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



$0.03



$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



$0.03



$0.06



Impact of debt reimbursement

($0.14)



$0.00



$0.00


Non-IFRS basic loss per ADS

($0.15)



($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



$0.03



$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



$0.03



$0.06



Impact of debt reimbursement

($0.14)



$0.00



$0.00


Non-IFRS diluted loss per ADS

($0.15)



($0.15)



($0.28)











(1) Included in the IFRS loss as follows:








Cost of product revenue

$

14



$

15



$

4




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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