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, 2020.
Third Quarter 2020 Highlights:
Revenue: Revenue was $14.1 million, an increase of 15.5%
compared to the second quarter of 2020 and an increase of 116.6%
compared to the third quarter of 2019.
Gross margin: Gross margin was 42.0% compared to 48.3% in
the second quarter of 2020, and compared to 30.3% in the third
quarter of 2019.
Operating loss: Operating loss was $5.9 million compared
to $5.6 million in the second quarter of 2020 and $8.6 million in
the third quarter of 2019.
Net loss: Net loss was $9.0 million, or ($0.30) per
diluted ADS, compared to $19.0 million, or ($0.70) per ADS, in the
second quarter of 2020 and $9.8 million, or ($0.41) per ADS, in the
third quarter of 2019. Net loss in the third quarter of 2020
includes a $1.5 million gain on revaluation of the embedded
derivative arising from the amendments to the convertible debt made
in March 2020. The revaluation was a $9.1 million loss in the
second quarter of 2020.
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 $8.4 million, or ($0.28) per ADS,
compared to $7.5 million, or ($0.28) per ADS in the second quarter
of 2020, and $8.6 million, or ($0.36) per ADS, in the third quarter
of 2019. The non-IFRS net loss includes foreign exchange losses of
$0.9 million, or ($0.03) per ADS, in the third quarter of 2020 and
$0.5 million, or ($0.02) per ADS, in the second quarter of 2020 and
a foreign exchange gain of $0.9 million, or $0.04 per ADS, in the
third quarter of 2019.
Cash: Cash, cash equivalents and short-term deposits at
September 30, 2020 totaled $25.3 million compared to $35.5 million
at June 30, 2020.
In millions of US$ except percentages,
shares and per share amounts
Key Metrics
Q3 2020
%*
Q2 2020
%*
Q3 2019 (1)
%*
Revenue
$14.1
$12.2
$6.5
Gross profit
5.9
42.0
%
5.9
48.3
%
2.0
30.3
%
Operating loss
(5.9
)
(41.8
)
%
(5.6
)
(45.4
)
%
(8.6
)
(131.6
)
%
Net loss
(9.0
)
(63.7
)
%
(19.0
)
(155.0
)
%
(9.8
)
(150.6
)
%
Diluted earnings per ADS
($0.30
)
($0.70
)
($0.41
)
Weighted average number of diluted ADS
30,275,352
27,150,562
23,770,644
Cash flow from (used in) operations
(7.9
)
(2.3
)
(1.0
)
Cash, cash equivalents and short-term
deposits at quarter-end
25.3
35.5
6.3
Additional information on non-cash
items:
- Non-cash stock-based compensation
included in operating result
0.5
0.6
0.4
- Non-cash interest on convertible debt
and other financing
1.6
1.7
1.2
- Non-cash change in the fair value of
convertible debt embedded derivative
(1.5
)
9.1
—
- Non-cash impact of deferred tax expense
(benefit)
—
—
(0.3
)
Non-IFRS diluted earnings per ADS
($0.28
)
($0.28
)
($0.36
)
* Percentage of revenue
(1) Updated from the prior earnings
release
“Revenue in Q3 grew 15.5%, well above our target," said Georges
Karam, CEO of Sequans. "During the quarter, supply chain issues
eased, enabling us to serve the high level of demand related to
remote learning in our Broadband IoT business, and our Massive IoT
business performed in line with expectations. We expect sequential
growth again in the fourth quarter, driven by the ramp of our
Massive IoT business, as well continued strong performance of our
Broadband IoT business. As a result, we are targeting over 60%
growth for 2020 as a whole, an improvement from our original target
of 50% year-over-year growth.
“An important recent development is adding a new microcontroller
(MCU) partner to reinforce our go-to-market strategy and expand our
reach to all corners of the Massive IoT market. Momentum continues
to build in our Massive IoT business, and we are very excited about
the customer acceptance of Monarch 2, our second-generation
LTE-M/NB-IoT platform as demonstrated by new design wins in Q3.
Also, we have added a new module partner for CBRS, an area expected
to make an important contribution to our Broadband IoT business as
this new market begins to ramp. Finally, we are making excellent
progress with our 5G solutions and related strategic business
engagements."
Q4 2020 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. Sequans
undertakes no obligation to update this statement.
Sequans is targeting a sequential increase in revenue of 10% for
the fourth quarter of 2020, which would cause revenue for 2020 to
be more than 60% greater than the revenue for 2019. The backlog of
orders and indications regarding customer demand support this goal,
but the company also sees ongoing risks related to COVID-19.
