Q4 2023 Sequans Communications SA Earnings Call
Operator: Scott Searle, Craig Ellis, Deborah Choate, Georges Karam, Tristan Gerra, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Craig Ellis, Scott Searle, Craig Ellis, Deborah Choate, Sequans Good morning ladies and gentlemen and welcome to the Sequans front quarter and full year, Results Conference, participants, and those from the As a reminder, this conference is being, At any time during this call, you will be required to immediately... Bestars040. And I'd like to turn the conference over to Kim Rogers, please go ahead. Thank you, Julie.
Great.
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Good morning, ladies and gentlemen, and welcome to the <unk> fourth quarter and full year 2020 results conference call. All participants are in a listen only mode.
Reminder, this conference is being recorded.
At any time during this call you require immediate assistance. Please press star zero for the operator I would now like to turn the conference over to Kim Rogers said. Please go ahead.
Kimberly Rogers: And thank you to everyone participating in today's call. Joining me on the call today from Sequans Communications are Georges Karam, Chairman and Chief Executive Officer, and Deborah Choate, Chief Financial Officer. Before turning the call over to Georges, I would like to remind our participants of the following important information on behalf of Sequans. Sequans issued the earnings press release this morning, which was posted on the company's website at www.sequans.com under the newsroom.
Thank you Julie.
And thank you to everyone participating in today's call joining me on the call today from sequence Communications, Hi, George Karam, Chairman and Chief Executive Officer, and Debra Chen Chief Financial Officer before turning the call over to George I would like to remind our participants that the following important information on behalf of.
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<unk> issued their earnings press release, this morning, which was posted to the company's website at Www <unk> com under the news 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.
Kimberly Rogers: 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 within this release, including any statements regarding our business strategy, cost optimization plans, strategic options, the ability to enter into new strategic agreements, expectations for massive IOT sales, our ability to convert our pipeline to revenue, and our objectives for future operations are forward-looking statements. In the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1993, as amended, and Section 21E of 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 risk and uncertainties and subject to change at any time.
Formats and potential financing sources.
Statements other than present and historical facts and conditions contained within this release, including any statements regarding our business strategy cost optimization plans strategic options the ability to enter into new strategic agreements expectations for massive Iot sales, our ability to convert our pipeline too.
Our revenue and our objectives for future operations.
Are we looking statements within the meaning of the private Securities Litigation Litigation Reform Act of 1995 section 20 <unk> of.
Of the Securities Act of $19 93, as amended and section 21 E of the Securities Exchange Act with $19 34 as amended.
Shipments 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 risk.
Kimberly Rogers: We operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. Given these risks and uncertainties, you should not rely on or place undue reliance on these forward-looking statements. The 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 is included in our public filings made with the Security and Exchange Commission. Now, I'd like to hand the call over to Georges Karam. Please go ahead, Georges. Thank you, Kim. Good morning, everybody.
And uncertainties, you should not rely on or place undue reliance on these forward looking statements actual events or results may differ materially from those contained in the projections or forward looking statements more information on factors that could affect our business and financial results are included in our public filings made with the <unk>.
Security and Exchange Commission.
Now I'd like to hand, the call over to George Karam. Please go ahead George.
Thank you Kim.
Good morning, everybody.
Georges Karam: Welcome to our fourth quarter and full year 2023 Financial Results Conference. I'll begin with comments on our business, followed by a review of the strategic options we are pursuing. Fourth quarter 2023 revenue was $4.8 million, of which approximately $4 million was product revenue, which is a significant increase as compared to the prior quarter. The reduction in life-sustaining gravity was due to the revenue recognition profile of our primary 5G licensing deal. However, we are pleased that channel and customer inventory issues have begun to clear up in the fourth quarter.
Our fourth quarter and full year 2020 financial.
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I will begin with comments on our business followed by a review of the strategic options we are pursuing.
Fourth quarter 2023 revenue was $4 8 million.
