SQNS Sequans Communications SA

4G chipmaker Sequans Communications S.A. (NYSE: SQNS) today announced financial results for the second quarter ended June 30, 2016.

Second Quarter 2016 Highlights:

Revenue: Revenue of $9.9 million increased 6.5% compared to the first quarter of 2016, with significantly higher product revenues more than offsetting lower other revenues. Revenue increased 31.9% compared to the second quarter of 2015, due to both higher product sales and higher other revenue.

Gross margin: Gross margin was 44.6% compared to gross margin of 47.5% in the first quarter of 2016, and compared to 36.3% in the second quarter of 2015.

Operating loss: Operating loss was $5.7 million, compared to an operating loss of $5.2 million in the first quarter of 2016 and an operating loss of $6.0 million in the second quarter of 2015.

Net loss: Net loss was $5.1 million, or ($0.09) per diluted share/ADS, compared to a net loss of $9.2 million, or ($0.16) per diluted share/ADS in the first quarter of 2016 and a net loss of $7.1 million, or ($0.12) per diluted share/ADS in the second quarter of 2015.

Non-IFRS Net loss: Excluding the non-cash items of stock-based compensation, the fair-value and effective interest adjustments related to the convertible debt and other financings, non-IFRS net loss was $5.8 million, or ($0.10) per diluted share/ADS, compared to a non-IFRS net loss of $5.5 million, or ($0.09) per diluted share/ADS in the first quarter of 2016, and a non-IFRS net loss of $6.4 million, or ($0.11) per diluted share/ADS, in the second quarter of 2015.

Cash and cash equivalents: Cash position at June 30, 2016 of $7.5 million does not reflect the net proceeds of approximately $3 million from government grants and research tax credit expected to be received in the third quarter of 2016.

  In millions of US$ except percentages, shares and per share amounts Key Metrics    

Q2 2016

  %*   Q1 2016   %*   Q2 2015   %* Revenue $9.9     $9.3     $7.5   Gross profit 4.4 44.6% 4.4 47.5% 2.7 36.3% Operating loss (5.7) (58.0%) (5.2) (56.0%) (6.0) (80.6%) Net loss (5.1) (51.2%) (9.2) (99.4%) (7.1) (94.3%) Diluted EPS ($0.09) ($0.16) ($0.12) Weighted average number of diluted shares/ADS 59,280,702 59,196,482 59,144,741 Cash flow from (used in) operations (4.2) 3.9 (8.2) Cash, cash equivalents and short-term deposit at quarter-end 7.5 6.5 13.0   Additional information on non-cash items: - Stock-based compensation included in operating result 0.2 0.3 0.2 - Change in the fair value of convertible debt embedded derivative (1.5) 3.1 0.3 - Non-cash interest on convertible debt and other financing 0.6 0.4 0.2

Non-IFRS diluted EPS (excludes stock-based compensation,fair value and effective interest adjustments related tothe convertible debt and its embedded derivative, and theimpact of revaluation of interest-free government loan)

($0.10) ($0.09) ($0.11)                           * Percentage of revenue  

“During Q2 we saw a significant increase in product revenue as our home and portable router business continues to grow by serving a more diverse group of end-market customers and operators. In addition, we have begun volume shipments of Cat 1 chips for various M2M/IoT applications,” said Georges Karam, Sequans CEO. “Building on what we have achieved in Q2, we continue to expect revenues from product shipments to accelerate during the second half of the year.”

“We bolstered our commanding lead in Cat M technology for IoT by performing advanced interoperability testing with operators and network equipment vendors, gaining substantial traction by securing design wins in Q2 and developing a very encouraging pipe of new business opportunities. Projects with strategic partners in the IoT space are moving well. Furthermore, we are actively engaged in discussions with existing partners to expand and strengthen our relationships as well as with prospective partners to broaden the scope of our strategic activities.”

2016 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 third quarter of 2016 to be in the range of $11.5 to $13.5 million, 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 ($0.08) and ($0.10) for the third quarter of 2016, based on approximately 59.3 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.

