Sequans Communications Announces First Quarter 2019 Financial Results

PARIS–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/LTE?src=hash” target=”_blank”gt;#LTElt;/agt;–4G chipmaker Sequans Communications S.A. (NYSE: SQNS) today
announced financial results for the first quarter ended March 31, 2019.

First Quarter Highlights:

Revenue: Revenue was $7.0 million, an increase of 15.9% compared
to the fourth quarter of 2018, primarily due to higher revenue in
broadband and IoT, while the postponement of a project caused revenue
from the vertical business to be lower than the Q1 target for that
business. Q1 revenue represented a decrease of 37.4% compared to the
first quarter of 2018, reflecting primarily a decline in broadband
revenue and the impact of Cat M customer project delays in IoT.

Gross margin: Gross margin was 41.0% compared to 43.3% in the
fourth quarter of 2018, due to an increase in module sales, and compared
to 41.7% in the first quarter of 2018, primarily due to a decrease in
non-product revenue.

Operating loss: Operating loss was $7.4 million compared to an
operating loss of $9.3 million in the fourth quarter of 2018 and an
operating loss of $7.3 million in the first quarter of 2018.

Net loss: Net loss was $9.0 million, or ($0.10) per diluted
share/ADS, compared to a net loss of $9.5 million, or ($0.10) per
diluted share/ADS, in the fourth quarter of 2018 and a net loss of $8.7
million, or ($0.10) per diluted share/ADS, in the first quarter of 2018.

Non-IFRS Net loss: Excluding the non-cash stock-based
compensation and the non-cash impacts of convertible debt amendments,
effective interest adjustments related to the convertible debt and other
financings, and deferred tax benefit or expense related to the
convertible debt and other financings, non-IFRS net loss was $7.6
million, or ($0.08) per diluted share/ADS, compared to a non-IFRS net
loss of $9.4 million, or ($0.10) per diluted share/ADS in the fourth
quarter of 2018, and a non-IFRS net loss of $7.5 million, or ($0.08) per
diluted share/ADS, in the first quarter of 2018.

Cash: Cash and cash equivalents at March 31, 2019 totaled $7.6
million compared to $12.1 million at December 31, 2018 and exclude the
$3 million of proceeds from the issuance of new convertible in May 2019.

 
In millions of US$ except percentages, shares and per share amounts Key Metrics
  Q1 2019   %*     Q4 2018 (1)   %*   Q1 2018   %*
Revenue $7.0       $6.1     $11.2  
Gross profit 2.9 41.0 % 2.6 43.3 % 4.7 41.7 %
Operating loss (7.4 ) (105.2 )% (9.3 ) (153.7 )% (7.3 ) (64.9 )%
Net loss (9.0 ) (128.4 )% (9.5 ) (156.0 )% (8.7 ) (77.9 )%
Diluted EPS ($0.10 ) ($0.10 ) ($0.10 )
Weighted average number of diluted shares/ADS 94,788,726 94,599,554 91,465,178
Cash flow from (used in) operations (4.6 ) (7.5 ) (6.0 )
Cash, cash equivalents and short-term deposit at quarter-end 7.6 12.1 15.0
Additional information on non-cash items:
– Stock-based compensation included in operating result 0.5 0.3 0.5
– Non-cash interest on convertible debt and other financing 0.9 0.8 0.7
– Non-cash impact of convertible debt amendment (0.4 )
– Non-cash impact of deferred tax income (loss) 0.1 (0.7 )
Non-IFRS diluted EPS (excludes non-cash stock-based compensation,
impact of convertible debt amendments, effective interest
adjustments related to the convertible and other debt and embedded
derivative, impact of revaluation of interest-free government loan)
and related deferred tax benefit (expense)
($0.08 ) ($0.10 ) ($0.08 )
*Percentage of revenue
(1)

Updated from the 2018 earnings release provided on February 19,
2019. See Sequans’ Form 20-F filed on May 1, 2019

We are pleased to see the broadband business improving, the Cat 1
business growing nicely, and momentum continuing to build in the Cat
M/NB business as expected during the first quarter,” said Georges Karam,
Sequans CEO. “We have already begun to receive orders related to Cat
M/NB devices that are scheduled to go into mass production around
mid-year, and we expect growth in this business to accelerate in the
second half of the year. Even though we are still at the beginning of
the market ramp for 4G LTE for IoT, we are fully engaged in 5G, having
already conducted five years of research activity. With near-term growth
driven by helping customers get the most from 4G technology, enabling
them to make a seamless transition to 5G can continue our growth well
into the next decade.”