Of which approximately $4 million was product revenue.
Which is a significant increase as compared with the prior quarter.
The reduction in licensing revenue was.
It was due to the revenue recognition profile of our primary <unk> licensing deal.
However, we are pleased that channel and customer inventory issues began to clear it up in the fourth quarter.
Georges Karam: Driving an increase in product shipments with customers, launching new projects in mass, based on customer forecasts and back. We expect total Q1 revenue to be over $7 million, followed by sequential revenue growth for the remaining quarters of 2024, mainly driven by product revenue. We expect to reach total revenue levels similar to those of 2022 as we exit 2024. This renewed top line momentum is fueled primarily by multiple new customer product launches in asset tracking, smart metering, and fleet management using our LTM and BIUT Monarch 2 and Cat 1 Calliope 2 platform. The momentum is expected to continue into 2025, as the anticipated movement of design wins to production accelerates. Also, later in 2025, we expect our initial 5G chipset sales to begin coming online.
Driving an increase in product shipments with customers launching new projects into mass production.
Based on customer forecast and backlog, we expect total Q1 revenue to be over $7 million.
Followed by sequential revenue growth for the remaining quarters of 2024.
Mainly driven byproduct revenue ramp.
We expect to reach total revenue levels similar to those of 2022 as we exit 2024.
This renewed top line momentum is fueled primarily by multiple new customer product launches in the asset tracking smart meter, Inc, and fleet management, using our LTM NB Iot monarch, two and kept one calliope two platforms.
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The momentum is expected to continue into 2025.
As Dov dissipated movement of design wins to production accelerates.
Also later in 2025 weeks.
We expect our initial <unk> chipset sales to begin coming online.
Georges Karam: Let's take a high-level look at how we expect to achieve this revenue. Our Product Growth Challenge in 2023 was primarily due to delays in customer projects moving from design into mass production. Despite these delays, our design wind pipeline continued to grow from the addition of new projects from new and existing customers in the fourth quarter of 2023. We were encouraged as customers finally moved several projects into production. Notably, our top customers are some of the largest players in asset tracking, smart metering, and fleet management, three of the largest and fastest growing segments of the massive IUT market.
Let's take a high level look at how we expect to achieve this revenue growth.
Our product growth challenge in 2023.
It was primarily due to delays in customer projects moving from design into mass production.
Despite these delays our design win pipeline continued to grow from the addition of new projects from new and existing customers.
In the fourth quarter of 2023.
We were encouraged as customers finally moved several projects into production.
Terribly our top customers are some of the largest players and asset tracking smart metering and fleet management.
Three of the largest and fastest growing segments of the rest of Iot market.
Georges Karam: Allow me to share a few examples of our success in those. Our largest partner in asset tracking, holding a leading position in a specific segment, is expected to grow 4x in 2024 thanks to multiple projects that launched last year. With this partner, we have a confirmed backlog of 2 million units for 2024 with the potential for further upside on our LTM and BIUT Monarch II platform. In addition, we recently secured another project with this partner to address a new market segment using the CAT-1-CLI-IP2 platform. Going forward, this customer has indicated continued growth in 2025 based on their potential and customer demand. In the smart metering segment,
Allow me to share a few examples of our success in those segments.
Our largest partner and asset tracking.
Holding a leading position in a specific segment.
Is expected to grow quota acts in 'twenty to 'twenty four.
Thanks to multiple projects that launched last year.
With this partner we have a confirmed backlog of 2 million units for 2024 with the potential for further upside on our LTM NB Iot monarch two plant.
In addition, we recently secured another project with this partner.
That's a new market segment using the cat one calliope two platform.
Going forward. This customer has indicated continued growth in 2025 based on their potential and customers demand.
And the smart metering segment sequence has a strong footprint with several customers in multiple regions of the world Spa.
