SQNS Sequans Communications SA

4G chipmaker Sequans Communications S.A. (NYSE: SQNS) today announced financial results for the second quarter ended June 30, 2017.

Second Quarter 2017 Highlights:

Revenue: Revenue was $13.2 million, after a reduction of $740,000 related to a product return from an early 2016 tablet-related sale. Excluding the impact of the return, revenue would have been $14.0 million. Revenue for the second quarter of 2017 increased 6.3% compared to the first quarter of 2017 (12.3% without the impact of the return) and increased 33.7% compared to the second quarter of 2016 (41.2% without the impact of the return), reflecting increases in both product and other revenue.

Gross margin: Gross margin was 42.1% compared to 47.1% in the first quarter of 2017 and compared to 44.6% in the second quarter of 2016, reflecting an increase in the proportion of module sales in the product mix in the second quarter of 2017.

Operating loss: Operating loss was $4.1 million compared to an operating loss of $4.2 million in the first quarter of 2017 and an operating loss of $5.7 million in the second quarter of 2016.

Net loss: Net loss was $6.0 million, or ($0.08) per diluted share/ADS, compared to a net loss $5.6 million, or ($0.07) per diluted share/ADS, in the first quarter of 2017 and a net loss of $5.1 million, or ($0.09) per diluted share/ADS, in the second quarter of 2016.

Non-IFRS Net loss: Excluding the non-cash items of stock-based compensation and the fair-value (in 2016) and effective interest adjustments related to the convertible debt and other financings, non-IFRS net loss was $4.9 million, or ($0.06) per diluted share/ADS, compared to a non-IFRS net loss of $4.7 million, or ($0.06) per diluted share/ADS in the first quarter of 2017, and a non-IFRS net loss of $5.8 million, or ($0.10) per diluted share/ADS, in the second quarter of 2016.

Cash: Cash, cash equivalents and short-term deposit at June 30, 2017 totaled $19.5 million compared to $14.5 million at March 31, 2017, and 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 2017.

In millions of US$ except percentages, shares and per share amounts   Key Metrics   Q2 2017 %*   Q1 2017   %* Q2 2016   %* Revenue $13.2   $12.4   $9.9   Gross profit 5.6 42.1

 %

5.9 47.1

 %

4.4 44.6

%

Operating loss (4.1 ) (30.9 )% (4.2 ) (34.2 )% (5.7 ) (58.0 )% Net loss (6.0 ) (45.3 )% (5.6 ) (45.1 )% (5.1 ) (51.2 )% Diluted EPS ($0.08 ) ($0.07 ) ($0.09 )   Weighted average number of diluted shares/ADS 75,896,815 75,043,865 59,280,702 Cash flow from (used in) operations (4.4 ) (9.9 ) (4.2 ) Cash, cash equivalents and short-term deposit at quarter-end 19.5 14.5 7.5   Additional information on non-cash items: - Stock-based compensation included in operating result 0.3 0.3 0.2 - Change in the fair value of convertible debt embedded derivative — — (1.5 ) - Non-cash interest on convertible debt and other financing 0.8 0.6 0.6 Non-IFRS diluted EPS (excludes stock-based compensation, fair value and effective interest adjustments related to the convertible and other debt and embedded derivative)   ($0.06 )     ($0.06 )     ($0.10 )    

* Percentage of revenue

"We continue to make excellent progress," said Georges Karam, Sequans' CEO. "Business during Q2 was in line with our expectations and it's unfortunate that the optics were affected by an adjustment related to a sale made over a year ago in the discontinued tablet business. Our Cat 1 business is ramping nicely and our visibility continues to improve. Our Cat M1 customers, including an extensive list of module partners, are moving aggressively to complete their certification on Verizon and AT&T, and we are performing Cat M1 and Cat NB1 trials with multiple operators world-wide, setting the stage for accelerating growth next year. In the broadband business, we are a little cautious about some temporary softness in the emerging markets, but we also see a number of very exciting opportunities to augment the growth we expect from popular devices such as Verizon's JetPack and SmartHub.

"Our strategy of working closely with partners to combine their leading technology with ours in an optimized solution is being well-received by customers. We also continue to be approached by a growing number of potential partners to discuss various forms of cooperation, which further validates our leadership and positions us the LTE connectivity partner of choice."

Q3 2017 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 2017 to be in the range of $15 to $17 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 ($0.05) and ($0.07) for the third quarter of 2017, based on approximately 79.8 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 second quarter of 2017 today, August 1, 2017 at 8:00 a.m. EDT /14:00 CEST. To participate in the live call, analysts and investors should dial 800-230-1059 (or +1 612-288-0337if 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 September 1, 2017 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: 426480.