Q2 2019 Outlook

The following statements are based on management’s current
assumptions and expectations.
These statements are
forward-looking and actual results may differ materially.
Sequans
undertakes no obligation to update these statements.

Sequans expects revenue for the second quarter of 2019 to continue the
trend seen in Q1 and be better than the first quarter – with continued
sequential improvement through the balance of the year, driven by
increasing LTE-M revenue as more Sequans-powered devices go into mass
production.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss
the preliminary financial results for the first quarter of 2019 today,
May 9, 2019 at 8:00 a.m. EDT /14:00 CET. To participate in the live
call, analysts and investors should dial 800-230-1092 (or 612-288-0340
if outside the U.S.). A live and archived webcast of the call will be
available from the Investors section of the Sequans website at www.sequans.com/investors/.
A replay of the conference call will be available until June 9, 2019 by
dialing toll free 800-475-6701 or 320-365-3844 from outside the U.S.,
using the following access code: 465836.

Forward Looking Statements

This press release 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 release, including any
statements regarding our future results of operations and financial
positions, business strategy and plans, expectations for IoT and
Broadband sales, and our objectives for future operations, are
forward-looking statements (within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933, 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. 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 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. Some of the factors that could cause actual results to
differ materially from the forward-looking statements contained herein
include, without limitation: (i) the contraction or lack of growth of
markets in which we compete and in which our products are sold, (ii)
unexpected increases in our expenses, including manufacturing expenses,
(iii) our inability to adjust spending quickly enough to offset any
unexpected revenue shortfall, (iv) delays or cancellations in spending
by our customers, (v) unexpected average selling price reductions, (vi)
the significant fluctuation to which our quarterly revenue and operating
results are subject due to cyclicality in the wireless communications
industry and transitions to new process technologies, (vii) our
inability to anticipate the future market demands and future needs of
our customers, (viii) our inability to achieve new design wins or for
design wins to result in shipments of our products at levels and in the
timeframes we currently expect, (ix) our inability to enter into and
execute on strategic alliances, (x) the impact of natural disasters on
our sourcing operations and supply chain, (xi) our ability to remediate
material weaknesses in our internal controls relating to the impact of
accounting changes relating to deferred tax assets and deferred tax
liabilities related to the application of IFRS to deferred taxes on debt
instruments with equity components, and (xii) other factors detailed in
documents we file from time to time with the Securities and Exchange
Commission. Forward-looking statements in this release are made pursuant
to the safe harbor provisions contained in the Private Securities
Litigation Reform Act of 1995.

Use of Non-IFRS/non-GAAP Financial Measures

To supplement our unaudited consolidated financial statements prepared
in accordance with IFRS, we disclose certain non-IFRS, or non-GAAP,
financial measures. These measures exclude the non-cash stock-based
compensation and the non-cash impacts of convertible debt amendments,
effective interest adjustments related to the convertible debt and other
financings, and deferred tax benefit or expense related to the
convertible debt and other financings. We believe that these measures
can be useful to facilitate comparisons among different companies. These
non-GAAP measures have limitations in that the non-GAAP measures we use
may not be directly comparable to those reported by other companies. We
seek to compensate for this limitation by providing a reconciliation of
the non-GAAP financial measures to the most directly comparable IFRS
measures in the table attached to this press release.

About Sequans Communications

Sequans Communications S.A. (NYSE: SQNS) is a leading provider of
single-mode 4G LTE wireless semiconductor solutions for Internet of
Things (IoT) and a wide range of broadband data devices. Founded in
2003, Sequans has developed and delivered seven generations of 4G
technology and its chips are certified and shipping in 4G networks
around the world. Today, Sequans offers two LTE product lines:
StreamliteLTE™, optimized for IoT and M2M devices and StreamrichLTE™,
optimized for feature-rich mobile computing and home and portable router
devices. The company is based in Paris, France with additional offices
in the United States, United Kingdom, Sweden, Israel, Hong Kong,
Singapore, Taiwan, South Korea, and China.