Georges Karam: Sequans has a strong footprint with several customers in multiple regions of the world. Specifically, we have a dozen active projects with three tier one customers in addition to servicing a multitude of smaller customers. Unfortunately, the convergence of those design wins into production has taken longer due to metering project complexity.
Specifically, we have a dozen active projects.
With three tier one customers in addition to servicing a multitude of smaller customers.
Unfortunately, the conversions of those design wins into production has taken longer due to metering project complex.
Georges Karam: We can now report that two of these Tier 1 customers launched their first products based on Monarch 2 late last year, and we have a backlog covering the next six months of shipment. Further revenue growth in 2025 with this customer base is expected, and subsequent design wind projects are planned for launch in the current year in the fleet management space. We have secured a commitment and commenced design with a noteworthy tier one customer utilizing our Cat.1 Calliope2 platform. This customer has entrusted us with four separate projects, all using the Calliope2 solution, and in one case, replacing a competitor's platform. The initial product launch from this customer is anticipated in 3Q2024 to be followed by further launches in early 2025. Darlene Trump is expected to deliver yearly revenue in the tens of millions of that.
We can now report that two of these two door. These tier one launched their first products based on monarch two late last year and we have backlog covering the next six months akshay.
Part of our revenue growth in 2025 with this customer base is expected.
As subsequent design win projects are planned to launch for lunch and the currency.
And the fleet management space.
We have secured the commitment and commenced design with a nod towards the tier one customers utilizing our cat one calliope two platform.
This customer has entrusted us with four separate products all using our calliope two solution and in one case, replacing a competitor's platform.
The initial product launch from this customer is anticipated in <unk> 2024 to be followed by further launches and early towards the 25.
The launch ramp is expected to deliver a yearly revenue in.
In the tens of millions of that.
Georges Karam: In fact, the number of customers needing to grow their footprint while working with trusted solutions for U.S. government applications provides Sequans with a tremendous advantage, particularly with our Cat One and Calliope Two offers. Also, the Calliope2 platform is an ideal solution for smart home applications, where we see an increasing interest, specifically thanks to its capability to support voice over LTE.
In fact, the number of customers needing to grow their footprint.
While working with a trusted solutions for U S government applications.
Provides sequence with a tremendous advantage.
Particularly with our cat one calliope two offering.
Also the Calliope two platform is an ideal solution for smart home applications, where do we see an increasing interest in.
Specifically.
This capability of supporting the voice over LTE feature.
Georges Karam: In summary, the scope of new project launches forecasted in massive IUT gives us confidence in a substantial revenue round in the second half of 2024 and further acceleration of our revenue growth in 2024 on the broadband IUT front. The expected commencement of 5G Torus platform shipments in late 2025 will build on our massive IoT growth trajectory. Our 5G TORUS chipset is out, and currently under test.
In summary, the scope of new project launches forecasted and massive IUD gives us confidence and substantial revenue ramp in the second half of 'twenty 'twenty four and further acceleration of our revenue growth in 2025.
On the broadband Iot front <unk>.
The expected commencement of five G. Taurus platform shipments in late 2025, we will build on our massive Iot growth trajectory.
Our five year total chipset is out and currently under testing.
Georges Karam: And we are expecting to commence sampling with our lead customers later this year. I'm excited to share that after securing our first tier one alpha customer in the third quarter of 2023, we expect to land another Alpha customer in the coming months. In addition, several prospective customers are showing strong interest in our 5G platform, and this position with us for 5G product revenue to begin in late 2025, followed by a significant ramp-up anticipated in 2026. To conclude, on the business side, we feel very confident of our progress. Our overall product design pipeline continues to grow, and the design win portion, and I'm referring here to the design win portion only, now represents more than $400 million of potential three-year life. Switching now to our strategic discussion. As previously announced, Renaissance terminated the MOU due to an unfavorable tax ruling in Japan. Originally, we had hoped to obtain the tax ruling results in less than four months. But unfortunately, this took much longer. Consequently, the MOU was amended twice to allow more. In the end, the ruling was unfavorable, which was, pointing surprise for us.