Conference Call and Webcast
Sequans plans to conduct a teleconference and live webcast to
discuss the financial results for the third quarter of 2020 today,
October 27, 2020 at 8:00 a.m. ET /13:00 CET. To participate in the
live call, analysts and investors should dial 800-289-0571 or +1
720-543-0206 if outside the U.S. When prompted, provide the event
title or access code: 9909270. 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 4, 2020 by dialing
toll free 888-203-1112 or 719-457-0820 from outside the U.S., using
the following access code: 9909270.
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
expected revenue for the fourth quarter of 2020, future results of
operations and financial positions, business strategy and plans,
expectations for Massive IoT and Broadband and Critical IoT sales,
the ability to continue to operate remotely (as required) at high
levels of productivity, increasing backlog of orders, the impact of
the coronavirus on our manufacturing operations, and on customer
demand, 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 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,
2019, 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) our
ability to remediate material weaknesses in our internal controls
relating to controls over the accounting and presentation of
complex, non-routine and certain other transactions, including
certain revenue arrangements, (xiii) the impact of the coronavirus
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, (xiv) the impact of
the coronavirus on capital markets and 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, 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, 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)
Sept 30, 2020
June 30, 2020
Sept 30, 2019 (1)
Revenue :
Product revenue
$
11,580
$
8,774
$
5,208
Other revenue
2,542
3,457
1,312
Total revenue
14,122
12,231
6,520
Cost of revenue
Cost of product revenue
7,668
5,884
4,151
Cost of other revenue
527
440
394
Total cost of revenue
8,195
6,324
4,545
Gross profit
5,927
5,907
1,975
Operating expenses :
Research and development
7,984
7,512
6,205
Sales and marketing
1,774
1,871
1,857
General and administrative
2,076
2,082
2,495
Total operating expenses
11,834
11,465
10,557
Operating loss
(5,907
)
(5,558
)
(8,582
)
Financial income (expense):
Interest income (expense), net
(3,623
)
(3,717
)
(2,293
)
Change in fair value of convertible debt
derivative
1,522
(9,141
)
—
Foreign exchange gain (loss)
(885
)
(505
)
874
Loss before income taxes
(8,893
)
(18,921
)
(10,001
)
Income tax expense (benefit)
98
34
(179
)
Loss
$
(8,991
)
$
(18,955
)
$
(9,822
)
Attributable to :
Shareholders of the parent
(8,991
)
(18,955
)
(9,822
)
Minority interests
—
—
—
Basic loss per ADS
($0.30
)
($0.70
)
($0.41
)
Diluted loss per ADS
($0.30
)
($0.70
)
($0.41
)
Weighted average number of ADS used for
computing:
— Basic
30,275,352
27,150,562
23,770,644
— Diluted
30,275,352
27,150,562
23,770,644
(1) Updated from the prior earnings
release
SEQUANS COMMUNICATIONS
S.A. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
Nine months ended Sept
30,
(in thousands of US$, except share and
per share amounts)
2020
2019 (1)
Revenue :
Product revenue
$
25,855
$
16,093
Other revenue
9,270
4,805
Total revenue
35,125
20,898
Cost of revenue
Cost of product revenue
17,449
12,169
Cost of other revenue
1,340
1,450
Total cost of revenue
18,789
13,619
Gross profit
16,336
7,279
Operating expenses :
Research and development
22,917
18,135
Sales and marketing
5,909
6,104
General and administrative
6,763
6,446
Total operating expenses
35,589
30,685
Operating loss
(19,253
)
(23,406
)
Financial income (expense):
Interest income (expense), net
(10,831
)
(6,483
)
Change in fair value of convertible debt
derivative
(13,240
)
—
Convertible debt amendment
1,399
—
Foreign exchange gain (loss)
(715
)
893
Loss before income taxes
(42,640
)
(28,996
)
Income tax expense (benefit)
575
(409
)
Loss
$
(43,215
)
$
(28,587
)
Attributable to :
Shareholders of the parent
(43,215
)
(28,587
)
Minority interests
—
—
Basic loss per ADS
($1.59
)
($1.20
)
Diluted loss per ADS
($1.59
)
($1.20
)
Weighted average number of ADS used for
computing:
— Basic
27,120,905
23,736,950