Meaningful sequential revenue growth is expected throughout the remainder of the year as new devices are launched in addition to the product already shipping. In addition, discussions with several potential strategic partners are continuing. When finalized, these alliances are expected to contribute to company financing and incremental revenue.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss the financial results for the second quarter of 2016 today, July 28, 2016 at 8:00 a.m. EDT /14:00 CEST. To participate in the live call, analysts and investors should dial 800-230-1085 (or +1 612-332-0107 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/webcasts-and-presentations/. A replay of the conference call will be available until August 28, 2016 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: 397180.

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, 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, the non-cash financial expense related to the convertible debt and its embedded derivative issued in April 2015 and the impact of revaluation of an interest-free government loan. 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 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 adjustment could be significant to our actual IFRS results.

About Sequans Communications

Sequans Communications S.A. (NYSE: SQNS) is a 4G chipmaker and leading provider of single-mode LTE chipset solutions to wireless device manufacturers worldwide. Founded in 2003, Sequans has developed and delivered six generations of 4G technology and its chips are certified and shipping in 4G networks, both LTE and WiMAX, around the world. Today, Sequans offers two LTE product lines: StreamrichLTE™, optimized for feature-rich mobile computing and home/portable router devices, and StreamliteLTE™, optimized for M2M devices and other connected devices for the Internet of Things. Sequans is based in Paris, France with additional offices in the United States, United Kingdom, Israel, Hong Kong, Singapore, Taiwan, South Korea, and China. Visit Sequans online at www.sequans.com; www.facebook.com/sequans; www.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) June 30 March 31 June 30       2016     2016     2015  

Revenue:

Product revenue $ 7,699 $ 5,412 $ 6,243 Other revenue     2,185       3,873       1,253   Total revenue     9,884       9,285       7,496   Cost of revenue Cost of product revenue 4,667 4,128 4,427 Cost of other revenue     804       747       345   Total cost of revenue     5,471       4,875       4,772   Gross profit     4,413       4,410       2,724  

Operating expenses:

Research and development 6,889 6,727 6,135 Sales and marketing 1,495 1,501 1,348 General and administrative 1,761 1,378 1,286               Total operating expenses     10,145       9,606       8,769   Operating loss     (5,732 )     (5,196 )     (6,045 ) Financial income (expense): Interest income (expense), net (916 ) (631 ) (432 ) Other financial expense (83 ) - (141 ) Change in the fair value of convertible debt embedded derivative 1,544 (3,127 ) (275 ) Foreign exchange gain (loss)     196       (209 )     (120 ) Loss before income taxes     (4,991 )     (9,163 )     (7,013 ) Income tax expense (benefit)     70       66       55   Loss $ (5,061 ) $ (9,229 ) (7,068 )

Attributable to:

Shareholders of the parent (5,061 ) (9,229 ) (7,068 ) Minority interests     -       -       -   Basic loss per share     ($0.09 )     ($0.16 )     ($0.12 ) Diluted loss per share     ($0.09 )     ($0.16 )     ($0.12 ) Weighted average number of shares used for computing: — Basic 59,280,702 59,196,482 59,144,741 — Diluted     59,280,702       59,196,482       59,144,741         SEQUANS COMMUNICATIONS S.A.   UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS           Six months ended June 30, (in thousands of US$, except share and per share amounts)   2016     2015    

Revenue:

Product revenue 13,111 10,231 Other revenue   6,058     2,073   Total revenue   19,169     12,304   Cost of revenue Cost of product revenue 8,795 7,189 Cost of other revenue   1,551     469   Total cost of revenue   10,346     7,658   Gross profit   8,823     4,646  

Operating expenses:

Research and development 13,616 13,028 Sales and marketing 2,996 3,070 General and administrative 3,139 2,769           Total operating expenses   19,751     18,867   Operating loss   (10,928 )   (14,221 ) Financial income (expense): Interest income (expense), net (1,544 ) (466 ) Other financial expense (83 ) (141 ) Change in the fair value of convertible debt embedded derivative (1,583 ) (275 ) Foreign exchange gain   (16 )   106   Loss before income taxes   (14,154 )   (14,997 ) Income tax expense (benefit) 136 119 Loss (14,290 ) (15,116 )

