Advances on Key Business Initiatives.
Reports First Quarter 2024 Summary Financial Results.
Paris, France--(Newsfile Corp. - June 18, 2024) - Sequans Communications S.A. (NYSE:SQNS) ("Sequans" or the "Company"), a leading developer and provider of 5G/4G semiconductors and IoT modules, today provided updates on several key business initiatives and an overview of the first quarter financial results ended March 31, 2024.
Georges Karam, Sequans CEO, stated, "We have made significant progress on multiple fronts, beginning with the extension of our standstill agreements with our debt holders until the end of August and the signature of a $15 million licensing agreement for our Monarch2 platform with a new partner. Additionally, we are optimizing our R&D expenses by suspending the development of our 5G fixed wireless product to focus on low-power 5G for massive IoT applications, specifically RedCap and eRedCap. Furthermore, we are making progress in discussions for a strategic transaction that would dramatically improve our balance sheet."
Extension of Standstill Agreements with Debt Holders
Having met the milestones set forth in the initial standstill agreement announced in April 2024, in May Sequans secured an extension of the maturities of its debt obligations held by its three largest debt holders Lynrock Lake, Nokomis and Renesas, until August 26, 2024. Extending the debt maturities grants the Company additional time to secure a long-term solution and negotiate a strategic transaction that serves the interests of all its stakeholders.
New Licensing Deal
Sequans announced today a manufacturing licensing agreement for its Monarch2 LTE platform with a leading technology company, demonstrating the Company's ability to enhance and expand its licensing business strategy. The deal includes an initial payment of $15 million, with the opportunity for additional revenue in subsequent years.
Focus on Massive IoT and Opex Optimization
To enhance its long-term financial health while strengthening its focus on the Massive IoT business, Sequans has suspended the development of its 5G Taurus product for Fixed Wireless Access applications and reoriented its product roadmap towards low-power 5G variants for Massive IoT, specifically RedCap and eRedCap. This shift is expected to significantly reduce R&D expenses as part of the Company's plan to achieve break-even in 2025. While this decision is expected to reduce revenue recognition from the license agreement with Sequans' Chinese strategic partner by $10 million in 2024, this should be offset by revenue from the new Monarch2 manufacturing license announced today.
Advances in Strategic Discussions
Sequans confirms that it continues to be in active discussions for a long-term strategic transaction that would address its debt maturities and significantly strengthen its balance sheet.
First Quarter 2024 Financial Summary:
Revenue: Revenue was $6.0 million, an increase of 26.3% compared to the fourth quarter of 2023 and a decrease of 49.3% compared to the first quarter of 2023. Product revenue was $2.5 million, a decrease of 37.8% compared to the fourth quarter of 2023 and an increase of 5.5% compared to the first quarter of 2023. Service revenue was $3.6 million reflecting the revenue recognition profile of our agreement with a major 5G licensing partner.
Gross margin: Gross margin was 63.9% compared to 12.2% in the fourth quarter of 2023 and compared to 78.5% in the first quarter of 2023.
Operating loss: Operating loss was $8.5 million compared to operating loss of $12.8 million in the fourth quarter of 2023 and operating loss of $4.0 million in the first quarter of 2023.
Net loss: Net loss was $11.8 million, or ($0.19) per diluted ADS, compared to a net loss of $17.3 million, or ($0.28) per diluted ADS, in the fourth quarter of 2023 and a net loss of $5.0 million, or ($0.10) per diluted ADS, in the first quarter of 2023. Net loss in the first quarter of 2024 includes a loss of $36,000 on the change in fair value of the convertible debt derivative compared to a gain of $0.1 million in the fourth quarter of 2023 and a gain of $2.3 million in the first quarter of 2023.
Non-IFRS loss and diluted loss per ADS: Excluding the non-cash stock-based compensation, the non-cash impact of the fair value, the amendment and effective interest adjustments related to the convertible debt with embedded derivatives and other financings, non-IFRS net loss was $8.8 million, or ($0.14) per diluted ADS, compared to non-IFRS net loss of $13.8 million, or ($0.23) per diluted ADS in the fourth quarter of 2023, and a non-IFRS net loss of $4.2 million, or ($0.09) per diluted ADS, in the first quarter of 2023. The non-IFRS net loss includes a foreign exchange gain of $0.3 million, or $0.0 per diluted ADS, in the first quarter of 2024, compared to a foreign exchange loss of $0.8 million, or ($0.01) per diluted ADS in the fourth quarter of 2023 and foreign exchange loss of $0.2 million, or ($0.00) per diluted ADS, in the first quarter of 2023.
