for sure before.
Probably the end of Q3 or even the early Q4.
But it could be a very large and there and it's basically unsecured debt.
It's it's based on.
The future projects.
Uh huh.
Yep.
And the French project has already been submitted its in the process of being evaluated this is and where they are a typical kind of project that we've done many times.
And whereas a portion in Scranton question is zero interest loan and that.
The only difference is it's a it's a bigger amounts warm leads.
And we've gone after in the past, but I'd say both are both items are in process and progressing.
But the big announcement, when dealing with government, so well take care.
A few months to finalize.
Got it that's really helpful and then.
George on on tourists so great to hear the broad customer interest just as we look out at the landscape and one of the big themes coming off of mobile World Congress was all the enthusiasm around fixed wireless access and we're seeing that show up in a lot of <unk>.
Carrier subscription.
Ramp trajectories. So the question is this given that we're into sampling are exiting <unk> and poor Q.
Is it possible to see revenues materialized in calendar 'twenty, four or or is the real material ramp really starting in calendar 'twenty five any any color on the timing of revenue conversion and the breadth of customers that might initially start to shape that'd be helpful. Thank you.
Oh, Hi, Craig I mean, we we do.
Revenue is really for late 2024, because in terms of product revenue, obviously, we could have.
Hum too cold its licensing.
Not really to license for fuse when people get access to technology like Disney They based some lump sum to get access to the technology and get the support that could be factor then in Q4. So we could have some money like this in Q4 this year.
But really the product revenue is more towards <unk>.
Second half 'twenty, four late 'twenty, Florida, and much more 'twenty to 'twenty five.
Got it that's helpful and then Deborah I'll come back with one two and then hop back in the queue. So we've had just stunning gross margins over the last couple of quarters and they're still really high in the first quarter I know mix is going to take.
Take margins back towards the Sixty's, but can you provide some color on the expected mix between chips and modules in the second half and and while not providing guidance just give us some help on maybe qualitatively on on where you'd expect gross margins to be as we exit 'twenty three.
And head into 2004, thank you.
Got it and then what's the product ramp I think we're still expecting that to be more weighted towards modules.
So as we have we're expecting license revenues to be.
Lower in the mix. So I think we should expect to end the year going back to more normalized.
Our gross margin.
Putting it somewhere in that 45% to 50%.
Wage.
Got it thank you.
Thank you.
Our next question comes from the line of Rajiv Gill from Needham and company. Please go ahead.
Yes, thanks for taking my questions just on the the $350 million design pipeline that you've been speaking about in.
In the past you talked about it it's based on kind of orders and I think in you would describe that.
The orders in terms of the timing normally it's for shipments three to four months out and then you kind of adjust the backlog number based on on kind of your judgment of that so I wanted to get a sense of that design pipeline now as we sit into.
Going into the.
It has advanced design in in the company really we are reaching 10 per cent assurance that the customer has allocated the resources and people on his side and he has product under development that we can see and touch and obviously, we need to support them onto Scruggs got that obviously this means all those we get that guarantee as the customer is working with us.
Us to bring product to the market and we to to generate revenue. After this the customer needs to execute on this phase and obviously once he has his product.
Certified and shipping it started buying from US now some of those deals they come just on the visa off you know they buy prototype and there is no supply agreement Sunday ends or at the same time with a big supply of disagreement what did they guarantee really the you know the relationship <unk>.
Okay, how many years and and it comes with more complicated <unk> for the relationship but both of them you know, it's not like binding all of the the only binding order you've got when you enter when you receive.
Hello to ship product and this becomes binding in the sense that they cannot.
We have we have in the backlog order and we need to ship to it so what I'm talking about my pipeline, probably said some of those customer we could have backlog for them. When they are in mass production, but I'm not counting committed to order and it sounds like it's really button, but it's you know 99% sure.
That's the perfect is really that it's happening that is maybe a risk in the quantity because we have an estimate based on the discussion with the customer how much your device and the first year that a second year uncertainty year of production and and then I'll be sure to skin the timing because we could say, okay. He's ready the end of the year and.
And finally, he shows by one quarter or he's out of time, one quarter, and we have more or less some some you know.
Ooh you know.
<unk> to the revenue rump or or.
Advance, depending what's happening with it.
Just for my follow up and just along the lines of the pipeline discussion we were talking about it and I know you don't guide uhm beyond one quarter, but we were kind of looking at counter 24 and.
Kind of reconciling that with the the pipeline you know you've talked about in the past that.
Aw, what kind of about $700 million total Python 80 per cent of that is related to massive I O T or about $600 million and.
And then you talked about about half of that are 300 million is based on design wins.
