Sequans Communications Announces Second Quarter 2021 Financial Results

PARIS, Aug. 3, 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 second quarter ended June 30, 2021.

www.sequans.com (PRNewsfoto/Sequans Communications)

Second Quarter 2021 Summary Results Table:

(in US$ millions, except share and per share data)	Q2 2021		Q1 2021		Q2 2020
Revenue	$12.9		$12.3		$12.2
Gross profit	7.3		6.2		5.9
Gross margin (%)	56.6	%	50.1	%	48.3	%
Operating loss	(3.4)		(5.8)		(5.6)
Net loss	(1.3)		(11.4)		(19.0)
Diluted earnings per ADS	($0.04)		($0.33)		($0.70)
Non-IFRS diluted earnings per ADS ⁽¹⁾	($0.15)		($0.15)		($0.28)
Weighted average number of diluted ADS	37,118,845		34,664,779		27,150,562


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

"Massive IoT was the primary driver of growth in the second quarter, increasing 14% sequentially and 120% year-over-year," said Georges Karam, CEO of Sequans. "Notably, we achieved this growth despite order fulfillment delays brought on by supply chain challenges that are impacting industries across the globe and that limited our overall growth in the quarter. Excluding revenue related to the Verizon Jetpack, revenue would have increased 14% sequentially and 88% year-over-year⁽¹⁾. The increase in our Broadband CBRS business and a new deal for Vertical applications also contributed to growth in the quarter. The significant progress we are making in Massive IoT and CBRS, and the growing relationships with our channel partners, positions Sequans for continued leadership in cellular solutions for Massive and Broadband IoT."

"Our business pipeline is well over $600 million, with the design win portion increasing by 18% to $280 million since last quarter," continued Mr. Karam. " We are now working on nearly 100 design-win projects, with over 40 projects now in the production phase, primarily in Massive IoT applications along with several Broadband IoT products. The remaining 60 design-wins are advancing to revenue generation as customer projects move to manufacturing and 15 of them have placed pre-production and production orders in the second quarter."

Mr. Karam concluded, "Thus far we have been able to support new customers in our pipeline with allotments of chips or modules needed to support their full production ramp, despite the overall demand for materials exceeding the available supply. Importantly, given the robust demand we are experiencing, we believe our overall growth trajectory and the investment thesis for our business remain intact, and we expect to achieve our medium and longer-term growth objectives as industry-wide supply challenges subside."

Q3 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. This statement is forward-looking and actual results may differ materially.

While customer demand would allow for sequential revenue growth, given the increasing impact of the continued supply chain constraints for materials on the Company's ability to ship orders, management is unable to provide guidance for the quarter ending September 30, 2021.

(1) Revenues from the Verizon Jetpack were $5.4 million in the second quarter of 2020 and $1.1 million in the first quarter of 2021. There were no revenues from the Verizon Jetpack in the second quarter of 2021.

Second Quarter 2021 Financial and Operational Results Summary

Revenue for the second quarter was $12.9 million, an increase of 4.4% compared to the first quarter of 2021 and an increase of 5.1% compared to the second quarter of 2020. The increase from the first quarter was primarily due to increased Massive IoT revenues as well as higher Vertical services revenue, partially offset by continued supply chain constraints for materials and the absence of portable router sales.

Gross profit for the second quarter of 2021 was $7.3 million, an increase from the first quarter of $6.2 million and an increase from the prior year second quarter of $5.9 million. Gross margin for the second quarter of 2021 was 56.6% compared to 50.1% in the first quarter of 2021 and 48.3% in the second quarter of 2020. The sequential improvement in gross margin was primarily due to a shift in revenue mix with increased service revenue.

Operating loss was $3.4 million compared to $5.8 million in the first quarter of 2021 and $5.6 million in the second quarter of 2020. The sequential improvement in operating loss was primarily due to a higher gross profit margin on increased sales while operating expenses in the second quarter of 2021 benefited from 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 quarter.