And we are expecting to commence sampling with our lead customers later this year.
I am excited to share that after securing our first tier one alpha customer.
In the third quarter of 2023 weeks.
We expect to land another alpha customer in the coming months.
In addition, several other prospective customers are showing strong interest in our <unk> platform.
This position with us.
For the <unk> product revenue to begin in late 2025, followed by a significant ramp up anticipated in 2026.
To conclude on the business side, we feel very confident of our progress.
Our overall product design pipeline continues to grow and the design win portion and I'm, referring here to the design win portion only now represents more than $400 million of potential three year life.
Switching now to our strategic discussions.
As previously announced our NSS terminated the Mou due to unfavorable tax ruling in Japan.
Originally we had hoped to obtain the tax ruling results in less than three less than four months.
But unfortunately this took much longer.
Subsequently the Mou was amended twice to Arlo more time.
And then the ruling was unfavorable.
Which was it is appointing surprise for us.
Georges Karam: I want to emphasize that despite the termination of the MOU, our relationship with the Renaissance remains strong, and they continue to be an important business partner reselling Sequans products. We remain currently engaged in ongoing discussions with them regarding our collaborative path forward. In addition, immediately following Grenada's termination announcement,
I want to emphasize that despite the termination of the Mou our relationship with Renaissance remains strong and they continue to be an important business partner reselling sequence products.
We remain currently engaged in ongoing discussions with them regarding our collaborative path forward.
In addition, immediately following <unk> termination announcement.
Georges Karam: We received inbound interest from several parties with attractive strategic alternatives; currently, the Sequans Board of Directors is actively engaged with potential partners to explore these various options, some of which are more advanced than others. In the meantime, we are in discussions with our lenders to extend the terms of our debt, and we will resume the previous discussions we had for other government financing alternatives. Lastly, we are pleased to report that we have received approval just this week from the French government for 11 million euros, or about 12 million dollars of new funding. They are fully aware of the challenges confronting us, and I want to make it univocally clear that addressing these issues is the top priority for both our exec team and the board.
We received inbound interest from several parties with attractive strategic alternatives.
Currently sequenced board of directors is actively engaged with potential partners to explore these various options.
Some of which are more advanced than others.
In the meantime, we are in discussions with our lenders to extend the terms of our debt and we will resume the previous discussion we had four other government financing alternatives.
Lastly, we are pleased to report that we have received approval.
Just this week from the French government for 11 million euro or about $12 million of new funding.
I'm fully aware of the challenges confronting us.
And I want to make it unit vocally clear at.
Addressing these issues is the top priority for bus our exec team and the board.
Georges Karam: Every decision we make is geared towards not just sustaining but enhancing our operations, deepening our engagements with customers, and ensuring our financial health. Due to the sensitivity of the ongoing discussion, we are unable to provide further details on the strategic process at this time. Therefore, we trust you understand that we will not be conducting a Q&A session. We appreciate your continued trust and support as we move forward. I will now turn the call over to Deborah to review the results in detail. Thank you, George, and good morning, everyone.
Any decision we make is geared towards not just sustaining but enhancing our operations deepening our engagements with customers and ensuring our financial health.
Due to the sensitivity of the ongoing discussions.
We are unable to provide further details on the strategic process at this time.
Therefore, we trust you understand that we will not be conducting a Q&A session today we.
We appreciate your continued trust and support.
As we move forward.
I will now turn the call over to David <unk> to review the results in details.
Thank you, Jason and good morning, everyone.
Deborah Choate: Although revenues for the full year 2023 decreased 44.5% from $60.6 million in 2022 to $33.6 million in 2023, we were pleased to see product revenues rebound in the fourth quarter as customers worked down their inventory levels and new projects from multiple customers moved into mass production. Gross margin remains strong at 71.8% versus 70.8% in 2022 due to the contribution of high-margin licensing revenue. Over time, we expect product gross margins to be in the mid 40s as we transition from more module sales to more chip set sales. And as product sales become an increasing part of the revenue mix, overall gross margin should return closer to our target overall margin of 50%.
