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Sequans Communications Announces Third Quarter 2018 Financial Results and $18 Million in Additional Debt Financing

PARIS--(BUSINESS WIRE)--

4G chipmaker Sequans Communications S.A. (SQNS) today announced financial results for the third quarter ended Sept. 30, 2018 and the closing of $18 million in additional debt financing subsequent to the end of the third quarter.

Third Quarter 2018 Highlights:

Revenue: Revenue was $10.3 million, a decrease of 18.7% compared to the second quarter of 2018, primarily due to a 24% sequential decline in product revenue, as a result of a delay in the ramp of LTE-M revenues, and a decrease of 9.0% compared to the third quarter of 2017, reflecting significantly higher IoT product revenue and other revenue, more than offset by lower broadband product.

Gross margin: Gross margin was 35.0% compared to 39.4% in the second quarter of 2018 and compared to 44.3% in the third quarter of 2017, primarily due to a shift in product mix toward a higher proportion of modules.

Operating loss: Operating loss was $7.9 million compared to an operating loss of $7.0 million in the second quarter of 2018 and an operating loss of $5.6 million in the third quarter of 2017.

Net loss: Net loss was $9.9 million, or ($0.10) per diluted share/ADS, compared to a net loss of $8.1 million, or ($0.09) per diluted share/ADS, in the second quarter of 2018 and a net loss of $6.9 million, or ($0.09) per diluted share/ADS, in the third quarter of 2017. Net loss for the quarter ended September 30, 2018 included an estimated $0.7 million charge related to amendments of the convertible debt made at the end of the quarter.

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 $8.0 million, or ($0.08) per diluted share/ADS, compared to a non-IFRS net loss of $6.8 million, or ($0.07) per diluted share/ADS in the second quarter of 2018, and a non-IFRS net loss of $5.9 million, or ($0.07) per diluted share/ADS, in the third quarter of 2017.

Cash: Cash, cash equivalents and short-term deposit at September 30, 2018 totaled $5.2 million compared to $7.0 million at June 30, 2018. Subsequent to the balance sheet date, the Company received $18 million in proceeds from the issuance of $4.5 million of additional convertible debt due in April 2021 and a €12 million ($13.7 million) financing facility to be repaid over three and a half years. The new debt was part of an overall debt restructuring, which included an amendment of the terms of the $12 million principal convertible notes due in April 2019 to extend the term to April 2021 and the early repayment of $1 million principal convertible notes due in April 2020.

In millions of US$ except percentages, shares and per share amounts Key Metrics
Q3 2018   %*   Q2 2018   %*   Q3 2017   %*
Revenue $10.3     $12.7     $11.3  
Gross profit 3.6 35.0 % 5.0 39.4 % 5.0 44.3 %
Operating loss (7.9 ) (77.1 )% (7.0 ) (55.0 )% (5.6 ) (49.2 )%
Net loss (9.9 ) (96.4 )% (8.1 ) (63.9 )% (6.9 ) (61.2 )%
Diluted EPS ($0.10 ) ($0.09 ) ($0.09 )
Weighted average number of diluted shares/ADS 94,533,229 94,459,289 79,774,103
Cash flow from (used in) operations (1.3 ) (8.0 ) (5.3 )
Cash, cash equivalents and short-term deposit at quarter-end 5.2 7.0 13.3
Additional information on non-cash items:
- Stock-based compensation included in operating result 0.4 0.5 0.3
- Non-cash interest on convertible debt and other financing 0.8 0.7 0.8
- Non-cash impact of convertible debt amendment 0.7
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) ($0.08 )       ($0.07 )       ($0.07 )    

* Percentage of revenue

“Although some customers’ project delays are causing the acceleration of the ramp in LTE-M revenues to be pushed out until early 2019, we are confident this is only a timing issue. We see the ramp building as we are working on more than 130 projects in different phases with over 25 of them either in production or scheduled to launch by mid-2019,” said Georges Karam, Sequans’ CEO. “We have mitigated the financial impact of this delay by securing an additional $18 million of debt financing. We have also implemented operating efficiencies, without affecting our technology leadership, and believe our current financial resources are adequate to reach cash flow breakeven. The overall momentum in the IoT market remains strong and our pipeline of opportunities continues to grow.”

Q4 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 non-IFRS results for the fourth quarter of 2018 to be similar to the third quarter. With customers’ project delays creating some uncertainty about the timing of the IoT revenue ramp, management has decided not to give detailed quarterly guidance until visibility on device launch timing improves.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss the financial results for the third quarter of 2018 today, October 30, 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 November 30, 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: 455392.

