Sequans Communications SA Q3 FY2024 earnings call

• Successfully closed the Qualcomm transaction, securing $200 million in funding, enhancing financial stability and validating technological leadership in cellular IoT.
• Retained perpetual licensing rights to 4G IoT technology, enabling maintenance and enhancement of 4G product offerings like LTM, IoT Monarch 2, and Cat 1bis Calliope 2.
• Fully repaid all mature debt in October, achieving a nearly debt-free balance sheet, allowing targeted R&D investments and cash burn rate reduction in 2025.
• Retained nearly 100% of existing design win projects, forming a $250 million 3-year revenue pipeline across IoT applications.
• Anticipate Q4 2024 product revenue to double from Q3, with continued growth in 2025 as design wins move to mass production.
• Target cash operating expenses (excluding depreciation, amortization, and equity compensation) to fall below $10 million per quarter in 2025 through cost efficiencies and focused R&D.

In Q3 2024, revenues increased 29.5% to $10.1 million from $7.8 million in Q3 2023 and sequentially by 4.2%. Product revenue accounted for 23.4% of total revenues, while licensing revenue was $7.7 million, a 9.8% increase from the prior year quarter. Gross margin in Q3 2024 was 82.5%, with product revenue gross margin at 36.9%. IFRS operating profit was $87 million, contrasting with prior quarter losses, due to a net gain on the sale of 4G assets offset by an impairment charge. Cash and cash equivalents totaled $173.6 million at Q3 end, including $172 million from the Qualcomm transaction.

• Expect approximately 10% sequential growth in Q4 2024.
• Product revenue expected to double from Q3 2024.
• Licensing and service revenues to remain significant, including a licensing component related to the Qualcomm deal.
• Target cash operating expenses (excluding certain items) to be below $10 million per quarter on average in 2025.
• Anticipate new licensing and service deals in 2025, leveraging 5G IP and innovations.

• Operate in a competitive and rapidly changing environment with new risks emerging periodically.
• Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from projections.
• Geopolitical factors and industry evolution could impact the ability to convert pipeline to revenue and maintain competitive edge.

Q: Could you elaborate on how the product recovery is progressing into 2025, especially regarding the breakdown by technologies like Cat 1 versus Cat M?

A: The design win pipeline is intact. This year, most business focused on Cat M/NOG2 revenue with projects moving to production. Q4 sees new projects, and 2025 will have continuity of Monarch 2 projects growth. Cat 1bis platform will start shipping a bit in Q4, but growth is primarily from Monarch 2 projects with more wins expected, with sequential growth anticipated each quarter.

Q: How is RedCap being addressed in terms of design activity, timing, and competition?

A: RedCap is low-cost 5G, with eRedCap being the 5G flavor of Cat 1bis and LTM. 5G standalone deployments are key, and customers are looking for future-proof devices. R&D focuses on innovating for eRedCap, with a roadmap aligned to 5G standalone deployments, aiming for a first-to-market approach.

Q: Can you elaborate on the licensing pipeline, especially related to RedCap and eRedCap?

A: Sequans has a track record of licensing revenue. There are ongoing engagements with partners, with few deals under discussion. The company is selective in partnerships to avoid impacting product revenue, and is optimistic about signing more licensing deals in 2025 leveraging 5G IP and innovations.