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Sequans Communications Announces Second Quarter 2018 Financial Results

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4G chipmaker Sequans Communications S.A. (NYSE:SQNS) today
announced financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights:

Revenue: Revenue was $12.7 million, an increase of 12.7% compared
to the first quarter of 2018, primarily due to 30% sequential growth in
product revenue, and a decrease of 4.2% compared to the second quarter
of 2017, reflecting significantly higher IoT product revenue, more than
offset by lower broadband product and other revenue.

Gross margin: Gross margin was 39.4% compared to 41.7% in the
first quarter of 2018 and compared to 42.1% in the second quarter of
2017, primarily due to a shift in product mix toward a higher proportion
of modules as well as lower license revenue.

Operating loss: Operating loss was $7.0 million compared to an
operating loss of $7.3 million in the first quarter of 2018 and an
operating loss of $4.1 million in the second quarter of 2017.

Net loss: Net loss was $8.1 million, or ($0.09) per diluted
share/ADS, compared to a net loss $8.7 million, or ($0.10) per diluted
share/ADS, in the first quarter of 2018 and a net loss of $6.0 million,
or ($0.08) per diluted share/ADS, in the second quarter of 2017.

Non-IFRS Net loss: Excluding the non-cash items of stock-based
compensation, the non-cash impact of convertible debt amendments and
effective interest adjustments related to the convertible debt and other
financings, non-IFRS net loss was $6.8 million, or ($0.07) per diluted
share/ADS, compared to a non-IFRS net loss of $7.5 million, or ($0.08)
per diluted share/ADS in the first quarter of 2018, and a non-IFRS net
loss of $4.9 million, or ($0.06) per diluted share/ADS, in the second
quarter of 2017.

Cash: Cash, cash equivalents and short-term deposit at June 30,
2018 totaled $7.0 million compared to $15.0 million at March 31, 2018.
Subsequent to the balance sheet date, the Company collected over $1.5
million in a final payment for a large government grant, and expects to
collect the 2017 French research credit of $3.2 million in September.

Also, to provide additional financial flexibility, Sequans has secured
commitments of $5 million in additional convertible debt and is working
to close another financing facility for up to $20 million. Meanwhile,
the Company has made significant progress in its strategic discussions
and currently anticipates that a strategic investment may be concluded
before the end of the year.

 

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

Key Metrics
  Q2 2018     %*     Q1 2018     %*     Q2 2017     %*
Revenue $12.7         $11.2         $13.2    
Gross profit 5.0 39.4 % 4.7 41.7 % 5.6 42.1 %
Operating loss (7.0 ) (55.0 )% (7.3 ) (64.9 )% (4.1 ) (30.9 )%
Net loss (8.1 ) (63.9 )% (8.7 ) (77.9 )% (6.0 ) (45.3 )%
Diluted EPS ($0.09 ) ($0.10 ) ($0.08 )
Weighted average number of diluted shares/ADS 94,459,289 91,465,178 75,896,815
Cash flow from (used in) operations (8.0 ) (6.0 ) (4.4 )
Cash, cash equivalents and short-term deposit at quarter-end 7.0 15.0 19.5
Additional information on non-cash items:
- Stock-based compensation included in operating result 0.5 0.5 0.3
- Non-cash impact of Convertible debt amendments
- Change in the fair value of convertible debt embedded derivative
- Non-cash interest on convertible debt and other financing 0.7 0.7 0.8
Non-IFRS diluted EPS (excludes stock-based compensation, impact of
convertible debt amendments and effective interest adjustments
related to the convertible and other debt and embedded
derivative,and the non-cash impact of revaluation of interest-free
government loan)
  ($0.07 )           ($0.08 )           ($0.06 )      

* Percentage of revenue

 

"Overall momentum in our IoT business is very strong, with IoT revenue
in the first half of 2018 more than double the first half of 2017, and
we continue to add new projects and customers and to expand our
engagements with various carriers for both LTE-M and NB-IoT in a growing
number of regions," said Georges Karam, Sequans' CEO. "Meanwhile, our
broadband revenue in Q2 improved sequentially, as expected, and this
business remains on track for further gradual improvement. We continue
to expect LTE-M shipments to accelerate during the second half of the
year; however, a few customer-specific project delays are causing us to
be slightly more cautious with Q3 guidance.

"From a strategic perspective, we are making excellent progress. Our
goal is to finalize two strategic relationships during the second half
of this year. We are aiming to conclude one of them, which includes a
funding element, in the current quarter."

Q3 2018 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 2018 to be in the range
of $13.5 to $16 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 ($0.06) and ($0.08) for the
third quarter of 2018, based on approximately 94.5 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 2018 today, July 31,
2018, at 8:00 a.m. EDT /14:00 CET. To participate in the live call,
analysts and investors should dial 800-230-1059 (or +1 612-234-9960 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/.
A replay of the conference call will be available until August 31, 2018
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: 451278.