Net loss was $1.3 million, or ($0.04) per diluted ADS, compared to $11.4 million, or ($0.33) per ADS, in the first quarter of 2021 and $19.0 million, or ($0.70) per ADS, in the second quarter of 2020. Net loss in the second quarter of 2021 includes the benefit of the reversal of a non-cash charge related to the fair value of an embedded derivative associated with the Company's convertible notes that were paid off during the second quarter, partially offset by a foreign exchange loss primarily related to the revaluation of euro liabilities in 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 convertible debt amendments, and deferred tax benefit or expense related to the convertible debt and other financings, non-IFRS net loss was $5.6 million, or ($0.15) per ADS, compared to $5.1 million, or ($0.15) per ADS in the first quarter of 2021, and $7.5 million, or ($0.28) per ADS, in the second quarter of 2020.

Cash: Cash, cash equivalents and short-term deposits at June 30, 2021 totaled $30.3 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 second quarter of 2021 today, August 3, 2021 at 8:00 a.m. ET /14:00 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: 13720879. 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 August 17, 2021 by dialing toll free 844-512-2921 or +1 412-317-6671 from outside the U.S., using the following access code:13720879.

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, expectations for Massive IoT and portable router 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.com
Investor 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 per share amounts)		June 30, 2021	March 31, 2021	June 30, 2020


Revenue :
	Product revenue	7,393	8,548	8,774
	Other revenue	5,464	3,773	3,457
Total revenue		12,857	12,321	12,231
Cost of revenue			-	-
	Cost of product revenue	5,133	5,691	5,884
	Cost of other revenue	449	452	440
Total cost of revenue		5,582	6,143	6,324
Gross profit		7,275	6,178	5,907
Operating expenses :			-	-
	Research and development	5,848	7,254	7,512
	Sales and marketing	2,297	2,294	1,871
	General and administrative	2,507	2,460	2,082
			-	-
Total operating expenses		10,652	12,008	11,465
Operating loss		(3,377)	(5,830)	(5,558)
Financial income (expense):			-	-
	Interest income (expense), net	(3,411)	(2,711)	(3,717)
	Change in fair value of convertible debt derivative	1,408	(4,090)	(9,141)
	Impact of debt reimbursement	5,177	-	-
	Foreign exchange gain (loss)	(964)	1,358	(505)
Loss before income taxes		(1,167)	(11,273)	(18,921)
Income tax expense (benefit)		150	147	34
Loss		(1,317)	(11,420)	(18,955)
Attributable to :			-	-
	Shareholders of the parent	(1,317)	(11,420)	(18,955)
	Minority interests	-	-	-
Basic loss per ADS		($0.04)	($0.33)	($0.70)
Diluted loss per ADS		($0.04)	($0.33)	($0.70)
Weighted average number of ADS used for computing:			-	-
— Basic		37,118,845	34,664,779	27,150,562
— Diluted		37,118,845	34,664,779	27,150,562

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)		2,021	2,020

Revenue :
	Product revenue	15,941	14,275
	Other revenue	9,237	6,728
Total revenue		25,178	21,003
Cost of revenue
	Cost of product revenue	10,824	9,781
	Cost of other revenue	901	813
Total cost of revenue		11,725	10,594
Gross profit		13,453	10,409
Operating expenses :
	Research and development	13,102	14,933
	Sales and marketing	4,591	4,135
	General and administrative	4,967	4,687

Total operating expenses		22,660	23,755
Operating loss		(9,207)	(13,346)
Financial income (expense):
	Interest income (expense), net	(6,122)	(7,208)
	Change in fair value of convertible debt derivative	(2,682)	(14,762)
	Impact of debt reimbursement	5,177	1,399
	Foreign exchange gain (loss)	394	170
Loss before income taxes		(12,440)	(33,747)
Income tax expense (benefit)		297	477
Loss		(12,737)	(34,224)
Attributable to :			-
	Shareholders of the parent	(12,737)	(34,224)
	Minority interests	-	-
Basic loss per ADS		($0.35)	(1.34)
Diluted loss per ADS		($0.35)	(1.34)
Weighted average number of ADS used for computing:
— Basic		35,894,642	25,502.105
— Diluted		35,894,642	25,502.105