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 and the non-cash financial 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. (NYSE: 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.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, 2017   March 31,2017   June 30, 2016         Revenue : Product revenue $ 10,159 $ 9,640 $ 7,699 Other revenue   3,058     2,790     2,185   Total revenue   13,217     12,430     9,884   Cost of revenue Cost of product revenue 7,064 5,989 4,667 Cost of other revenue   591     589     804   Total cost of revenue   7,655     6,578     5,471   Gross profit   5,562     5,852     4,413   Operating expenses : Research and development 6,254 6,194 6,889 Sales and marketing 2,072 2,496 1,495 General and administrative 1,323 1,411 1,761               Total operating expenses   9,649     10,101     10,145   Operating loss (4,087 ) (4,249 ) (5,732 ) Financial income (expense): Interest income (expense), net (1,194 ) (1,038 ) (916 ) Other financial expense — — (83 ) Change in the fair value of convertible debt embedded derivative — — 1,544 Foreign exchange gain (loss)   (626 )   (246 )   196   Loss before income taxes   (5,907 )   (5,533 )   (4,991 ) Income tax expense (benefit)   83     71     70   Loss $ (5,990 ) $ (5,604 ) $ (5,061 ) Attributable to : Shareholders of the parent (5,990 ) (5,604 ) (5,061 ) Minority interests   —     —     —   Basic loss per share   ($0.08 )   ($0.07 )   ($0.09 ) Diluted loss per share   ($0.08 )   ($0.07 )   ($0.09 ) Weighted average number of shares used for computing: — Basic 75,896,815 75,043,865 59,280,702 — Diluted   75,896,815     75,043,865     59,280,702     SEQUANS COMMUNICATIONS S.A. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     Six months ended June 30 (in thousands of US$, except share and per share amounts)   2017   2016   Revenue : Product revenue $ 19,799 $ 13,111 Other revenue   5,848     6,058   Total revenue   25,647     19,169   Cost of revenue Cost of product revenue 13,053 8,795 Cost of other revenue   1,180     1,551   Total cost of revenue   14,233     10,346   Gross profit   11,414     8,823   Operating expenses : Research and development 12,448 13,616 Sales and marketing 4,568 2,996 General and administrative 2,734 3,139           Total operating expenses   19,750     19,751   Operating loss   (8,336 )   (10,928 ) Financial income (expense): Interest income (expense), net (2,232 ) (1,544 ) Other financial expense — (83 ) Change in the fair value of convertible debt embedded derivative — (1,583 ) Foreign exchange gain (loss)   (872 )   (16 ) Loss before income taxes   (11,440 )   (14,154 ) Income tax expense (benefit)   154     136   Loss $ (11,594 ) $ (14,290 ) Attributable to : Shareholders of the parent (11,594 ) (14,290 ) Minority interests   —     —   Basic loss per share   ($0.15 )   ($0.24 ) Diluted loss per share   ($0.15 )   ($0.24 ) Weighted average number of shares used for computing: — Basic 75,472,863 59,239,524 — Diluted   75,472,863     59,239,524     SEQUANS COMMUNICATIONS S.A. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION    

At June 30,

  At December 31, (in thousands of US$)  

2017

  2016   ASSETS Non-current assets Property, plant and equipment $ 6,337 $ 6,659 Intangible assets 8,527 7,707 Deposits and other receivables 370 332 Available for sale assets   336     310   Total non-current assets   15,570     15,008   Current assets Inventories 8,528 8,693 Trade receivables 17,223 15,285 Prepaid expenses and other receivables 3,895 3,172 Recoverable value added tax 807 470 Research tax credit receivable 3,709 1,902 Short term deposit 345 345 Cash and cash equivalents   19,126     20,202   Total current assets   53,633     50,069   Total assets $ 69,203 $ 65,077   EQUITY AND LIABILITIES Equity

Issued capital, euro 0.02 nominal value, 79,762,386 shares authorized, issued and outstanding at June 30, 2017 (75,030,078 at December 31, 2016)