Cash: Cash and cash equivalents at March 31, 2024 totaled $0.5 million compared to $5.7 million at December 31, 2023. This amount excludes the $5 million from issuance of an unsecured promissory note in April 2024 and the $15 million upfront payment from the licensing agreement just signed.
Note Regarding Forward Looking Statements
This press release contains projections and other forward-looking statements regarding future events and our future financial performance. All statements other than present and historical facts and conditions contained in this release, including any statements regarding potential strategic options, cost optimization and our objectives for future operations and achieving break-even, 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 undertake no obligation to update the information made in this release in the event facts or circumstances subsequently change after the date of this press release. 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 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. In addition to the risk factors contained in our Form 20-F for the fiscal year ended December 31, 2023, 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 resulting from inflationary pressures and rising interest rates, including manufacturing and operating expenses and interest expense, (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 fluctuations 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) our ability to meet performance milestones under strategic license agreements, (xi) the impact of natural disasters on our sourcing operations and supply chain, (xii) the impact of the Ukraine-Russia and Israeli-Hamas conflicts on our independent contractors located in Ukraine and operations in Israel, (xiii) our ability to raise debt and equity financing, and (xiv) other factors detailed in documents we file from time to time with the Securities and Exchange Commission.
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, conversions and repayments, effective interest adjustments related to the convertible debt with embedded derivatives and other financings; 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 developer and supplier of cellular IoT connectivity solutions, providing chips and modules for 5G/4G massive and broadband IoT. For 5G/4G massive IoT applications, Sequans provides a comprehensive product portfolio based on its flagship Monarch LTE-M/NB-IoT and Calliope Cat 1 chip platforms, featuring industry-leading low power consumption, a large set of integrated functionalities, and global deployment capability. For 5G/4G broadband IoT applications, Sequans offers a product portfolio based on its Cassiopeia Cat 4/Cat 6 4G and high-end Taurus 5G chip platforms, optimized for low-cost residential, enterprise, and industrial applications. Founded in 2003, Sequans is based in Paris, France with additional offices in the United States, United Kingdom, Israel, Hong Kong, Singapore, Finland, Taiwan, and China
Visit Sequans online at www.sequans.com; www.facebook.com/sequans; www.twitter.com/sequans
Media Relations: Kimberly Tassin, +1.425.736.0569, [email protected]
Investor Relations: Kimberly Rogers, +1 385.831-7337, [email protected]
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, 2024 | Dec 31, 2023 | March 31, 2023 | ||||||||
| | ||||||||||||
| | ||||||||||||
| Revenue : | ||||||||||||
| Product revenue | $ | 2,468 | $ | 3,971 | $ | 2,340 | ||||||
| License and services revenue | 3,559 | 802 | 9,559 | |||||||||
| Total revenue | 6,027 | 4,773 | 11,899 | |||||||||
| Cost of revenue | 2,173 | 4,190 | 2,556 | |||||||||
| Gross profit | 3,854 | 583 | 9,343 | |||||||||
| Operating expenses : | ||||||||||||
| Research and development | 6,613 | 6,336 | 7,488 | |||||||||
| Sales and marketing | 2,872 | 3,054 | 3,033 | |||||||||
| General and administrative | 2,902 | 3,976 | 2,818 | |||||||||
| Total operating expenses | 12,387 | 13,366 | 13,339 | |||||||||
| Operating profit (loss) | (8,533 | ) | (12,783 | ) | (3,996 | ) | ||||||
| Financial income (expense): | ||||||||||||