Attributable to:

Shareholders of the parent (14,290 ) (15,116 ) Minority interests   -     -   Basic loss per share   ($0.24 )   ($0.26 ) Diluted loss per share   ($0.24 )   ($0.26 )

Weighted average number of shares used for computing:

— Basic 59,239,524 59,144,741 — Diluted   59,239,524     59,144,741         SEQUANS COMMUNICATIONS S.A.   UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION           At June 30, At December 31, (in thousands of US$)     2016   2015 *   ASSETS Non-current assets Property, plant and equipment $ 7,442 $ 7,116 Intangible assets 6,560 5,255 Deposits and other receivables 352 345 Available for sale assets     327       321   Total non-current assets     14,681       13,037   Current assets Inventories 3,829 4,065 Trade receivables 11,002 16,497 Prepaid expenses and other receivables 4,871 3,170 Recoverable value added tax 504 541 Research tax credit receivable 3,943 2,865 Deposit maturing in less than 90 days 343 393 Cash and cash equivalents     7,122       8,288   Total current assets     31,614       35,819   Total assets $ 46,295 $ 48,856   EQUITY AND LIABILITIES Equity

Issued capital, euro 0.02 nominal value, 59,331,870 sharesauthorized, issued and outstanding at June 30, 2016(59,166,741 at December 31, 2015)

$ 1,572 $ 1,568 Share premium 165,778 165,536 Other capital reserves 27,615 16,864 Accumulated deficit (199,056 ) (184,766 ) Other components of equity     (479 )     (450 ) Total equity (deficit)     (4,570 )     (1,248 ) Non-current liabilities Government grant advances, loans and other liabilities 5,208 5,385 Finance lease obligations - - Convertible debt and accrued interest 14,616 8,984 Provisions 1,498 1,396 Other Liabilities     3,026       3,267   Total non-current liabilities     24,348       19,032   Current liabilities Trade payables 14,518 9,498 Interest-bearing receivables financing 2,130 6,472 Government grant advances 1,334 916 Convertible debt embedded derivative - 6,091 Finance lease obligations - 12 Other current liabilities 5,123 4,604 Deferred revenue 3,163 3,162 Provisions     249       317   Total current liabilities     26,517       31,072   Total equity and liabilities $ 46,295 $ 48,856

 

* Prior to the issuance of the audited 2015 financial statements, the estimate of costs to complete one service contract was revised based on the best information available at that time, resulting in a remeasurement of the percentage of completion as of December 31, 2015. This remeasurement resulted in a shift of $177,000 in revenue from the fourth quarter of 2015 to the first quarter of 2016, and a corresponding increase in net loss in the fourth quarter of 2015.       SEQUANS COMMUNICATIONS S.A.   UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   Six months ended June 30, (in thousands of US$)     2016       2015     Operating activities Loss before income taxes $ (14,154 ) $ (14,997 )

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

Depreciation and impairment of property, plant and equipment 1,582 1,753 Amortization and impairment of intangible assets 1,001 879 Share-based payment expense 480 436 Increase (decrease) in provisions 3 (260 ) Financial expense (income) 1,552 466 Change in the fair value of convertible debt embedded derivative 1,583 275 Other financial expenses 83 141 Foreign exchange loss (gain) 135 (275 ) Loss (Gain) on disposal of property, plant and equipment - (3 ) Working capital adjustments Decrease (Increase) in trade receivables and other receivables 4,624 2,574 Decrease (Increase) in inventories 236 1,737 Decrease (Increase) in research tax credit receivable (1,078 ) (836 ) Increase (Decrease) in trade payables and other liabilities 3,587 (3,517 ) Increase (Decrease) in deferred revenue 1 (74 ) Increase (Decrease) in government grant advances 79 (22 ) Income tax paid (130 ) (68 ) Net cash flow from (used in) operating activities (416 ) (11,791 )   Investing activities Purchase of intangible assets and property, plant and equipment (2,738 ) (1,073 ) Sale (purchase) of financial assets (13 ) 278 Sale of short-term investments 50 (342 ) Interest received 8 18 Net cash flow used in investments activities (2,693 ) (1,119 )   Financing activities Proceeds from issue of warrants and exercise of stock options/warrants 246 1 Proceeds from Interest-bearing receivables financing (5,138 ) 1,665 Proceeds from convertible debt, net of transaction cost 6,932 11,582 Repayment of borrowings and finance lease liabilities (12 ) (110 ) Interest paid (84 ) (64 ) Net cash flows used in financing activities 1,944 13,074   Net increase (decrease) in cash and cash equivalents (1,165 ) 164 Net foreign exchange difference (1 ) (5 ) Cash and cash equivalent at January 1 8,288 12,329 Cash and cash equivalents at end of the period $ 7,122 $ 12,488         SEQUANS COMMUNICATIONS S.A.   UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS               Three months ended (in thousands of US$, except share and per share amounts) June 30 March 31 June 30       2016     2016     2015 Net IFRS loss as reported $ (5,061 ) $ (9,229 ) $ (7,068 ) Add back

