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Sequans Communications Announces Fourth Quarter 2017 Financial Results

PARIS--(BUSINESS WIRE)--

4G chipmaker Sequans Communications S.A. (SQNS) today announced financial results for the fourth quarter ended December 31, 2017.

Fourth Quarter 2017 Highlights:

Revenue: Revenue was $11.3 million, flat compared to the third quarter of 2017 and a decrease of 18.9% compared to the fourth quarter of 2016, reflecting decreases in both product and other revenue. Full-year revenue increased 5.9% to $48.3 million in 2017 from $45.6 million in 2016.

Gross margin: Gross margin was 41.7% compared to 44.3% in the third quarter of 2017 and compared to 38.2% in the fourth quarter of 2016, reflecting primarily an increase in the proportion of module sales in the revenue mix in the fourth quarter of 2017 compared to the prior quarter and an increase in the proportion of other revenue in the revenue mix compared to the same quarter in the prior year. Full-year gross margin remained flat at 43.8% in 2017 and in 2016.

Operating loss: Operating loss was $5.6 million compared to an operating loss of $5.6 million in the third quarter of 2017 and an operating loss of $4.9 million in the fourth quarter of 2016. Full year operating loss for 2017 was $19.5 million compared to an operating loss of $19.7 million for 2016.

Net loss: Net loss was $7.6 million, or ($0.10) per diluted share/ADS, compared to a net loss of $6.9 million, or ($0.09) per diluted share/ADS, in the third quarter of 2017 and a net loss of $5.4 million, or ($0.07) per diluted share/ADS, in the fourth quarter of 2016. Full year net loss for 2017 was $26.2 million, or ($0.34) per diluted share/ADS, compared to a net loss of $24.8 million, or ($0.39) per diluted share/ADS, for 2016.

Non-IFRS Net loss: Excluding the non-cash items of stock-based compensation, the non-cash impact of convertible debt amendments and effective interest adjustments related to the convertible debt and other financings, non-IFRS net loss was $5.9 million, or ($0.07) per diluted share/ADS, compared to a non-IFRS net loss of $5.9 million, or ($0.07) per diluted share/ADS in the third quarter of 2017, and a non-IFRS net loss of $4.2 million, or ($0.06) per diluted share/ADS, in the fourth quarter of 2016. Full year non-IFRS net loss for 2017 was $21.4 million, or ($0.28) per diluted share/ADS, compared to a full year non-IFRS net loss of $19.9 million, or ($0.31) per diluted share/ADS in 2016.

Cash: Cash, cash equivalents and short-term deposit at December 31, 2017 totaled $3.3 million compared to $13.3 million at September 30, 2017. The cash balance does not reflect the $20.9 million of net proceeds from the January 2018 public offering.

     
Key Metrics
In millions of US$ except percentages, shares and per share amounts       Q4 2017     %*     Q3 2017     %*     Q4 2016     %*    

Full year
2017

    %*    

Full year
2016

    %*
Revenue $11.3         $11.3         $14.0         $48.3         $45.6    
Gross profit 4.7 41.7 % 5.0 44.3 % 5.3 38.2 % 21.1 43.8 % 20.0 43.8 %
Operating loss (5.6 ) (49.7 )% (5.6 ) (49.2 )% (4.9 ) (34.9 )% (19.5 ) (40.5 )% (19.7 ) (43.3 )%
Net loss (7.6 ) (67.6 )% (6.9 ) (61.2 )% (5.4 ) (38.5 )% (26.2 ) (54.2 )% (24.8 ) (54.4 )%
Diluted EPS ($0.10 ) ($0.09 ) ($0.07 ) ($0.34 ) ($0.39 )
Weighted average number of diluted shares/ADS 79,844,151 79,774,103 74,501,387 77,668,404 63,805,442
Cash flow from (used in) operations (9.3 ) (5.3 ) (5.7 ) (28.9 ) (15.6 )
Cash, cash equivalents and short-term deposit at quarter-end 3.3 13.3 20.5 3.3 20.5
Additional information on non-cash items:
- Stock-based compensation included in operating result 0.7 0.3 0.5 1.6 1.1
- Non-cash impact of Convertible debt amendments 0.3 0.3
- Change in the fair value of convertible debt embedded derivative 1.6
- Non-cash interest on convertible debt and other financing 0.7 0.8 0.7 2.8 2.2