| Interest income (expense), net | (3,318 | ) | (3,175 | ) | (2,515 | ) | ||||||
| Change in fair value of convertible debt derivative | (36 | ) | 134 | 2,302 | ||||||||
| Foreign exchange gain (loss) | 264 | (829 | ) | (165 | ) | |||||||
| Profit (Loss) before income taxes | (11,623 | ) | (16,653 | ) | (4,374 | ) | ||||||
| Income tax expense | 167 | 681 | 666 | | ||||||||
| Profit (Loss) | $ | (11,790 | ) | $ | (17,334 | ) | $ | (5,040 | ) | |||
| Attributable to : | ||||||||||||
| Shareholders of the parent | (11,790 | ) | (17,334 | ) | (5,040 | ) | ||||||
| Minority interests | - | - | - | |||||||||
| Basic loss per ADS | ($0.19 | ) | ($0.28 | ) | ($0.10 | ) | ||||||
| Diluted loss per ADS | ($0.19 | ) | ($0.28 | ) | ($0.10 | ) | ||||||
| Weighted average number of ADS used for computing: | ||||||||||||
| - Basic | 61,613,761 | 60,933,327 | 48,382,629 | |||||||||
| - Diluted | 61,613,761 | 60,933,327 | 48,382,629 | |||||||||
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| At March 31, | At Dec 31, | ||||||
| (in thousands of US$) | 2024 | 2023 | |||||
| ASSETS | |||||||
| Non-current assets | |||||||
| Property, plant and equipment | $ | 6,185 | $ | 6,815 | |||
| Intangible assets | 71,595 | 64,300 | |||||
| Deposits and other receivables | 6,792 | 801 | |||||
| Other non-current financial assets | 353 | 360 | |||||
| Total non-current assets | 84,925 | 72,276 | |||||
| Current assets | |||||||
| Inventories | 5,246 | 6,335 | |||||
| Trade receivables | 6,862 | 8,115 | |||||
| Contract assets | 550 | 497 | |||||
| Prepaid expenses | 1,936 | 1,422 | |||||
| Other receivables | 6,662 | 4,839 | |||||
| Research tax credit receivable | 6,789 | 9,983 | |||||
| Cash and cash equivalents | 474 | 5,705 | |||||
| Total current assets | 28,519 | 36,896 | |||||
| Total assets | $ | 113,444 | $ | 109,172 | |||
| EQUITY AND LIABILITIES | |||||||
| Equity | |||||||
| Issued capital, euro 0.01 nominal value, 247,417,520 shares authorized, issued and outstanding at March 31, 2024 (246,262,004 shares at December 31, 2023) | $ | 2,891 | $ | 2,878 | |||
| Share premium | 14,556 | 14,568 | |||||
| Other capital reserves | 71,531 | 70,431 | |||||
| Accumulated deficit | (105,152 | ) | (93,416 | ) | |||
| Other components of equity | (616 | ) | (416 | ) | |||
| Total equity | (16,790 | ) | (5,955 | ) | |||
| Non-current liabilities | |||||||
| Government grant advances, loans and other liabilities | 10,765 | 3,789 | |||||
| Lease liabilities | 1,357 | 1,645 | |||||
| Provisions | 2,142 | 2,222 | |||||
| Deferred tax liabilities | 263 | 264 | |||||
| Total non-current liabilities | 14,527 | 7,920 | |||||
| Current liabilities | |||||||
| Trade payables | 18,485 | 16,281 | |||||
| Interest-bearing receivables financing | 6,335 | 9,428 | |||||
| Lease liabilities | 1,349 | 1,471 | |||||
| Convertible debt | 54,685 | 52,278 | |||||
| Convertible debt embedded derivative | 39 | 3 | |||||
| Unsecured related party loan | 18,257 | 8,922 | |||||
| Government grant advances and loans | 4,118 | 4,073 | |||||
| Contract liabilities | 3,238 | 5,852 | |||||
| Other current liabilities and provisions | 9,201 | 8,899 | |||||
| Total current liabilities | 115,707 | 107,207 | |||||
| Total equity and liabilities | $ | 113,444 | $ | 109,172 | |||
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
| Three months ended March 31, | |||||||||
| (in thousands of US$) | 2024 | 2023 | |||||||
| Operating activities | |||||||||
| Profit (Loss) before income taxes | $ | (11,623 | ) | $ | (4,374 | ) | |||
| Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities | |||||||||
| Depreciation and impairment of property, plant and equipment | 830 | 1,028 | |||||||
| Amortization and impairment of intangible assets | 1,487 | 2,727 | |||||||
| Share-based payment expense | 1,117 | 1,781 | |||||||
| Decrease in provisions | (82 | ) | (20 | ) | |||||
| Interest expense, net | 3,318 | 2,515 | |||||||
| Change in the fair value of convertible debt embedded derivative | 36 | (2,302 | ) | ||||||
| Foreign exchange loss (gain) | (111 | ) | 182 | ||||||
