PR Newswire | Nov 2, 2021 06:01AM EDT

11/02 05:00 CDT

Sequans Communications Announces Third Quarter 2021 Financial Results PARIS, Nov. 2, 2021

PARIS, Nov. 2, 2021 /PRNewswire/ -- Sequans Communications S.A. (NYSE: SQNS), a leading developer and provider of 5G/4G chips and modules, today announced financial results for the third quarter ended September 30, 2021.

Third Quarter 2021 Summary Results Table:

(in US$ millions, except share and per share data) Q3 2021 Q2 2021 Q3 2020

Revenue $11.9 $12.9 $14.1

Gross profit 5.8 7.3 5.9

Gross margin (%) 49.2 % 56.6 % 42.0 %

Operating loss (5.1) (3.4) (5.9)

Net Profit (Loss) 0.2 (1.3) (9.0)

Diluted earnings per ADS $0.01 ($0.04) ($0.30)

Non-IFRS diluted earnings per ADS ^(1) ($0.14) ($0.15) ($0.28)

Weighted average number of diluted ADS 37,382,595 37,118,845 30,275,352

(1) See Use of Non-IFRS/non-GAAP Financial Measures disclosure on page 3

"The increasing momentum we are experiencing in our Massive IoT and CBRS Broadband categories is a testament to Sequans' strategy to deliver industry-leading 5G/4G chips and modules optimized for a multitude of IoT applications," said Georges Karam, CEO of Sequans. "Year-to-date, our revenue grew by 6%, despite the termination of Jetpack portable router sales in 2021. Third quarter revenue grew by 106% year-over-year, mainly driven by Massive IoT increasing 118% and CBRS Broadband rising 135% when adjusted to exclude last year's Jetpack contribution(1). This strong performance was limited by supply chain constraints, limiting our ability to meet the robust demand for our chips and modules. Our MCU and channel partners, with their powerful brands and extensive global reach, are also contributing to our growth, and we anticipate growth from these channels to accelerate next year.

"In the third quarter, the portion of our pipeline secured by design wins increased to almost $300 million, which represents nearly 50% of the pipeline," continued Mr. Karam. "Promising opportunities primarily in Massive IoT, but also in our Broadband IoT category, are driving our pipeline growth. This quarter we secured new design-in awards in metering, medical, asset tracking, and industrial applications and achieved excellent progress on existing design wins advancing to mass production in 2022.

Mr. Karam concluded, "Sequans believes the investment in 5G is strategic for the long term given the unique opportunity it presents for our game-changing IoT technology. However, we recognize that rather than receiving credit for the long-term value being created by our 5G strategy, the cash burden related to this investment is negatively impacting the Company's valuation. The company is actively exploring options to finance Sequans' 5G investment to minimize its cash burden, with the goal of upholding our leadership in the Massive IoT and maximizing value for shareholders over the long run".

(1) Revenues from the Verizon Jetpack were $8.4 million in the third quarter of2020. There were no revenues from the Verizon Jetpack in the third quarter of2021

Q4 2021 Outlook

The following statement is based on management's current assumptions and expectations and assumes no increase in the severity or duration of the COVID-19 pandemic and supply chain constraints. This statement is forward-looking and actual results may differ materially.

Taking into consideration current customer demand and the ongoing impact of supply chain constraints on the Company's ability to ship orders, management is targeting 15% sequential revenue growth for the quarter ending December 31, 2021.

Third Quarter 2021 Financial and Operational Results Summary

Revenue for the third quarter was $11.9 million, a decrease of 7.5% compared to the second quarter of 2021 and a decrease of 15.8% compared to the third quarter of 2020. The decrease from the second quarter was primarily due to expected lower services revenue based on the advancement of the various projects, partially offset by increases in product revenue for both Massive IoT and Broadband IoT.

Gross profit for the third quarter of 2021 was $5.8 million, a $1.4 million decrease from the second quarter and a modest decrease from the prior year third quarter. Gross margin for the third quarter of 2021 was 49.2% compared to 56.6% in the second quarter of 2021 and 42.0% in the third quarter of 2020. The sequential decrease in gross margin was primarily due to the revenue mix with a shift towards more product revenue in the quarter.

Operating loss was $5.1 million compared to $3.4 million in the second quarter of 2021 and $5.9 million in the third quarter of 2020. The sequential increase in operating loss was primarily due to a lower gross margin on lower revenues and lower operating expenses in the second quarter of 2021 due to a one-time net reduction in R&D expense of approximately $1.2 million as a result of an R&D grant recognized in the second quarter.