— Diluted
27,120,905
23,736,950
(1) Updated from the prior earnings
release
SEQUANS COMMUNICATIONS
S.A. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
At Sept 30,
At Dec 31,
(in thousands of US$)
2020
2019 (1)
ASSETS
Non-current assets
Property, plant and equipment
$
8,748
$
8,858
Intangible assets
24,618
16,696
Deposits and other receivables
449
401
Other non-current financial assets
349
335
Total non-current assets
34,164
26,290
Current assets
Inventories
5,801
6,664
Trade receivables
14,084
8,390
Contract assets
1,028
1,587
Prepaid expenses
1,226
901
Other receivables
4,367
2,253
Research tax credit receivable
3,287
3,132
Short-term deposits
14,900
—
Cash and cash equivalents
10,385
14,098
Total current assets
55,078
37,025
Total assets
$
89,242
$
63,315
EQUITY AND LIABILITIES
Equity
Issued capital, euro 0.02 nominal value,
121,248,638 shares authorized, issued and outstanding at September
30, 2020 (95,587,146 shares at December 31, 2019)
$
2,962
$
2,403
Share premium
262,641
233,720
Other capital reserves
41,012
43,656
Accumulated deficit
(351,948
)
(308,733
)
Other components of equity
(750
)
(607
)
Total equity
(46,083
)
(29,561
)
Non-current liabilities
Government grant advances, loans and other
liabilities
11,148
6,150
Venture debt
3,469
7,071
Convertible debt
34,984
23,342
Convertible debt embedded derivative
18,506
—
Lease liabilities
3,978
3,204
Trade payables
1,050
1,139
Provisions
1,885
1,905
Deferred tax liabilities
18
429
Contract liabilities
4,341
11,572
Total non-current liabilities
79,379
54,812
Current liabilities
Trade payables
17,204
8,834
Interest-bearing receivables financing
14,449
4,068
Venture debt
5,694
5,109
Convertible debt
—
7,329
Lease liabilities
806
900
Government grant advances and loans
3,026
1,472
Contract liabilities
8,018
5,812
Other current liabilities and
provisions
6,749
4,540
Total current liabilities
55,946
38,064
Total equity and liabilities
$
89,242
$
63,315
(1) Updated from the prior earnings
releases; as set forth in the annual report on Form 20-F
SEQUANS COMMUNICATIONS
S.A. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOW
Nine months ended Sept
30,
(in thousands of US$)
2020
2019 (1)
Operating activities
Loss before income taxes
$
(42,640
)
$
(28,996
)
Non-cash adjustment to reconcile income
before tax to net cash from (used in) operating activities
Depreciation and impairment of property,
plant and equipment
2,845
2,900
Amortization and impairment of intangible
assets
4,314
3,310
Share-based payment expense
1,813
1,279
Decrease in provisions
(55
)
68
Interest expense, net
10,831
6,483
Change in the fair value of convertible
debt embedded derivative
13,240
—
Convertible debt amendment
(1,399
)
—
Foreign exchange loss (gain)
1,200
(1,059
)
Loss on disposal of property, plant and
equipment
—
(32
)
Bad debt expense
63
635
Working capital adjustments
Decrease (Increase) in trade receivables
and other receivables
(7,670
)
2,031
Decrease in inventories
863
839
Decrease in research tax credit
receivable
716
1,376
Increase in trade payables and other
liabilities
5,762
466
Decrease in contract liabilities
(7,564
)
(631
)
Increase in government grant advances
12
245
Income tax paid
(269
)
(247
)
Net cash flow provided by (used in)
operating activities
(17,938
)
(11,333
)
Investing activities
Purchase of intangible assets and
property, plant and equipment
(5,073
)
(2,888
)
Capitalized development expenditures
(4,776
)
(3,537
)
Sale (purchase) of financial assets
(62
)
32
Purchase of short-term deposits
(14,900
)
—
Interest received
21
5
Net cash flow used in investments
activities
(24,790
)
(6,388
)
Financing activities
Proceeds from issue of warrants, exercise
of stock options/warrants
32
—
Public equity offering proceeds, net of
transaction costs paid
27,496
—
Proceeds from issuing of warrants, net of
transaction costs paid
—
8,269
Proceeds (Repayment of) from
interest-bearing receivables financing
10,381
(2,300
)
Proceeds from government loans, net of
transaction cost
5,392
—
Proceeds from interest-bearing research
project financing
405
1,126
Proceeds from convertible debt, net of
transaction cost
2,050
7,970
Payment of lease liabilities
(894
)
(1,048
)
Repayment of interest-bearing research