| Working capital adjustments | |||||||||
| Decrease (Increase) in trade receivables and other receivables | 932 | 3,170 | |||||||
| Decrease (increase) in inventories | 1,089 | 835 | |||||||
| Increase in research tax credit receivable | (423 | ) | (829 | ) | |||||
| Increase (Decrease) in trade payables and other liabilities | 3,027 | 2,351 | |||||||
| Decrease in contract liabilities | (2,614 | ) | (2,858 | ) | |||||
| Decrease in government grant advances | (199 | ) | (239 | ) | |||||
| Income tax paid | (34 | ) | (475 | ) | |||||
| Net cash flow used in operating activities | (3,250 | ) | 3,492 | ||||||
| Investing activities | |||||||||
| Purchase of intangible assets and property, plant and equipment | (1,576 | ) | (858 | ) | |||||
| Capitalized development expenditures | (9,124 | ) | (5,731 | ) | |||||
| Sale (Purchase) of financial assets | 58 | (18 | ) | ||||||
| Decrease of short-term deposit | - | 5,000 | |||||||
| Interest received | 21 | 36 | |||||||
| Net cash flow used in investments activities | (10,621 | ) | (1,571 | ) | |||||
| Financing activities | |||||||||
| Proceeds (Repayment of) from interest-bearing receivables financing | 960 | (1,232 | ) | ||||||
| Proceeds from loans | 9,000 | - | |||||||
| Proceeds from interest-bearing research project financing | - | 545 | |||||||
| Payment of lease liabilities | (359 | ) | (321 | ) | |||||
| Repayment of government loans | (682 | ) | (439 | ) | |||||
| Repayment of interest-bearing research project financing | (16 | ) | (437 | ) | |||||
| Interest paid | (259 | ) | (368 | ) | |||||
| Net cash flows from financing activities | 8,644 | (2,252 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | (5,227 | ) | (331 | ) | |||||
| Net foreign exchange difference | (4 | ) | 4 | ||||||
| Cash and cash equivalents at January 1 | 5,705 | 5,671 | |||||||
| Cash and cash equivalents at end of the period | 474 | 5,344 | |||||||
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, 2024 | December 31, 2023 | March 31, 2023 | |||||||||
| Net IFRS gain (loss) as reported | $ | (11,790 | ) | $ | (17,334 | ) | $ | (5,040 | ) | ||
| Add back | |||||||||||
| Non-cash stock-based compensation expense according to IFRS 2 (1) | 1,117 | 1,958 | 1,781 | ||||||||
| Non-cash change in the fair value of convertible debt embedded derivative | 36 | (134 | ) | (2,302 | ) | ||||||
| Non-cash interest on convertible debt and other financing (2) | 1,833 | 1,707 | 1,408 | ||||||||
| Non-IFRS gain (loss) adjusted | $ | (8,804 | ) | $ | (13,803 | ) | $ | (4,153 | ) | ||
| IFRS basic gain (loss) per ADS as reported | ($0.19 | ) | ($0.28 | ) | ($0.10 | ) | |||||
| Add back | |||||||||||
| Non-cash stock-based compensation expense according to IFRS 2 (1) | $ | 0.02 | $ | 0.03 | $ | 0.04 | |||||
| Non-cash change in the fair value of convertible debt embedded derivative | $ | 0.00 | ($0.01 | ) | ($0.05 | ) | |||||
| Non-cash interest on convertible debt and other financing (2) | $ | 0.02 | $ | 0.03 | $ | 0.03 | |||||
| Non-IFRS basic gain (loss) per ADS | ($0.14 | ) | ($0.23 | ) | ($0.09 | ) | |||||
| IFRS diluted gain (loss) per ADS | ($0.19 | ) | ($0.28 | ) | ($0.10 | ) | |||||
| Add back | |||||||||||
| Non-cash stock-based compensation expense according to IFRS 2 (1) | $ | 0.02 | $ | 0.03 | $ | 0.04 | |||||
| Non-cash change in the fair value of convertible debt embedded derivative | $ | 0.00 | ($0.01 | ) | ($0.05 | ) | |||||
| Non-cash interest on convertible debt and other financing (2) | $ | 0.02 | $ | 0.03 | $ | 0.04 | |||||
| Non-IFRS diluted gain (loss) per ADS | ($0.14 | ) | ($0.23 | ) | ($0.09 | ) | |||||
| | |||||||||||
| (1) Included in the IFRS loss as follows: | |||||||||||
| Cost of product revenue | $ | 17 | $ | 48 | $ | 32 | |||||
| Research and development | 318 | 600 | 470 | ||||||||
| Sales and marketing | 243 | 439 | 347 | ||||||||
| General and administrative | 539 | 871 | 932 | ||||||||
| (2) Related to the difference between contractual and effective interest rates | |||||||||||
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