Stock-based compensation expense according to IFRS 2 (1)

226 254 197 Change in the fair value of convertible debt embedded derivative (1,544 ) 3,127 275 Non-cash interest on Convertible debt and other financing 556 365 215 Non-IFRS loss adjusted   $ (5,823 )   $ (5,483 )   $ (6,381 )   IFRS basic loss per share as reported ($0.09 ) ($0.16 ) ($0.12 ) Add back Stock-based compensation expense according to IFRS 2 $ 0.01 $ 0.01 $ 0.01 Change in the fair value of convertible debt embedded derivative ($0.03 ) $ 0.05 - Non-cash interest on Convertible debt and other financing   $ 0.01     $ 0.01       -   Non-IFRS basic loss per share     ($0.10 )     ($0.09 )     ($0.11 ) IFRS diluted loss per share ($0.09 ) ($0.16 ) ($0.12 ) Add back Stock-based compensation expense according to IFRS 2 $ 0.01 $ 0.01 $ 0.01 Change in the fair value of convertible debt embedded derivative ($0.03 ) $ 0.05 - Non-cash interest on Convertible debt and other financing   $ 0.01     $ 0.01       -   Non-IFRS diluted loss per share     ($0.10 )     ($0.09 )     ($0.11 )  

(1) Included in the IFRS loss as follows:

Cost of product revenue $ 4 $ 4 $ 4 Research and development 96 108 84 Sales and marketing 35 39 34 General and administrative 91 103 75       SEQUANS COMMUNICATIONS S.A.   UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS           Six months ended (in thousands of US$, except share and per share amounts) June 30, June 30,       2016     2015 Net IFRS loss as reported (14,290 ) (15,116 ) Add back Stock-based compensation expense according to IFRS 2 (1) 480 435 Change in the fair value of convertible debt embedded derivative 1,583 275 Non-cash interest on Convertible debt and other financing 921 215 Non-IFRS loss adjusted     (11,306 )     (14,191 )   IFRS basic loss per share as reported ($0.24 ) ($0.26 ) Add back Stock-based compensation expense according to IFRS 2 $ 0.01 $ 0.01 Change in the fair value of convertible debt embedded derivative $ 0.03 $ 0.01 Non-cash interest on Convertible debt and other financing   $ 0.01     $ 0.00   Non-IFRS basic loss per share     ($0.19 )     ($0.24 ) IFRS diluted loss per share ($0.24 ) ($0.26 ) Add back Stock-based compensation expense according to IFRS 2 $ 0.01 $ 0.01 Change in the fair value of convertible debt embedded derivative $ 0.03 $ 0.01 Non-cash interest on Convertible debt and other financing   $ 0.01     $ 0.00   Non-IFRS diluted loss per share     ($0.19 )     ($0.24 )   (1) Included in the IFRS loss as follows: Cost of product revenue 8 10 Research and development 204 185 Sales and marketing 74 74 General and administrative 194 166  

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Sequans Communications S.A.Media Relations:Kimberly Tassin, +1-425-736-0569Kimberly@sequans.comorInvestor Relations:Claudia Gatlin, +1-212-830-9080Claudia@sequans.com