project financing
(177
)
—
Repayment of government loans
(118
)
(335
)
Repayment of venture debt
(3,775
)
—
Interest paid
(1,777
)
(1,788
)
Net cash flows from financing
activities
39,015
11,894
Net increase (decrease) in cash and cash
equivalents
(3,713
)
(5,827
)
Net foreign exchange difference
—
(8
)
Cash and cash equivalents at January 1
14,098
12,086
Cash and cash equivalents at end of the
period
$
10,385
$
6,251
(1) Updated from the prior earnings
release
SEQUANS COMMUNICATIONS
S.A. UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL
RESULTS
(in thousands of US$, except share and
per share amounts)
Three months ended
September 30,
2020
June 30, 2020
Sept 30, 2019 (3)
Net IFRS loss as reported
$
(8,991
)
$
(18,955
)
$
(9,822
)
Add back
Non-cash stock-based compensation expense
according to IFRS 2 (1)
521
625
362
Non-cash change in the fair value of
convertible debt embedded derivative
(1,522
)
9,141
—
Non-cash interest on convertible debt and
other financing (2)
1,608
1,671
1,180
Non-cash impact of deferred tax income
(loss)
—
—
(287
)
$
(8,384
)
$
(7,518
)
$
(8,567
)
IFRS basic loss per ADS as reported
($0.30
)
($0.70
)
($0.41
)
Add back
Non-cash stock-based compensation expense
according to IFRS 2 (1)
$0.02
$0.02
$0.02
Non-cash change in the fair value of
convertible debt embedded derivative
($0.05
)
$0.34
$0.00
Non-cash interest on convertible debt and
other financing (2)
$0.05
$0.06
$0.05
Non-cash impact of deferred tax income
(loss)
$0.00
$0.00
($0.02
)
Non-IFRS basic loss per ADS
($0.28
)
($0.28
)
($0.36
)
IFRS diluted loss per ADS
($0.30
)
($0.70
)
($0.41
)
Add back
Non-cash stock-based compensation expense
according to IFRS 2 (1)
$0.02
$0.02
$0.02
Non-cash change in the fair value of
convertible debt embedded derivative
($0.05
)
$0.34
$0.00
Non-cash interest on convertible debt and
other financing (2)
$0.05
$0.06
$0.05
Non-cash impact of deferred tax income
(loss)
$0.00
$0.00
($0.02
)
Non-IFRS diluted loss per ADS
($0.28
)
($0.28
)
($0.36
)
(1) Included in the IFRS loss as
follows:
Cost of product revenue
$
4
$
4
$
2
Research and development
209
266
110
Sales and marketing
105
111
54
General and administrative
203
244
196
(2) Related to the difference between
contractual and effective interest rates
(3) Updated from the prior earnings
release
SEQUANS COMMUNICATIONS
S.A. UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL
RESULTS
(in thousands of US$, except share and
per share amounts)
Nine months ended Sept
30,
2020
2019 (3)
Net IFRS loss as reported
$
(43,215
)
$
(28,587
)
Add back
Non-cash stock-based compensation expense
according to IFRS 2 (1)
1,813
1,279
Non-cash change in the fair value of
convertible debt embedded derivative
13,240
—
Non-cash interest on convertible debt and
other financing (2)
4,507
3,093
Non-cash impact of deferred tax income
(loss)
398
(529
)
Non-cash impact of convertible debt
amendment
(1,399
)
—
$
(24,656
)
$
(24,744
)
IFRS basic loss per ADS as reported
($1.59
)
($1.20
)
Add back
Non-cash stock-based compensation expense
according to IFRS 2 (1)
$0.07
$0.06
Non-cash change in the fair value of
convertible debt embedded derivative
$0.49
$0.00
Non-cash interest on convertible debt and
other financing (2)
$0.17
$0.13
Non-cash impact of deferred tax income
(loss)
$0.01
($0.02
)
Non-cash impact of convertible debt
amendment
($0.05
)
$0.00
Non-IFRS basic loss per ADS
($0.91
)
($1.04
)
IFRS diluted loss per ADS
($1.59
)
($1.20
)
Add back
Non-cash stock-based compensation expense
according to IFRS 2 (1)
$0.07
$0.06
Non-cash change in the fair value of
convertible debt embedded derivative
$0.49
$0.00
Non-cash interest on convertible debt and
other financing (2)
$0.17
$0.13
Non-cash impact of deferred tax income
(loss)
$0.01
($0.02
)
Non-cash impact of convertible debt
amendment
($0.05
)
$0.00
Non-IFRS basic loss per ADS
($0.91
)
($1.04
)
(1) Included in the IFRS loss as
follows:
Cost of product revenue
$
13
$
7
Research and development
748
371
Sales and marketing
339
182
General and administrative
713
719
(2) Related to the difference between
contractual and effective interest rates
(3) Updated from the prior earnings
release
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