Net profit was $0.2 million, or $0.01 per diluted ADS, compared to net losses of $1.3 million, or ($0.04) per ADS, in the second quarter of 2021 and $9.0 million, or ($0.30) per ADS, in the third quarter of 2020. Net profit in the third quarter of 2021 includes a $7.7 million benefit from the change in fair value of convertible debt derivative and $409,000 foreign exchange gain primarily related to the revaluation of euro liabilities during the quarter.

Non-IFRS Net loss and diluted loss per ADS: Excluding the non-cash stock-based compensation, the non-cash impact of the fair-value and effective interest adjustments related to the convertible debt with embedded derivatives and other financings, the non-cash impact of debt reimbursement, and deferred tax benefit or expense related to the convertible debt and other financings, non-IFRS net loss was $5.3 million, or ($0.14) per ADS, compared to $5.6 million, or ($0.15) per ADS in the second quarter of 2021, and $8.4 million, or ($0.28) per ADS, in the third quarter of 2020.

Cash Cash, cash equivalents, and short-term deposits at September 30, 2021 totaled $15.2 million compared to $18.5 million at December 31, 2020.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss the financial results for the third quarter of 2021 today, November 2, 2021 at 8:00 a.m. ET /13:00 CET. To participate in the live call, analysts and investors should dial 877-407-0792 or +1 201-689-8263 if outside the U.S. When prompted, provide the event title or access code: 13723445. A live and archived webcast of the call will be available from the Investors section of the Sequans website at www.sequans.com/investors/. An audio replay of the conference call will be available until November 16, 2021 by dialing toll free 844-512-2921 or +1 412-317-6671 from outside the U.S., using the following access code:13723445.

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 future results of operations and financial positions, business strategy and plans, including financing alternatives for our 5G business, expectations for Massive IoT sales, the impact of the Covid-19 on our supply chain and on customer demand, the impact of component shortages and manufacturing capacity, our ability to convert our pipeline to revenue 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 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, 2020, 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) 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 Covid-19 on the ability to operate our business and research, production of our products or demand for our products by customers whose supply chain is impacted or whose operations have been impacted by government shelter-in-place or similar orders, (xiii) our ability to raise debt and equity financing, and (xv) 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; 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 developer and provider of 5G and 4G chips and modules for IoT devices. 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 and critical IoT applications, Sequans offers a product portfolio based on its Cassiopeia 4G Cat 4/Cat 6 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, South Korea, 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, Kimberly@sequans.comInvestor Relations: Kimberly Rogers, +1 385.831-7337, krogers@sequans.com

Condensed financial tables follow

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended

(in thousands of US$, except share and pershare Sept 30, June 30, Sept 30,amounts) 2021 2021 2020

Revenue :

Product revenue $ 7,545 $ 7,393 $ 11,580

Other revenue 4,346 5,464 2,542

Total revenue 11,891 12,857 14,122

Cost of revenue

Cost of product revenue 5,681 5,133 7,668

Cost of other revenue 362 449 527

Total cost of revenue 6,043 5,582 8,195

Gross profit 5,848 7,275 5,927

Operating expenses :

Research and development 6,634 5,848 7,984

Sales and marketing 2,116 2,297 1,774

General and administrative 2,181 2,507 2,076

Total operating expenses 10,931 10,652 11,834

Operating loss (5,083) (3,377) (5,907)

Financial income (expense):

Interest income (expense), net (2,685) (3,411) (3,623)

Change in fair value of convertible debt 7,706 1,408 1,522 derivative

Impact of debt reimbursement - 5,177 -

Foreign exchange gain (loss) 409 (964) (885)

Loss before income taxes 347 (1,167) (8,893)

Income tax expense (benefit) 155 150 98

Profit (Loss) $ 192 $ (1,317) $ (8,991)

Attributable to :

Shareholders of the parent 192 (1,317) (8,991)

Minority interests - - -

Basic loss per ADS $0.01 ($0.04) ($0.30)

Diluted loss per ADS $0.01 ($0.04) ($0.30)

Weighted average number of ADS used forcomputing:

- Basic 37,382,595 37,118,845 30,275,352

- Diluted 37,382,595 37,118,845 30,275,352

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Nine months ended Sept 30,

(in thousands of US$, except share and per share 2021 2020amounts)

Revenue :

Product revenue $ 23,486 $ 25,855

Other revenue 13,583 9,270

Total revenue 37,069 35,125

Cost of revenue

Cost of product revenue 16,505 17,449

Cost of other revenue 1,263 1,340

Total cost of revenue 17,768 18,789

Gross profit 19,301 16,336

Operating expenses :

Research and development 19,736 22,917

Sales and marketing 6,707 5,909

General and administrative 7,148 6,763

Total operating expenses 33,591 35,589

Operating loss (14,290) (19,253)

Financial income (expense):

Interest income (expense), net (8,807) (10,831)