Non-IFRS diluted EPS (excludes stock-based compensation, impact of convertible debt amendments and effective interest adjustments related to the convertible and other debt and embedded derivative, and the non-cash impact of revaluation of interest-free government loan)

      ($0.07 )           ($0.07 )           ($0.06 )           ($0.28 )           ($0.31 )      

* Percentage of revenue

 

"We are very pleased with the ramp in our IoT business during 2017," said Georges Karam, Sequans' CEO. "IoT revenue grew more than 40% from 2016, mainly from the initial ramp in Cat 1 revenue. We expect strong acceleration of IoT growth in 2018, based on a full year of Cat 1 revenue from both the United States and Japan, as well as the initial Cat M1/NB1 ramp from U.S. design wins already in hand. We expect gradual improvement in our broadband business beginning in the second quarter. We are seeing exciting opportunities for new products and potential new customers and applications, which also contribute to our confidence in the long-term performance of all our markets."

Q1 2018 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 first quarter of 2018 to be in the range of $10.5 to $12 million, reflecting seasonal weakness in the first quarter, with non-IFRS gross margin above 40%. Based on this revenue range and expected gross margin, non-IFRS net loss per diluted share/ADS is expected to be between ($0.07) and ($0.08) for the first quarter of 2018, based on approximately 94.4 million weighted average number of diluted shares/ADSs. Non-IFRS EPS guidance excludes the impact of stock based compensation, the non-cash fair-value and effective interest adjustments related to the convertible debt and other financings, and any other relevant non-cash or non-recurring expenses.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss the financial results for the fourth quarter of 2017 today, February 13, 2018 at 8:00 a.m. EDT / 14:00 CET. To participate in the live call, analysts and investors should dial 800-230-1059 (or +1 612-234-9959 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 March 13, 2018 by dialing toll free 800-475-6701 in the U.S., or +1 320-365-3844 from outside the U.S., using the following access code: 442126.

Forward-Looking Statements

This press release contains projections and other forward-looking statements regarding future events or our future financial performance. 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, anticipation for IoT and broadband sales, plans and our objectives for future operations and potential strategic partnerships, 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, and (xi) 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 non-cash charges relating to stock-based compensation and the non-cash financial income and expense related to the convertible debt and its embedded derivative issued in April 2015 and April 2016. 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. We are not able to provide a non-GAAP reconciliation for forward-looking IFRS estimates for gross margin and net loss per diluted share without unreasonable efforts, because certain adjustments are not known until the end of the period. The impact of these adjustments could be significant to our actual IFRS results.

About Sequans Communications

Sequans Communications S.A. (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)       Dec 31,
2017
  Sept 30,
2017
  Dec 31,
2016
   
Revenue :
Product revenue $ 8,685 $ 8,869 $ 11,947
Other revenue       2,632     2,430     2,006  
Total revenue       11,317     11,299     13,953  
Cost of revenue
Cost of product revenue 5,994 5,678 7,879
Cost of other revenue       602     615     740  
Total cost of revenue       6,596     6,293     8,619  
Gross profit       4,721     5,006     5,334  
Operating expenses :
Research and development 5,985 6,769 6,327
Sales and marketing 2,203 2,014 2,204
General and administrative 2,159 1,786 1,669
                 
Total operating expenses       10,347     10,569     10,200  
Operating loss (5,626 ) (5,563 ) (4,866 )
Financial income (expense):
Interest income (expense), net (1,178 ) (1,202 ) (1,080 )
Convertible debt amendments (322 )
Foreign exchange gain (loss)       (439 )   (90 )   670  
Loss before income taxes       (7,565 )   (6,855 )   (5,276 )
Income tax expense (benefit)       81     65     95  
Loss $ (7,646 ) $ (6,920 ) $ (5,371 )
Attributable to :
Shareholders of the parent (7,646 ) (6,920 ) (5,371 )
Minority interests                
Basic loss per share       ($0.10 )   ($0.09 )   ($0.07 )
Diluted loss per share       ($0.10 )   ($0.09 )   ($0.07 )
Weighted average number of shares used for computing:
— Basic 79,844,151 79,774,103 74,501,387
— Diluted       79,844,151     79,774,103     74,501,387  
 