And and if if you've entered into I I guess my question what percentage of those design winter now entered into production.
And how many of those designs will go into production in 2024. So we can get some sense of what the the the actual revenue ramp would be I'm trying to reconcile that with the kind of a design momentum.
That you're talking about.
Any COVID-19 okay. Okay. Thank you that's very bad.
It's been a good question I was you I mean I appreciate it but let me let me know exactly what you said is that right. So we have a pipeline half of it this design win and <unk> <unk> <unk> <unk> and this is that you go down you know too.
Somewhere in the $300 million I would say Oh first of all you would need a little bit less of must have all your T design with.
But this is all for three years right. Now. The question is if you look you had one year two years three for every project and you look to the maximum but I'm off those project.
You realize and that's what we said we exceed hundred million dollar only considering <unk>.
Yeah, I'd <unk> I'd, rather have another most if I looked to those projects and I look for them to the peak of those projects and one year between those three years, we are while about <unk> I'm I'm staying cautious by saying Oh, we are around beginning of 25 will be their achieving this close to this.
That really makes it <unk> now okay. So this is we know what we can go with this <unk> on a yearly visits the question, which is your racing where do we are today and if I looked for this amount of <unk> you know like 20 per cent of this amount.
Is already with the project that they have passed the certification and qualification and they are really know and shipment moat that doesn't mean, they are buying maybe today because they could be maybe they have <unk>.
Yeah, that's perfect where that is.
<unk> just on the project with the customer would you're buying from us and we'll be.
<unk> 20 per cent now if I look for the remaining projects.
Which neither almost 80 per cent remaining at happening between the remainder of 10 to 23, and let's say 10 to 24, let's say first have all sorts of different if we focus on 2023, we believe we exit 22 23 with more than 70 per cent in total like 20 per cent.
Plus 60 per cent <unk>, there will be an and sorry, but plus 50% <unk> that would be any mass production in other words, if all those products plan customer.
<unk> to be ready between Q2 Q3, two four they come on time when finished a year, where do we have 70 per cent of.
Of those design win already in mass production and all that's missing is having those guys buying simply because they need the product that is no more execution risk nothing again and as I said you know this is really we can go customer by customer a list project by project to come to somebody or another most we shouldn't exit the year.
With the.
70 million dollar annualize that Avenue secure it doesn't mean will do 70 million dollar.
<unk> I'm not giving got us on this but if you take those project and you take them to the Pico Avenue. They do something to me I'm done only those for me and this will continue at the beginning of next year preach the remaining 30% will come in 2024 2024 with 100 per cent of those perfect <unk>.
So once you say this this needs this how did a million dollars.
We we there is no more risk if you want on any execution.
Related to the customer the only or timeline the only delay after this will be the only risk. After this could be an <unk> <unk>.
You know and then.
Under estimation of an estimation of the potential of the project, but there is skill and this is very very minimum at least to the downside because we know often those customer <unk> customers. They have existing business. We know how much yeah shipping per year, obviously, they promise us some number we make a lot of you know <unk>.
<unk> by factoring in maybe some <unk> and we come with the number I mentioned you could do with your <unk> number.
Thank you I appreciate your details.
Our next question comes from the line of crushed and Kara from Bad. Please go ahead.
Hi, guys Uhm. My first question is we nyquil related.
<unk> <unk>.
<unk> nations in the industry.
<unk> I O T node January was a heavy new world behind what the expectations were five years ago and some of that has been the ecosystem.
Versus a type of full cast it earaches and had a full five years ago. So now we're seeing a V. C show down at the <unk> might be a recession, how should we look beyond just your design. When then they can't any specific traction.
Add to your business medium term, particularly is Timmy should recession, you know, what's the risk that there could be more perfect delays and also is there.
Any particular infection point that you would expect you know you've talked about.
Some some design ways, including and smelt <unk> applications for I O T. But is there something that you think could really create kenneth an infection, pointing you demand and and and and you know when when <unk>.
Oh.
Oh, Hi, Christian I mean, you're you're absolutely right you know on the on the I would say, let's see the projection then definitely has <unk> by the way combining everything what they call a U T and counting every device to be connected so you know <unk>.
I believe the the idea seemed correct incorrect <unk> managing all your assets connects all your assets. This is what's how 'bout a U T makes sense. If you count all those objects you come to billions of unit, then and big numbers that they didn't method of life in in the meantime, first I still believe that.
We all this is going to happen sooner or later, because I don't believe that demand is it wrong that it's really related to services and your movement in this industry, which is not stopping you just only it's more complex to reach you know this level of penetration as predicted by Eric's whenever let's say five years.
However, on all of that info Kelbaugh and this is what you mentioned with not really and this is what happened to the company. If you want them to early.
