Sequans Communications Announces First Quarter 2019 Financial Results

  • 0
  • May 9, 2019

PARIS–May 9–4G 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, Kimberly@sequans.com
Investor Relations: Claudia Gatlin, +1 212.830.9080, Claudia@sequans.com

 

Source: Sequans Communications S.A.

 

© 2018 SEQUANS.