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
		At June 30,		At Dec 31,
(in thousands of US$)		2021		2020
ASSETS
	Non-current assets
	Property, plant and equipment	$	8,103	$	9,187
	Intangible assets	31,535		25,312
	Deposits and other receivables	3,414		588
	Other non-current financial assets	374		386
	Total non-current assets	43,426		35,473
	Current assets
	Inventories	5,206		6,225
	Trade receivables	7,433		17,277
	Contract assets	806		371
	Prepaid expenses	2,712		962
	Other receivables	6,609		3,264
	Research tax credit receivable	6,724		5,110
	Short-term deposits	26,500		10,900
	Cash and cash equivalents	3,783		7,574
	Total current assets	59,773		51,683
Total assets		$	103,199	$	87,156
EQUITY AND LIABILITIES
	Equity
	Issued capital, euro 0.02 nominal value, 149,475,334 shares authorized, issued and outstanding at June 30, 2021 (133,934,090 shares at December 31, 2020)	$	3,642	$	3,269
	Share premium	298,434		276,560
	Other capital reserves	54,315		46,677
	Accumulated deficit	(375,946)		(363,209)
	Other components of equity	(414)		(423)
	Total equity	(19,969)		(37,126)
	Non-current liabilities
	Government grant advances, loans and other liabilities	11,364		11,203
	Venture debt	—		2,172
	Convertible debt	32,912		26,074
	Convertible debt embedded derivative	16,611		12,395
	Lease liabilities	3,852		4,762
	Trade payables	890		851
	Provisions	2,241		1,874
	Deferred tax liabilities	20		19
	Contract liabilities	254		2,397
	Total non-current liabilities	68,144		61,747
	Current liabilities
	Trade payables	16,205		15,701
	Interest-bearing receivables financing	10,755		14,228
	Venture debt	—		6,104
	Lease liabilities	1,213		1,014
	Government grant advances and loans	6,658		3,867
	Contract liabilities	9,266		13,145
	Other current liabilities and provisions	10,927		8,476
	Total current liabilities	55,024		62,535
Total equity and liabilities		$	103,199	$	87,156

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
			Six months ended June 30,
(in thousands of US$)			2021	2020

Operating activities
	Loss before income taxes		$ (12,440)	$ (33,747)
	Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities
		Depreciation and impairment of property, plant and equipment	1,963	1,934
		Amortization and impairment of intangible assets	3,721	2,624
		Share-based payment expense	2,252	1,292
		Increase in provisions	253	(40)
		Interest expense, net	6,122	7,274
		Other financial expenses	-	-
		Change in the fair value of convertible debt embedded derivative	2,682	14,762
		Impact of debt reimbursement	(5,177)	-
		Convertible debt amendment	-	(1,399)
		Foreign exchange loss (gain)	(441)	127
		Loss (Gain) on disposal of property, plant and equipment	7	-
		Bad debt expense	-	18
	Working capital adjustments			-
		Decrease (Increase) in trade receivables and other receivables	7,432	(3,709)
		Decrease in inventories	1,019	802
		Decrease (Increase) in research tax credit receivable	(635)	1,680
		Increase in trade payables and other liabilities	6,891	4,310
		Decrease in contract liabilities	(7,437)	(5,835)
		Decrease in deferred revenue	-	-
		Increase (Decrease) in government grant advances	561	919
	Income tax paid		(270)	(180)
Net cash flow provided by (used in) operating activities			6,503	(9,168)

Investing activities
	Purchase of intangible assets and property, plant and equipment		(6,242)	(2,845)
	Capitalized development expenditures		(9,535)	(3,048)
	Purchase of financial assets		(2,814)	(27)
	Decrease of short-term deposit		(15,600)	(17,900)
	Interest received		24	20
Net cash flow used in investments activities			(34,167)	(23,800)