Change in fair value of convertible debt derivative 5,024 (13,240)

Impact of debt reimbursement 5,177 1,399

Foreign exchange gain (loss) 803 (715)

Loss before income taxes (12,093) (42,640)

Income tax expense (benefit) 452 575

Profit (Loss) $ (12,545) $ (43,215)

Attributable to :

Shareholders of the parent (12,545) (43,215)

Minority interests - -

Basic loss per ADS ($0.34) ($1.59)

Diluted loss per ADS ($0.34) ($1.59)

Weighted average number of ADS used for computing:

- Basic 36,396,026 27,120,905

- Diluted 36,396,026 27,120,905

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

At Sept 30, At Dec 31,

(in thousands of US$) 2021 2020

ASSETS

Non-current assets

Property, plant and equipment $ 8,022 $ 9,187

Intangible assets 35,256 25,312

Deposits and other receivables 2,369 588

Other non-current financial assets 365 386

Total non-current assets 46,012 35,473

Current assets

Inventories 5,883 6,225

Trade receivables 7,740 17,277

Contract assets 1,089 371

Prepaid expenses 2,891 962

Other receivables 8,018 3,264

Research tax credit receivable 4,557 5,110

Short-term deposits 8,000 10,900

Cash and cash equivalents 7,232 7,574

Total current assets 45,410 51,683

Total assets $ 91,422 $ 87,156

EQUITY AND LIABILITIES

Equity

Issued capital, euro 0.02 nominal value, 149,874,258 shares authorized, issued and outstanding at September $ 3,653 $ 3,269 30, 2021 (133,934,090 shares at December 31, 2020)

Share premium 298,415 276,560

Other capital reserves 55,336 46,677

Accumulated deficit (375,754) (363,209)

Other components of equity (504) (423)

Total equity (18,854) (37,126)

Non-current liabilities

Government grant advances, loans and other liabilities 9,905 11,203

Venture debt - 2,172

Convertible debt 34,608 26,074

Convertible debt embedded derivative 8,904 12,395

Lease liabilities 3,798 4,762

Trade payables 942 851

Provisions 2,433 1,874

Deferred tax liabilities 19 19

Contract liabilities 192 2,397

Total non-current liabilities 60,801 61,747

Current liabilities

Trade payables 13,855 15,701

Interest-bearing receivables financing 9,415 14,228

Venture debt - 6,104

Lease liabilities 1,216 1,014

Government grant advances and loans 7,112 3,867

Contract liabilities 7,728 13,145

Other current liabilities and provisions 10,149 8,476

Total current liabilities 49,475 62,535

Total equity and liabilities $ 91,422 $ 87,156

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

Nine months ended Sept 30,

(in thousands of US$) 2021 2020

Operating activities

Loss before income taxes $ (12,093) $ (42,640)

Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities

Depreciation and impairment of property, plant and 2,733 2,845 equipment

Amortization and impairment of intangible assets 5,417 4,314

Share-based payment expense 3,273 1,813

Increase in provisions 463 (55)

Interest expense, net 8,807 10,831

Change in the fair value of convertible debt (5,024) 13,240 embedded derivative

Impact of debt reimbursement (5,177) -

Convertible debt amendment - (1,399)

Foreign exchange loss (gain) (743) 1,200

Loss (Gain) on disposal of property, plant and 7 - equipment

Bad debt expense - 63

Working capital adjustments

Decrease (Increase) in trade receivables and other 5,973 (7,670) receivables

Decrease in inventories 342 863

Decrease (Increase) in research tax credit (2,700) 716 receivable

Increase in trade payables and other liabilities 5,324 5,762

Decrease in contract liabilities (9,506) (7,564)

Increase (Decrease) in government grant advances ^ (574) 12 (1)

Income tax paid (542) (269)

Net cash flow provided by (used in) operating (4,020) (17,938)activities

Investing activities

Purchase of intangible assets and property, plant (8,511) (5,073) and equipment

Capitalized development expenditures (14,926) (4,776)

Purchase of financial assets (1,760) (62)

Decrease of short-term deposit 2,900 (14,900)

Interest received 36 21

Net cash flow used in investments activities (22,261) (24,790)

Financing activities

Proceeds from issue of warrants, exercise of stock 99 32 options/warrants

Public equity offering proceeds, net of transaction 9,881 27,496 costs paid

Proceeds (Repayment of) from interest-bearing (128) 10,381 receivables financing

Proceeds from convertible debt, net of transaction 39,647 2,050 cost

Proceeds from government loans, net of transaction - 5,392 cost

Proceeds from interest-bearing research project - 405 financing

Payment of lease liabilities (810) (894)

Repayment of convertible debt (8,750) -

Repayment of government loans (356) (118)

Repayment of venture debt (8,042) (3,775)

Repayment of interest-bearing research project (804) (177) financing

Interest paid (4,800) (1,777)

Net cash flows from financing activities 25,937 39,015

Net increase (decrease) in cash and cash (344) (3,713) equivalents

Net foreign exchange difference 2 -

Cash and cash equivalents at January 1 7,574 14,098

Cash and cash equivalents at end of the period 7,232 10,385

(1) Including $1.4 million related to the forgiveness of a debt inApril 2021

SEQUANS COMMUNICATIONS S.A.

UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS

Three months ended(in thousands of US$, except share and per share amounts) Sept 30, June 30, Sept 30, 2021 2021 2020

Net IFRS loss as reported $ 192 $ (1,317) $ (8,991)

Add back

Non-cash stock-based compensation expense according to IFRS 2 ^(1) 1,022 1,092 521

Non-cash change in the fair value of convertible debt embedded (7,706) (1,408) (1,522) derivative

Non-cash interest on convertible debt and other financing ^(2) 1,193 1,187 1,608

Impact of debt reimbursement - (5,177) -

Non-IFRS loss adjusted $ (5,299) $ (5,623) $ (8,384)

IFRS basic loss per ADS as reported $0.01 ($0.04) ($0.30)

Add back

Non-cash stock-based compensation expense according to IFRS 2 ^(1) $0.03 $0.03 $0.02

Non-cash change in the fair value of convertible debt embedded ($0.21) ($0.03) ($0.05) derivative

Non-cash interest on convertible debt and other financing ^(2) $0.03 $0.03 $0.05

Impact of debt reimbursement $0.00 ($0.14) $0.00

Non-IFRS basic loss per ADS ($0.14) ($0.15) ($0.28)

IFRS diluted loss per ADS $0.01 ($0.04) ($0.30)

Add back

Non-cash stock-based compensation expense according to IFRS 2 ^(1) $0.03 $0.03 $0.02

Non-cash change in the fair value of convertible debt embedded ($0.21) ($0.03) ($0.05) derivative

Non-cash interest on convertible debt and other financing ^(2) $0.03 $0.03 $0.05

Impact of debt reimbursement $0.00 ($0.14) $0.00

Non-IFRS diluted loss per ADS ($0.14) ($0.15) ($0.28)

(1) Included in the IFRS loss as follows:

Cost of product revenue $ 14 $ 14 $ 4

Research and development 487 513 209

Sales and marketing 200 206 105

General and administrative 321 359 203

(2) Related to the difference between contractual and effective interest rates

SEQUANS COMMUNICATIONS S.A.

UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS

(in thousands of US$, except share and per share Nine months ended Sept 30,amounts) 2021 2020

Net IFRS loss as reported $ (12,545) $ (43,215)

Add back

Non-cash stock-based compensation expense 3,274 1,813 according to IFRS 2 ^(1)

Non-cash change in the fair value of convertible (5,024) 13,240 debt embedded derivative

Non-cash interest on convertible debt and other 3,465 4,507 financing (2)

Non-cash impact of deferred tax income (loss) - 398

Impact of debt reimbursement (5,177) -

Non-cash impact of convertible debt amendment - (1,399)

Non-IFRS loss adjusted $ (16,007) $ (24,656)

IFRS basic loss per ADS as reported ($0.34) ($1.59)

Add back

Non-cash stock-based compensation expense $0.09 $0.07 according to IFRS 2 ^(1)

Non-cash change in the fair value of convertible ($0.15) $0.49 debt embedded derivative

Non-cash interest on convertible debt and other $0.10 $0.17 financing ^(2)

Non-cash impact of deferred tax income (loss) $0.00 $0.01

Impact of debt reimbursement ($0.14) $0.00

Non-cash impact of convertible debt amendment $0.00 ($0.05)

Non-IFRS basic loss per ADS ($0.44) ($0.91)

IFRS diluted loss per ADS ($0.34) ($1.59)

Add back

Non-cash stock-based compensation expense $0.09 $0.07 according to IFRS 2 ^(1)

Non-cash change in the fair value of convertible ($0.15) $0.49 debt embedded derivative

Non-cash interest on convertible debt and other $0.10 $0.17 financing ^(2)

Non-cash impact of deferred tax income (loss) $0.00 $0.01

Impact of debt reimbursement ($0.14) $0.00

Non-cash impact of convertible debt amendment $0.00 ($0.05)

Non-IFRS basic loss per ADS ($0.44) ($0.91)

(1) Included in the IFRS loss as follows:

Cost of product revenue $ 44 $ 13

Research and development 1,554 748

Sales and marketing 623 339

General and administrative 1,053 713

(2) Related to the difference between contractual and effective interest rates

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SOURCE Sequans Communications