 
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
      Twelve months ended Dec 31
(in thousands of US$, except share and per share amounts)       2017     2016
   
Revenue :
Product revenue $ 37,353 $ 34,581
Other revenue       10,910       10,998  
Total revenue       48,263       45,579  
Cost of revenue
Cost of product revenue 24,725 22,574
Cost of other revenue       2,397       3,022  
Total cost of revenue       27,122       25,596  
Gross profit       21,141       19,983  
Operating expenses :
Research and development 25,202 26,334
Sales and marketing 8,785 7,126
General and administrative 6,679 6,267
               
Total operating expenses       40,666       39,727  
Operating loss       (19,525 )     (19,744 )
Financial income (expense):
Interest income (expense), net (4,612 ) (3,686 )
Other financial expense (83 )
Convertible debt amendments (322 )
Change in the fair value of convertible debt embedded derivative (1,583 )
Foreign exchange gain (loss)       (1,401 )     593  
Loss before income taxes       (25,860 )     (24,503 )
Income tax expense (benefit)       300       284  
Loss $ (26,160 ) $ (24,787 )
Attributable to :
Shareholders of the parent (26,160 ) (24,787 )
Minority interests              
Basic loss per share       ($0.34 )     ($0.39 )
Diluted loss per share       ($0.34 )     ($0.39 )
Weighted average number of shares used for computing:
— Basic 77,668,404 63,805,442
— Diluted       77,668,404       63,805,442  
 
 
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
      At Dec 31,     At Dec 31,
(in thousands of US$)       2017     2016
 
ASSETS
Non-current assets
Property, plant and equipment $ 6,993 $ 6,659
Intangible assets 9,561 7,707
Deposits and other receivables 402 332
Available for sale assets       353       310  
Total non-current assets       17,309       15,008  
Current assets
Inventories 7,376 8,693
Trade receivables 20,926 15,285
Prepaid expenses and other receivables 4,214 3,172
Recoverable value added tax 688 470
Research tax credit receivable 3,248 1,902
Short term deposit 347 345
Cash and cash equivalents       2,948       20,202  
Total current assets       39,747       50,069  
Total assets $ 57,056 $ 65,077
 
EQUITY AND LIABILITIES
Equity
Issued capital, euro 0.02 nominal value, 80,024,707 shares authorized, issued and outstanding at December 31, 2017 (75,030,078 at December 31, 2016) $ 2,031 $ 1,923
Share premium 204,952 189,029
Other capital reserves 33,313 28,257
Accumulated deficit (235,713 ) (209,553 )
Other components of equity       (435 )     (796 )
Total equity       4,148       8,860  
Non-current liabilities
Government grant advances, loans and other liabilities 5,030 5,144
Convertible debt and accrued interest 17,063 16,338
Provisions 1,532 1,306
Other Liabilities 52 22
Deferred revenue       1,293       1,940  
Total non-current liabilities       24,970       24,750  
Current liabilities
Trade payables 13,023 18,358
Interest-bearing receivables financing 7,413 7,712
Government grant advances 1,592 601
Other current liabilities 5,138 4,415
Deferred revenue 740 335
Provisions       32       46  
Total current liabilities       27,938       31,467  
Total equity and liabilities $ 57,056 $ 65,077
 
 
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
 
      Twelve months ended Dec 31
(in thousands of US$)       2017     2016
   
Operating activities
Loss before income taxes $ (25,860 ) $ (24,503 )
Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities
Depreciation and impairment of property, plant and equipment 2,780 3,080
Amortization and impairment of intangible assets 2,795 2,215
Share-based payment expense 1,638 1,122
Increase (decrease) in provisions 165 (240 )
Financial expense (income) 4,612 3,686
Convertible debt amendments 322
Change in the fair value of convertible debt embedded derivative 1,583
Other financial expenses 83
Foreign exchange loss (gain) 561 (18 )
Loss on disposal of property, plant and equipment 2
Working capital adjustments
Decrease (Increase) in trade receivables and other receivables (7,084 ) 705
Decrease (Increase) in inventories 1,317 (4,628 )
Decrease (Increase) in research tax credit receivable (1,346 ) 963
Increase (Decrease) in trade payables and other liabilities (5,939 ) 2,354
Decrease in deferred revenue (242 ) (737 )
Decrease in government grant advances (2,271 ) (1,030 )
Income tax paid       (333 )     (226 )
Net cash flow used in operating activities       (28,885 )     (15,589 )
 