Financing activities
	Proceeds from issue of warrants, exercise of stock options/warrants		96	32
	Public equity offering proceeds, net of transaction costs paid		9,894	29,503
	Proceeds from issuing of warrants, net of transaction costs paid		-	-
	Proceeds (Repayment of) from interest-bearing receivables financing		(3,341)	5,572
	Proceeds from government loans, net of transaction cost		-	5,392
	Proceeds from interest-bearing research project financing		-	405
	Proceeds from convertible debt, net of transaction cost		39,647	-
	Proceeds from research tax credit financing			-
	Repayment of venture debt		(8,042)	(2,449)
	Repayment of government loans		(240)	-
	Repayment of interest-bearing research project financing		(363)	-
	Repayment of finance lease liabilities		(550)	(786)
	Repayment of convertible debt		(8,750)	-
	Interest paid		(4,480)	(1,215)
Net cash flows from financing activities			23,871	36,454

	Net increase (decrease) in cash and cash equivalents		(3,793)	3,486
	Net foreign exchange difference		2	(3)
	Cash and cash equivalents at January 1		7,574	14,098
Cash and cash equivalents at end of the period			3,783	17,581

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,

2021

March 31,
2021

June 30,
2020

Net IFRS loss as reported

(1,317)

(11,420)

(18,955)

Add back

Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾

1,092

1,160

625

Non-cash change in the fair value of convertible debt embedded derivative

(1,408)

4,090

9,141

Non-cash interest on convertible debt and other financing ⁽²⁾

1,187

1,085

1,671

Impact of debt reimbursement

(5,177)

—

(5,623)

(5,085)

(7,518)

IFRS basic loss per ADS as reported

($0.04)

($0.33)

($0.70)

Add back

Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾

$0.03

$0.02

Non-cash change in the fair value of convertible debt embedded derivative

($0.03)

$0.12

$0.34

Non-cash interest on convertible debt and other financing ⁽²⁾

$0.03

$0.06

Impact of debt reimbursement

($0.14)

$0.00

Non-IFRS basic loss per ADS

($0.15)

($0.28)

IFRS diluted loss per ADS

($0.04)

($0.33)

($0.70)

Add back

Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾

$0.03

$0.02

Non-cash change in the fair value of convertible debt embedded derivative

($0.03)

$0.12

$0.34

Non-cash interest on convertible debt and other financing ⁽²⁾

$0.03

$0.06

Impact of debt reimbursement

($0.14)

$0.00

Non-IFRS diluted loss per ADS

($0.15)

($0.28)

(1) Included in the IFRS loss as follows:

Cost of product revenue

Research and development

513

554

266

Sales and marketing

206

217

111

General and administrative

359

374

244

(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 amounts)			Six months ended June 30,
			2021		2020

Net IFRS loss as reported			$	(12,737)	$	(34,224)
Add back
	Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾		2,252		1,292
	Non-cash change in the fair value of convertible debt embedded derivative		2,682		14,762
	Non-cash interest on convertible debt and other financing (2)		2,272		2,965
	Non-cash impact of deferred tax income (loss)		—		398
	Impact of debt reimbursement		(5,177)		—
	Non-cash impact of convertible debt amendment		—		(1,399)
			$	(10,708)	$	(16,206)
IFRS basic loss per ADS as reported			($0.35)		($1.34)
Add back
	Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾		$0.06		$0.05
	Non-cash change in the fair value of convertible debt embedded derivative		$0.07		$0.57
	Non-cash interest on convertible debt and other financing ⁽²⁾		$0.06		$0.11
	Non-cash impact of deferred tax income (loss)		$0.00		$0.02
	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			($0.30)		($0.64)
IFRS diluted loss per ADS			($0.35)		($1.34)
Add back
	Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾		$0.06		$0.05
	Non-cash change in the fair value of convertible debt embedded derivative		$0.07		$0.57
	Non-cash interest on convertible debt and other financing ⁽²⁾		$0.06		$0.11
	Non-cash impact of deferred tax income (loss)		$0.00		$0.02
	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			($0.30)		($0.64)

	(1) Included in the IFRS loss as follows:
		Cost of product revenue	$	30	$	9
		Research and development	1,067		538
		Sales and marketing	423		235
		General and administrative	732		510
	(2) Related to the difference between contractual and effective interest rates

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