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 sales, sufficiency of funding 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, (xi) the finalization of the amount of the charge related to the amendment of the convertible debt made at the end of the quarter, 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 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)

Sept 30,
2018
  June 30,
2018
  Sept 30,
2017
 
   
Revenue :
Product revenue $ 7,526 $ 9,921 $ 8,869
Other revenue 2,759     2,737     2,430  
Total revenue 10,285     12,658     11,299  
Cost of revenue
Cost of product revenue 6,026 7,127 5,678
Cost of other revenue 664     549     615  
Total cost of revenue 6,690     7,676     6,293  
Gross profit 3,595     4,982     5,006  
Operating expenses :
Research and development 6,750 7,152 6,769
Sales and marketing 2,229 2,518 2,014
General and administrative 2,545 2,276 1,786
           
Total operating expenses 11,524     11,946     10,569  
Operating loss (7,929 ) (6,964 ) (5,563 )
Financial income (expense):
Interest income (expense), net (1,278 ) (1,240 ) (1,202 )
Convertible debt amendment (685 )
Foreign exchange gain (loss) 58     188     (90 )
Loss before income taxes (9,834 )   (8,016 )   (6,855 )
Income tax expense (benefit) 78     74     65  
Loss $ (9,912 ) $ (8,090 ) $ (6,920 )
Attributable to :
Shareholders of the parent (9,912 ) (8,090 ) (6,920 )
Minority interests          
Basic loss per share ($0.10 )   ($0.09 )   ($0.09 )
Diluted loss per share ($0.10 )   ($0.09 )   ($0.09 )
Weighted average number of shares used for computing:
— Basic 94,533,229 94,459,289 79,774,103
— Diluted 94,533,229     94,459,289     79,774,103  
 
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
  Nine months ended Sept 30,
(in thousands of US$, except share and per share amounts)   2018   2017
 
Revenue :
Product revenue $ 25,082 $ 28,668
Other revenue   9,095     8,278  
Total revenue   34,177     36,946  
Cost of revenue
Cost of product revenue 19,014 18,731
Cost of other revenue   1,902     1,795  
Total cost of revenue   20,916     20,526  
Gross profit   13,261     16,420  
Operating expenses :
Research and development 21,421 19,217
Sales and marketing 7,232 6,582
General and administrative 6,792 4,520
         
Total operating expenses   35,445     30,319  
Operating loss   (22,184 )   (13,899 )
Financial income (expense):
Interest income (expense), net (3,745 ) (3,434 )
Convertible debt amendment (685 )
Foreign exchange gain (loss)   34     (962 )
Loss before income taxes   (26,580 )   (18,295 )
Income tax expense (benefit)   171     219  
Loss $ (26,751 ) $ (18,514 )
Attributable to :
Shareholders of the parent (26,751 ) (18,514 )
Minority interests        
Basic loss per share   ($0.29 )   ($0.24 )
Diluted loss per share   ($0.29 )   ($0.24 )
Weighted average number of shares used for computing:
— Basic 93,486,416 76,918,723
— Diluted   93,486,416     76,918,723  
 
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
  At Sept 30,   At December 31,
(in thousands of US$)   2018   2017
 
ASSETS
Non-current assets
Property, plant and equipment $ 6,652 $ 6,993
Intangible assets 11,573 9,561
Deposits and other receivables 390 402
Available for sale assets   340     353  
Total non-current assets   18,955     17,309  
Current assets
Inventories 7,287 7,376
Trade receivables 20,803 20,826
Prepaid expenses and other receivables 3,357 4,214
Recoverable value added tax 508 688
Research tax credit receivable 2,841 3,248
Short term deposit 347
Cash and cash equivalents   5,179     2,948  
Total current assets   39,975     39,647  
Total assets $ 58,930 $ 56,956
 
EQUITY AND LIABILITIES
Equity
Issued capital, euro 0.02 nominal value, 94,586,764 shares authorized, issued and outstanding at September 30, 2018 (80,024,707 shares at December 31, 2017) $ 2,384 $ 2,031
Share premium 225,470 204,952
Other capital reserves 39,035 33,313
Accumulated deficit (262,564 ) (235,813 )
Other components of equity   (486 )   (435 )
Total equity   3,839     4,048  
Non-current liabilities
Government grant advances, loans and other liabilities 5,969 5,030
Convertible debt and accrued interest 16,708 17,063
Provisions and other liabilities 1,703 1,584
Deferred revenue   930     1,293  
Total non-current liabilities   25,310     24,970  
Current liabilities
Trade payables 13,591 13,023
Interest-bearing receivables financing 9,549 7,413
Government grant advances 832 1,592
Provisions and other current liabilities 4,612 5,170
Deferred revenue   1,197     740  
Total current liabilities   29,781     27,938  
Total equity and liabilities $ 58,930 $ 56,956
 
SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
 
  Nine months ended Sept 30,
(in thousands of US$)   2018   2017
 
Operating activities
Loss before income taxes $ (26,580 ) $ (18,295 )
Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities
Depreciation and impairment of property, plant and equipment 2,372 2,025
Amortization and impairment of intangible assets 2,334 1,758
Share-based payment expense 1,505 958
Increase (decrease) in provisions 66 675
Financial expense (income) 3,745 3,434
Convertible debt amendment 685
Foreign exchange loss (gain) (174 ) 567
Working capital adjustments
Decrease (Increase) in trade receivables and other receivables 847 (2,057 )
Decrease (Increase) in inventories 89 (155 )
Decrease (Increase) in research tax credit receivable 407 (484 )
Decrease in trade payables and other liabilities 114 (7,299 )
Increase (decrease) in deferred revenue 94 (112 )
Decrease in government grant advances (744 ) (403 )
Income tax paid   (80 )   (206 )
Net cash flow used in operating activities   (15,320 )   (19,594 )
 
Investing activities
Purchase of intangible assets and property, plant and equipment (4,456 ) (4,096 )
Capitalized development expenditures (2,224 )
Sale (purchase) of financial assets 25 (101 )
Sale of short-term deposit 347
Interest received   71     47  
Net cash flow used in investments activities   (6,237 )   (4,150 )
 
Financing activities
Proceeds from issue of warrants, exercise of stock options/warrants 30 906
Public equity offering proceeds, net of transaction costs paid 20,840 14,942
Proceeds (repayment of) from interest-bearing receivables financing 2,136 (131 )
Proceeds from interest-bearing research project financing 1,574 1,126
Repayment of government loans (352 ) (56 )
Interest paid   (438 )   (272 )
Net cash flows from financing activities   23,790     16,515  
 
Net increase (decrease) in cash and cash equivalents 2,233 (7,229 )
Net foreign exchange difference (2 ) 9
Cash and cash equivalent at January 1   2,948     20,202  
Cash and cash equivalents at end of the period   $ 5,179     $ 12,982  
 
SEQUANS COMMUNICATIONS S.A.
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
 
(in thousands of US$, except share and per share amounts)   Three months ended
  Sept 30,
2018
  June 30,
2018
  Sept 30,
2017
Net IFRS loss as reported $ (9,912 )   $ (8,090 )   $ (6,920 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 446 526 310
Non-cash interest on convertible debt and other financing (2) 761 745 759
Non-cash impact of convertible cebt amendment 685
    $ (8,020 )   $ (6,819 )   $ (5,854 )
IFRS basic loss per share as reported ($0.10 ) ($0.09 ) ($0.09 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.00 $0.01 $0.01
Non-cash interest on convertible debt and other financing (2) $0.01 $0.01 $0.01
Non-cash impact of convertible debt amendment $0.01 $0.00 $0.00
             
Non-IFRS basic loss per share   ($0.08 )   ($0.07 )   ($0.07 )
IFRS diluted loss per share ($0.10 ) ($0.09 ) ($0.09 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.00 $0.01 $0.01
Non-cash interest on convertible debt and other financing (2) $0.01 $0.01 $0.01
Non-cash impact of convertible debt amendment $0.01 $0.00 $0.00
             
Non-IFRS diluted loss per share   ($0.08 )   ($0.07 )   ($0.07 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ 2 $ 3 $ 2
Research and development 116 127 87
Sales and marketing 66 73 55
General and administrative 262 323 166
 
(2) Related to the difference between contractual and effective interests
 
SEQUANS COMMUNICATIONS S.A.
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS

 

(in thousands of US$, except share and per share amounts)   Nine months ended Sept 30,
2018   2017
Net IFRS loss as reported $ (26,751 ) $ (18,514 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 1,504 958
Non-cash interest on convertible debt and other financing (2) 2,177 2,119
Non-cash impact of convertible debt amendment 685
    $ (22,385 )   $ (15,437 )
IFRS basic loss per share as reported ($0.29 ) ($0.24 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.02 $0.01
Non-cash interest on convertible debt and other financing (2) $0.02 $0.03
Non-cash impact of convertible debt amendment   $0.01     $0.00  
Non-IFRS basic loss per share   ($0.24 )   ($0.20 )
IFRS diluted loss per share ($0.29 ) ($0.24 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.02 $0.01
Non-cash interest on convertible debt and other financing (2) $0.02 $0.03
Non-cash impact of convertible debt amendment   $0.01     $0.00  
Non-IFRS diluted loss per share   ($0.24 )   ($0.20 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ 8 $ 7
Research and development 382 293
Sales and marketing 219 199
General and administrative 895 459
 
(2) Related to the difference between contractual and effective interests

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