Visit Sequans online at www.sequans.comwww.facebook.com/sequanswww.twitter.com/sequans

Condensed financial tables follow

       
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
           
Three months ended
(in thousands of US$, except share and per share amounts) March 31,
2019 (2)
  Dec 31,
2018 (1)
  March 31,
2018
         
   
Revenue :
Product revenue $ 4,681 $ 3,856 $ 7,635
  Other revenue     2,357     2,217     3,599  
Total revenue     7,038     6,073     11,234  
Cost of revenue
Cost of product revenue 3,575 2,943 5,861
  Cost of other revenue     574     503     689  
Total cost of revenue     4,149     3,446     6,550  
Gross profit     2,889     2,627     4,684  
Operating expenses :
Research and development 6,157 6,488 7,519
Sales and marketing 2,221 2,179 2,485
General and administrative 1,913 3,294 1,971
                   
Total operating expenses     10,291     11,961     11,975  
Operating loss (7,402 ) (9,334 ) (7,291 )
Financial income (expense):
Interest income (expense), net (1,976 ) (1,631 ) (1,227 )
Other financial expenses (400 )
Convertible debt amendment 420
  Foreign exchange gain (loss)     322     332     (212 )
Loss before income taxes     (9,056 )   (10,613 )   (8,730 )
Income tax expense (benefit)     (17 )   (1,139 )   19  
Loss $ (9,039 ) $ (9,474 ) $ (8,749 )
Attributable to :
Shareholders of the parent (9,039 ) (9,474 ) (8,749 )
  Minority interests              
Basic loss per share     ($0.10 )   ($0.10 )   ($0.10 )
Diluted loss per share     ($0.10 )   ($0.10 )   ($0.10 )
Weighted average number of shares used for computing:
— Basic 94,788,726 94,599,554 91,465,178
— Diluted     94,788,726     94,599,554     91,465,178  
(1)  

Updated from the 2018 earnings release provided on February 19,
2019. See Sequans’ Form 20-F filed on May 1, 2019

(2) In 2019, the Company adopted IFRS 16 using the modified
retrospective application approach. Accordingly, prior period
amounts have not been restated.
     
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
           

At March 31,

At Dec 31,
(in thousands of US$)   2019 (2)   2018 (1)
 
ASSETS
Non-current assets
Property, plant and equipment $ 9,679 $ 6,271
Intangible assets 15,183 12,409
Deposits and other receivables 388 394
Other non-current financial assets   331     337  
Total non-current assets   25,581     19,411  
Current assets
Inventories 7,639 8,243
Trade receivables 8,309 13,177
Contract assets 3,270 2,707
Prepaid expenses and other receivables 4,441 3,237
Recoverable value added tax 683 565
Research tax credit receivable 3,878 3,148
Cash and cash equivalents   7,555     12,086  
Total current assets   35,775     43,163  
Total assets $ 61,356 $ 62,574
 
EQUITY AND LIABILITIES
Equity
Issued capital, euro 0.02 nominal value, 94,788,726 shares
authorized, issued and outstanding at March 31, 2019 (94,732,539
shares at December 31, 2018)
$ 2,384 $ 2,384
Share premium 233,820 225,470
Other capital reserves 40,256 39,768
Accumulated deficit (281,076 ) (272,036 )
Other components of equity   (625 )   (605 )
Total equity   (5,241 )   (5,019 )
Non-current liabilities
Government grant advances and loans 6,567 5,674
Venture Debt 10,495 11,811
Convertible debt and accrued interest 20,889 19,723
Lease liabilities 4,591
Provisions 1,734 1,689
Deferred tax liabilities 616 691
Deferred revenue   687     808  
Total non-current liabilities   45,579     40,396  
Current liabilities
Trade payables 7,497 9,412
Interest-bearing receivables financing 3,661 10,295
Venture Debt 2,042 823
Lease liabilities 2,126
Government grant advances and loans 738 688
Other current liabilities 3,881 4,654
Deferred revenue 777 973
Provisions 296     352  
Total current liabilities 21,018     27,197  
Total equity and liabilities $ 61,356 $ 62,574
(1)  

Updated from the 2018 earnings release provided on February 19,
2019. See Sequans’ Form 20-F filed on May 1, 2019

(2) In 2019, the Company adopted IFRS 16 using the modified
retrospective application approach. Accordingly, prior period
amounts have not been restated.
       