Although revenues for the full year 2023 decreased 45, 44, 5% from $60 6 million in 2022 to $33 6 million. In 2023, we were pleased to see product revenues rebound in the fourth quarter as customers work down their inventory levels and new projects from multiple customers.
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This margin remains strong at 71, 8% versus 78% in 2022.
The contribution of high margin licensing revenue.
Over time, we expect product gross margins to be in the mid <unk> as we transition from more module sales to more chipset sales and as product sales become an increasing part of the revenue mix overall gross margin should return closer to our target overall margin at 50%.
Deborah Choate: Operating expenses in 2023 increased by $7.4 million to $54.1 million compared to $46.7 million in 2022, reflecting both the increase in our investment in 5G but also the temporary increase in expenses of approximately $3.5 million from deal costs related to the renaissance tender offer. The combination of lower revenue and higher operating expenses resulted in an IFRS operating loss of $30 million, up from an operating loss of $3.8 million in 2022. On a non-IFRS basis, the operating loss was $22.7 million in 2023, compared with an operating gain of $1.6 million in 2022, and a non-IFRS net loss of $30.7 million in 2023, compared with a loss of $5.4 million in 2022. Moving to the fourth quarter, product revenue increased sequentially by more than 4x as our business began to recover from the consequences of high customer inventory of earlier generation products, which had a significant impact on our business in 2023.
Operating expenses in 2023 increased by $7 4 million to $54 1 million compared to $46 7 million in 2022.
Letting that the increase in our investment in <unk>, but also the temporary increase of expenses of approximately $3 $5 million from deal costs related to their own SaaS tender offer.
The combination of lower revenue and higher operating expenses resulted in an <unk> operating loss of $30 million.
From an operating loss of $3 8 million in 2022.
On a non isos basis, the operating loss was $22 $7 million in 2023.
Paired with an operating gain of $1 6 million in 2020, Q and a non <unk> net loss of $30 7 million in 2023, compared with a loss of $5 4 million in 2022.
Moving to the fourth quarter product revenue increased sequentially by enlightened Forex as our business began to recover from the consequences of high customer inventory earlier generation products, which had a significant impact on our business in 2023, but more importantly, the revenue increase reflects the launch of new customer <unk>.
Deborah Choate: But more importantly, the revenue increase reflects the launch of new customer products into production. Revenue from massive IoT product sales in Q4 2023 continued to account for nearly all our product revenue. Licensing revenue, all in the broadband IoT segment, was very low in Q4, as expected, due to the revenue recognition profile of our agreement with our 5G licensing partners. We expect licensing to rebound from Q4, targeting licensing and service revenue of over $3 million in Q1 2024. For the fourth quarter, we had one customer and one channel partner that each represented 10% or more of our revenue. IFRS operating expenses were $13.3 million in the quarter, down 8% sequentially from $14.5 million in Q3 2023. The decrease was primarily due to the decrease in Renaissance DLCs from a high point in Q3.
<unk> into production.
Revenues for massive Iot product sales in Q4 2023 continue to account for nearly all our product revenue.
Licensing revenue all in the broadband Iot segment with very well in Q4 as expected.
Here the revenue recognition profile of our agreement with our licensing partner.
We expect licensing to rebound from Q4 targeting licensing and service revenue of over $3 3 million in Q1 2024.
For the fourth quarter, we had one customer in one channel partner that each represented 10% or more of our revenue.
<unk> operating expenses were $13 3 million in the quarter down 8% sequentially from $14 5 million in Q3 2023.
The decrease was primarily due to the decrease in Renaissance deal fees from a high point in Q3.