$ 2,028 $ 1,923 Share premium 204,750 189,029 Other capital reserves 28,905 28,257 Accumulated deficit (221,147 ) (209,553 ) Other components of equity   (521 )   (796 ) Total equity   14,015     8,860   Non-current liabilities Government grant advances, loans and other liabilities 5,242 5,144 Convertible debt and accrued interest 5,620 16,338 Provisions 1,574 1,306 Other Liabilities 22 22 Deferred revenue   1,455     1,940   Total non-current liabilities   13,914     24,750   Current liabilities Trade payables 14,385 18,358 Interest-bearing receivables financing 7,370 7,712 Government grant advances 698 601 Convertible debt and accrued interest 12,437 — Other current liabilities 5,468 4,415 Deferred revenue 900 335 Provisions   16     46   Total current liabilities   41,274     31,467   Total equity and liabilities $ 69,203 $ 65,077   SEQUANS COMMUNICATIONS S.A. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW     Six months ended June 30 (in thousands of US$)   2017   2016   Operating activities Loss before income taxes $ (11,440 ) $ (14,154 ) Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities Depreciation and impairment of property, plant and equipment 1,367 1,582 Amortization and impairment of intangible assets 1,181 1,001 Share-based payment expense 648 480 Increase in provisions 323 3 Financial expense (income) 2,269 1,552 Change in the fair value of convertible debt embedded derivative — 1,583 Other financial expense — 83 Foreign exchange loss (gain) 414 135 Working capital adjustments Decrease (Increase) in trade receivables and other receivables (2,614 ) 4,624 Decrease in inventories 165 236 Increase in research tax credit receivable (1,807 ) (1,078 ) Increase (Decrease) in trade payables and other liabilities (4,125 ) 3,587 Increase in deferred revenue 80 1 Increase (Decrease) in government grant advances (693 ) 79 Income tax paid   (81 )   (130 ) Net cash flow from (used in) operating activities   (14,313 )   (416 )   Investing activities Purchase of intangible assets and property, plant and equipment (2,289 ) (2,738 ) Sale (purchase) of financial assets (64 ) (13 ) Sale of short-term deposit — 50 Interest received   37     8   Net cash flow used in investments activities   (2,316 )   (2,693 )   Financing activities Proceeds from issue of warrants, exercise of stock options/warrants 760 246 Public equity offering proceeds, net of transaction costs paid 15,313 — Proceeds from Interest-bearing receivables financing (342 ) (5,138 ) Proceeds from convertible debt, net of transaction cost — 6,932 Repayment of borrowings and finance lease liabilities — (12 ) Interest paid   (187 )   (84 ) Net cash flows from (used in) financing activities   15,544     1,944     Net increase (decrease) in cash and cash equivalents (1,085 ) (1,165 ) Net foreign exchange difference 9 (1 ) Cash and cash equivalent at January 1   20,202     8,288   Cash and cash equivalents at end of the period   $ 19,126     $ 7,122     SEQUANS COMMUNICATIONS S.A. UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS  

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

  Three months ended   June 30, 2017   March 31,2017   June 30, 2016 Net IFRS loss as reported $ (5,990 )   $ (5,604 )   $ (5,061 ) Add back Stock-based compensation expense according to IFRS 2 (1) 307 341 226 Change in the fair value of convertible debt embedded derivative — — (1,544 ) Non-cash interest on Convertible debt and other financing (2) 759 610 556 Non-IFRS loss adjusted   $ (4,924 )   $ (4,653 )   $ (5,823 ) IFRS basic loss per share as reported ($0.08 ) ($0.07 ) ($0.09 ) Add back Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.00 $0.01 Change in the fair value of convertible debt embedded derivative $0.00 $0.00 ($0.03 ) Non-cash interest on Convertible debt and other financing (2)   $0.01     $0.01     $0.01   Non-IFRS basic loss per share   ($0.06 )   ($0.06 )   ($0.10 ) IFRS diluted loss per share ($0.08 ) ($0.07 ) ($0.09 ) Add back Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.00 $0.01 Change in the fair value of convertible debt embedded derivative $0.00 $0.00 ($0.03 ) Non-cash interest on Convertible debt and other financing (2)   $0.01     $0.01     $0.01   Non-IFRS diluted loss per share   ($0.06 )   ($0.06 )   ($0.10 )   (1) Included in the IFRS loss as follows: Cost of product revenue $ 2 $ 3 $ 4 Research and development 97 109 96 Sales and marketing 65 79 35 General and administrative 143 150 91   (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)   Six months ended June 30 2017   2016 Net IFRS loss as reported $ (11,594 ) $ (14,290 ) Add back Stock-based compensation expense according to IFRS 2 (1) 648 480 Change in the fair value of convertible debt embedded derivative — 1,583 Non-cash interest on Convertible debt and other financing (2) 1,370 921 Non-IFRS loss adjusted   $ (9,576 )   $ (11,306 ) IFRS basic loss per share as reported ($0.15 ) ($0.24 ) Add back Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01 Change in the fair value of convertible debt embedded derivative $0.00 $0.03 Non-cash interest on Convertible debt and other financing (2)   $0.01     $0.01   Non-IFRS basic loss per share   ($0.13 )   ($0.19 ) IFRS diluted loss per share ($0.24 ) ($0.24 ) Add back Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01 Change in the fair value of convertible debt embedded derivative $0.00 $0.03 Non-cash interest on Convertible debt and other financing (2)   $0.01     $0.01   Non-IFRS diluted loss per share   ($0.13 )   ($0.19 )   (1) Included in the IFRS loss as follows: Cost of product revenue $ 5 $ 8 Research and development 206 204 Sales and marketing 144 74 General and administrative 293 194   (2) Related to the difference between contractual and effective interests

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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