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
           
Three months ended March 31,
(in thousands of US$)   2019   2018
Operating activities  
Loss before income taxes $ (9,056 ) $ (8,730 )
Non-cash adjustment to reconcile income before tax to net cash from
(used in) operating activities
Depreciation and impairment of property, plant and equipment 1,262 769
Amortization and impairment of intangible assets 1,078 767
Share-based payment expense 488 531
Increase (decrease) in provisions (21 ) 22
Financial expense (income) 1,976 1,227
Foreign exchange loss (gain) (425 ) 146
Loss (Gain) on disposal of property, plant and equipment (32 )
Working capital adjustments
Decrease (Increase) in trade receivables and other receivables 2,980 3,958
Decrease (Increase) in inventories 604 8
Decrease (Increase) in research tax credit receivable (597 ) (982 )
Decrease in trade payables and other liabilities (2,478 ) (3,315 )
Decrease in deferred revenue (317 ) (34 )
Decrease in government grant advances (99 ) (410 )
  Income tax paid   13     34  
Net cash flow used in operating activities   (4,624 )   (6,009 )
Investing activities
Purchase of intangible assets and property, plant and equipment (585 ) (329 )
Capitalized development expenditures (1,080 ) (463 )
Sale (purchase) of financial assets 12 (20 )
  Interest received   3     35  
Net cash flow used in investments activities   (1,650 )   (777 )
Financing activities
Proceeds from issue of warrants, exercise of stock options/warrants 27
Public equity offering proceeds, net of transaction costs paid 20,890
Proceeds from issuing of warrants, net of transaction costs paid 8,350
Proceeds (Repayment of) from interest-bearing receivables financing (6,634 ) (2,095 )
Proceeds from interest-bearing research project financing 1,126
Payment of lease liabilities (727 )
Repayment of government loans (118 )
  Interest paid   (373 )   (230 )
Net cash flows from financing activities 1,742 18,474
Net increase (decrease) in cash and cash equivalents (4,532 ) 11,688
Net foreign exchange difference 1 2
  Cash and cash equivalent at January 1   12,086     2,948  
Cash and cash equivalents at end of the period   $ 7,555     $ 14,638  
 
 
SEQUANS COMMUNICATIONS S.A.
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
     
(in thousands of US$, except share and per share amounts) Three months ended
  March 31,
2019
  Dec 31,
2018 (3)
  March 31,
2018
Net IFRS loss as reported $ (9,039 )   $ (9,474 )   $ (8,749 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 488 308 532
Non-cash interest on convertible debt and other financing (2) 872 831 671
Non-cash impact of deferred tax income (loss) 76 (656 )
Non-cash impact of convertible debt amendment (420 )
    $ (7,603 )   $ (9,411 )   $ (7,546 )
IFRS basic loss per share as reported ($0.10 ) ($0.10 ) ($0.10 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.00 $0.01
Non-cash interest on convertible debt and other financing (2) $0.01 $0.01 $0.01
Non-cash impact of deferred tax income (loss) $0.00 ($0.01 ) $0.00
Non-cash impact of convertible debt amendment $0.00 $0.00 $0.00
             
Non-IFRS basic loss per share   ($0.08 )   ($0.10 )   ($0.08 )
IFRS diluted loss per share ($0.10 ) ($0.10 ) ($0.10 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.00 $0.01
Non-cash interest on convertible debt and other financing (2) $0.01 $0.01 $0.01
Non-cash impact of deferred tax income (loss) $0.00 ($0.01 ) $0.00
Non-cash impact of convertible debt amendment $0.00 $0.00 $0.00
             
Non-IFRS diluted loss per share   ($0.08 )   ($0.10 )   ($0.08 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ 2 $ $ 3
Research and development 140 147 139
Sales and marketing 68 6 80
General and administrative 278 155 310
(2) Related to the difference between contractual and effective
interest rates

(3) Updated from the 2018 earnings release provided on February
19, 2019. See Sequans’ Form 20-F filed on May 1, 2019

Contacts

Media Relations: Kimberly Tassin, +1.425.736.0569, [email protected]
Investor
Relations: Claudia Gatlin, +1 212.830.9080, [email protected]

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