Deborah Choate: Year over year, IFRS operating expenses increased 3% compared to $13 million in Q4 2022. Non-IFRS operating expenses, which exclude stock-based compensation expense, were $11.4 million in Q4 2023, down sequentially from $12.8 million in Q3, and compared to $11.1 million in Q4 2022. The combination of all these elements resulted in a fourth quarter operating loss of $12.8 million compared to a $7.8 million loss in the fourth quarter operating loss in the prior quarter and versus an operating loss of $986,000 in the fourth quarter of 2022. On a non-IFRS basis, our net loss for Q4 was $13.8 million, or $0.23 per diluted ADS, compared to a non-IFRS loss of $6. Cash and short-term deposits totaled $5.7 million at the end of Q4 compared to $6.7 million at the end of Q3. Subsequent to year-end, an additional loan of $9 million was received from Renaissance.
Year over year, <unk> operating expenses increased 3% compared to $13 million in Q4 2022.
Non <unk> operating expenses, which exclude stock based compensation expense were $11 4 million in Q4, 2023 down sequentially from $12 8 million in Q3, and compared to Q4 of 2022 of $11 1 million.
The combination of all these elements resulted in a fourth quarter operating loss of $12 8 million compared to a $7 8 million loss in the fourth quarter operating loss in the prior quarter and versus an operating loss of 986000 in the fourth quarter of 2022.
Okay.
On a non <unk> basis, our net loss for Q4 was $13 8 million or <unk> 23 per diluted <unk> compared.
Compared to a non <unk> loss of $6 8 million or <unk> 16 per diluted ads in the third quarter and a net loss of $2 8 million or <unk> <unk> per diluted ads in the fourth quarter of 2022.
Cash and short term deposits totaled $5 $7 million at the end of Q4 compared to $6 7 million at the end of Q3.
Subsequent to year end, an additional loan of $9 million was received from Renaissance.
Deborah Choate: And, as Georges mentioned, we recently received notification that the French government has approved 11 million euros in new R&D funding, of which nearly 7.5 million euros is in the form of a grant and the rest in the form of a low-interest loan that is repayable only once the product begins to generate sales. We are awaiting the contract but expect a 25% upfront payment, or about 2.7 million euros, to be made during the second quarter. Turning to the outlook, we are targeting revenues of over $7 million in Q1 2024, with at least 60% gross margin, and a trend of sequential revenue growth for the remaining three quarters of 2024. In conjunction with the evaluation of the strategic opportunities that George enumerated, we have also identified potential cost optimization actions, leveraging our operating cost structure flexibility, that should strengthen our financial position without a major impact on our product strategy.
And as George mentioned, we received notification recently that the French government has approved 11 million euros in new R&D financing of which nearly $7 5 million euros in the form of the grant and the rest in the form of a low interest loan that is repayable only once the product begins to generate sales.
We are awaiting the contracts, but expect a 25% upfront payment or about $2 7 million euros to.
We made during the second quarter.
Turning to the outlook we are targeting.
Q1, 2024 revenues of over $7 million with at least 60% gross margin and for our trend of sequential revenue growth for the remaining three quarters of 2024.
In conjunction with the evaluation of the strategic opportunities that George enumerated. We have also identified potential cost optimization actions leveraging our operating cost structure flexibility that should strengthen our financial position without a major impact on our product strategy.
Deborah Choate: And lastly, we intend to reactivate our discussions with the European Investment Bank. 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 webcasts and presentations page, the same location where you will find the audio replay. And now I'll turn the call back to George. So, thank you again for joining the call today. We'll keep you apprised of any strategic developments as they occur. Again, we appreciate your continued trust and support as we move forward. Thank you, operator. You can close it. Cook.
And lastly, we intend to reactivate our discussions with the European investment Bank.
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.
And now I'll turn the call back to George.
Again for joining the call today, we will keep you apprised of any strategic developments as they occur again, we appreciate your continued trust and support as we move forward.
Thank you operator, you can close down.
Got it.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for joining us, and you may now disconnect your lines. Goodbye.
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