Investing activities
Purchase of intangible assets and property, plant and equipment (6,163 ) (5,390 )
Sale (purchase) of financial assets (113 ) 24
Sale of short-term deposit (2 ) 48
Interest received       60       48  
Net cash flow used in investments activities       (6,218 )     (5,270 )
 
Financing activities
Proceeds from issue of warrants, exercise of stock options/warrants 966 279
Public equity offering proceeds, net of transaction costs paid 14,898 23,569
Proceeds (Repayment of) from interest-bearing receivables financing (299 ) 1,240
Proceeds from interest-bearing research project financing 2,716 1,021
Proceeds from convertible debt, net of transaction cost 6,932
Repayment of government loans (116 )
Repayment of borrowings and finance lease liabilities (12 )
Interest paid       (327 )     (251 )
Net cash flows from financing activities       17,838       32,778  
 
Net increase (decrease) in cash and cash equivalents (17,265 ) 11,919
Net foreign exchange difference 11 (5 )
Cash and cash equivalent at January 1       20,202       8,288  
Cash and cash equivalents at end of the period       $ 2,948       $ 20,202  
 
 
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
 

 

      Three months ended

(in thousands of US$, except share and per share amounts)

      Dec 31,
2017
    Sept 30,
2017
    Dec 31,
2016
Net IFRS loss as reported $ (7,646 )     $ (6,920 )     $ (5,371 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 680 310 459
Non-cash interest on Convertible debt and other financing (2) 706 759 671
Non-cash impact of Convertible debt amendments 322
        $ (5,938 )     $ (5,854 )     $ (4,241 )
IFRS basic loss per share as reported ($0.10 ) ($0.09 ) ($0.07 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01 $0.00
Non-cash interest on Convertible debt and other financing (2) $0.01 $0.01 $0.01
Non-cash impact of Convertible debt amendments       $0.01       $0.00       $0.00  
Non-IFRS basic loss per share       ($0.07 )     ($0.07 )     ($0.06 )
IFRS diluted loss per share ($0.10 ) ($0.09 ) ($0.07 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01 $0.00
Non-cash interest on Convertible debt and other financing (2) $0.01 $0.01

$0.01

Non-cash impact of Convertible debt amendments       $0.01       $0.00       $0.00  
Non-IFRS diluted loss per share       ($0.07 )     ($0.07 )     ($0.06 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ $ 2 $
Research and development 143 87 192
Sales and marketing 96 55 131
General and administrative 441 166 136
 
(2) Related to the difference between contractual and effective interests
 
 
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
 

 

      Twelve months ended Dec 31

(in thousands of US$, except share and per share amounts)

      2017     2016
Net IFRS loss as reported $ (26,160 )     $ (24,787 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 1,638 1,122
Change in the fair value of convertible debt embedded derivative 1,583
Non-cash impact of revaluation of interest-free government loan (57 )
Non-cash impact of Convertible debt amendments 322
Non-cash interest on Convertible debt and other financing (2) 2,818 2,238
        $ (21,382 )     $ (19,901 )
IFRS basic loss per share as reported ($0.34 ) ($0.39 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.03 $0.02
Change in the fair value of convertible debt embedded derivative $0.00 $0.03
Non-cash impact of revaluation of interest-free government loan $0.00 $0.00
Non-cash impact of Convertible debt amendments $0.00 $0.00
Non-cash interest on Convertible debt and other financing (2)       $0.03       $0.03  
Non-IFRS basic loss per share       ($0.28 )     ($0.31 )
IFRS diluted loss per share ($0.24 ) ($0.39 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.03 $0.02
Change in the fair value of convertible debt embedded derivative $0.00 $0.03
Non-cash impact of revaluation of interest-free government loan $0.00 $0.00
Non-cash impact of Convertible debt amendments $0.00 $0.00
Non-cash interest on Convertible debt and other financing (2)       $0.03       $0.04  
Non-IFRS diluted loss per share       ($0.28 )     ($0.31 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ 7 $ 11
Research and development 436 475
Sales and marketing 295 236
General and administrative 900 400
 
(2) Related to the difference between contractual and effective interests

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