<unk> a few product we're engaging many many customers, which I could say coming out of the blue numbness in his small customer sometimes they ought to be customer, but they didn't have experienced <unk> have experience not the old and connectivity <unk> and just only they thought that they can lunch projects, obviously and and <unk>.
<unk> their business leveraging this R U T and many of those projects failed or they get delayed and salt and this by the way your impact has all the industries, including US. However in the last couple of years, the focus and Obsequence by the way was really on what we call them traditional businesses. What are we are too.
<unk> is really smart metering there is no doubt that this is happening big first of all it was there nothing and you you could say because smart meter is not something that has been invented yesterday, but the.
The arrival of low power technology.
Expanded the market because now you have water and gas and and the low cost of settler enabling to have more penetration of celebrate reversals <unk> technology. So that's why we have a lot of lot of project and metering engaged we have nine customer sequence has today <unk> with maybe more than 20 project.
Nine customers and in the pipeline I have cause I was thinking I have at least five I'm, hoping I will close now if you want ma'am I'm watching every day I'm talking with those customers. So so there is really huge demand in this business in this market and it's really happening you can doubt about that you know the speed of those guys they execute because qualify.
Give me the next time, we could be wrong or you could say this <unk>. This is what happened to us last year with Covid, but there is no doubt that this is happening if you go to the smartphone similar situation all those devices exist and we are coming with our calliope to product, which is an aggressive product to the market kind of unique customer.
As well in this space they do want to avoid the Chinese technology somehow and giving us better position to win with Calliope too and we have big names there.
And when you go to sleep management when you go to <unk>. Your service both of those services Mmm existing service <unk> nothing new there, except the development of the technology of sender, making cell or a cheap and no power and expanding.
Number of points, but it's not like the application, which has changed so and we allow our business and I hope, it's not obviously, you'll get them there could be a recession in the market and some medical condition impacting some of those companies and for whatever reason they delayed it a project or that a new platform. We suffer from this during the Covid days lost.
<unk>.
As we are speaking honestly all those projects they are industrial customer about <unk> to consumer and they have no no other choice other than moving forward for their business. It could be sometimes impacted slower than you know faster, but we are not seeing major impact on the development and as a matter of fact on what we have.
<unk> on the progress in Q1 happened on time I didn't see anybody using <unk>.
Great. Thanks, Thanks for the cut out on that and then it is my second question in an issue.
That's five G. If you could talk about.
First fee.
The type of <unk>, we could expect in the medium term.
Makes between license hang an actual put up 12, and you and and also to potential that you get sent us to keep customers that you had with.
Four G in the past with Tai Chi.
Having obviously if five G. I mean, what's exciting in the five G.
First of all the application all fixed wireless mobile computing.
All this is happening and that is really demanded that metrocard developing so that is the first favorable. Please 112, but if you looked at the number and salt and you start talking with the customers with a carrier all of them. They see the cost of the five G is too high to really.
Make this really mainstream if you want and there is no doubt that over time between now and then you'd you are going to see last four G. Even sometimes switching four G network and everything becomes five G and that's why we are surfing would destroy this platform, which is really coming at optimize cost.
Uhm dividing by a factor of two <unk> that you can see it in the five G. That's why we have a lot of excitement from many customers now for us the impact on our business model is really measure because when you are talking about trips that level, let's talk not to talk about the <unk> chipset level.
Between <unk> Uhm your booking single digits. You know 345 dollar. This is the the E. S. P that you will be talking about and when you are moving to <unk> five G. Yeah without.
Without giving you a price up in price now because the product does not plan, but obviously, if if you tens of <unk>. So so by definition you have effected off almost 10 between what you can go on and get them in on <unk>, So selling 1 million units on get uhm.
You know you could do trips at three 4 million dollar on third as you could go $30 million to $50 million. So obviously the the difference is big for us and that's why.
You know as soon as we are going to start getting grilled customer, they're our pipeline is going to explode with those ma'am.
Great. Thanks for the cut a very useful.
Thanks Christian.
Thank you.
Chairman. This concludes our question and answer session I would like to turn the conference back.
To the Doctor the charges.
For any closing remarks.
Thank you operator. Thank you again, thank you again for joining the call today all of you. We look forward to catching up with you during our second corporate 2023 burning school in August please.
Please note that we are participating and there'd be Riley institutional investor confidence.
On Wednesday may 24th and L. A as well as the Iraq M. T. M M. K M. <unk> on Thursday June 22nd obviously in London.
We hope to connect with you at one of these events. Thank you very much for all your time and thank you for <unk>.
Thank you the confidence of sequence communication has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Alright.
Goodbye.
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