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 our future results of operations and financial
positions, business strategy and plans, expectations for IoT and
broadband sales, sources and availability of funding 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 income and 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.comwww.facebook.com/sequanswww.twitter.com/sequans

 

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,
2018

    March 31,
2018
    June 30,
2017
     
   
Revenue :
Product revenue $ 9,921 $ 7,635 $ 10,159
Other revenue   2,737       3,599       3,058  
Total revenue   12,658       11,234       13,217  
Cost of revenue
Cost of product revenue 7,127 5,861 7,064
Cost of other revenue   549       689       591  
Total cost of revenue   7,676       6,550       7,655  
Gross profit   4,982       4,684       5,562  
Operating expenses :
Research and development 7,152 7,519 6,254
Sales and marketing 2,518 2,485 2,072
General and administrative   2,276       1,971       1,323  
Total operating expenses   11,946       11,975       9,649  
Operating loss (6,964 ) (7,291 ) (4,087 )
Financial income (expense):
Interest income (expense), net (1,240 ) (1,227 ) (1,194 )
Foreign exchange gain (loss)   188       (212 )     (626 )
Loss before income taxes   (8,016 )     (8,730 )     (5,907 )
Income tax expense (benefit)   74       19       83  
Loss $ (8,090 ) $ (8,749 ) $ (5,990 )
Attributable to :
Shareholders of the parent (8,090 ) (8,749 ) (5,990 )
Minority interests                
Basic loss per share   ($0.09 )     ($0.10 )     ($0.08 )
Diluted loss per share   ($0.09 )     ($0.10 )     ($0.08 )
Weighted average number of shares used for computing:
— Basic 94,459,289 91,465,178 75,896,815
— Diluted   94,459,289       91,465,178       75,896,815  
 
 

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)   2018     2017
   
Revenue :
Product revenue $ 17,556 $ 19,799
Other revenue   6,336       5,848  
Total revenue   23,892       25,647  
Cost of revenue
Cost of product revenue 12,988 13,053
Cost of other revenue   1,238       1,180  
Total cost of revenue   14,226       14,233  
Gross profit   9,666       11,414  
Operating expenses :
Research and development 14,671 12,448
Sales and marketing 5,003 4,568
General and administrative   4,247       2,734  
Total operating expenses   23,921       19,750  
Operating loss   (14,255 )     (8,336 )
Financial income (expense):
Interest income (expense), net (2,467 ) (2,232 )
Foreign exchange gain (loss)   (24 )     (872 )
Loss before income taxes   (16,746 )     (11,440 )
Income tax expense (benefit)   93       154  
Loss $ (16,839 ) $ (11,594 )
Attributable to :
Shareholders of the parent (16,839 ) (11,594 )
Minority interests          
Basic loss per share   ($0.18 )     ($0.15 )
Diluted loss per share   ($0.18 )     ($0.15 )
Weighted average number of shares used for computing:
— Basic 92,954,235 75,472,863
— Diluted   92,954,235       75,472,863  
 
     

SEQUANS COMMUNICATIONS S.A.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION

At June 30, At December 31,
(in thousands of US$)   2018     2017
 
ASSETS
Non-current assets
Property, plant and equipment $ 6,998 $ 6,993
Intangible assets 11,089 9,561
Deposits and other receivables 391 402
Available for sale assets   343       353  
Total non-current assets   18,821       17,309  
Current assets
Inventories 7,655 7,376
Trade receivables 21,388 20,826
Prepaid expenses and other receivables 3,416 4,214
Recoverable value added tax 760 688
Research tax credit receivable 4,987 3,248

Short-term deposit

347 347
Cash and cash equivalents   6,675       2,948  
Total current assets   45,228       39,647  
Total assets $ 64,049 $ 56,956
 
EQUITY AND LIABILITIES
Equity
Issued capital, euro 0.02 nominal value, 94,497,672 shares
authorized, issued and outstanding at June 30, 2018 (80,024,707
shares at December 31, 2017)
$ 2,384 $ 2,031
Share premium 225,470 204,952
Other capital reserves 34,371 33,313
Accumulated deficit (252,652 ) (235,813 )
Other components of equity   (481 )     (435 )
Total equity   9,092       4,048  
Non-current liabilities
Government grant advances, loans and other liabilities 3,891 5,030
Convertible debt and accrued interest 5,891 17,063
Provisions and other liabilities 1,646 1,584
Deferred revenue   1,051       1,293  
Total non-current liabilities   12,479       24,970  
Current liabilities
Trade payables 13,343 13,023
Interest-bearing receivables financing 8,192 7,413
Convertible debt and accrued interest 13,308
Government grant advances 1,596 1,592
Provisions and other current liabilities 5,103 5,170
Deferred revenue   936       740  
Total current liabilities   42,478       27,938  
Total equity and liabilities $ 64,049 $ 56,956
 
 

SEQUANS COMMUNICATIONS S.A.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

Six months ended June 30,
(in thousands of US$)   2018     2017
   
Operating activities
Loss before income taxes $ (16,746 ) $ (11,440 )
Non-cash adjustment to reconcile income before tax to net cash from
(used in) operating activities
Depreciation and impairment of property, plant and equipment 1,550 1,367
Amortization and impairment of intangible assets 1,581 1,181
Share-based payment expense 1,058 648
Increase (decrease) in provisions 23 323
Financial expense (income) 2,467 2,269
Foreign exchange loss (gain) (126 ) 414
Working capital adjustments
Increase in trade receivables and other receivables (49 ) (2,614 )
Decrease (Increase) in inventories (279 ) 165
Increase in research tax credit receivable (1,739 ) (1,807 )
Decrease in trade payables and other liabilities (1,001 ) (4,125 )
Increase (decrease) in deferred revenue (46 ) 80
Decrease in government grant advances (613 ) (693 )
Income tax paid   (59 )     (81 )
Net cash flow used in operating activities   (13,979 )     (14,313 )
 
Investing activities
Purchase of intangible assets and property, plant and equipment (2,137 ) (2,289 )
Capitalized development expenditures (1,324 )
Sale (purchase) of financial assets 21 (64 )
Interest received   64       37  
Net cash flow used in investments activities   (3,376 )     (2,316 )
 
Financing activities
Proceeds from issue of warrants, exercise of stock options/warrants 30 760
Public equity offering proceeds, net of transaction costs paid 20,840 15,313
Proceeds (Repayment of) from interest-bearing receivables financing 779 (342 )
Repayment of government loans (235 )
Interest paid   (330 )     (187 )
Net cash flows from financing activities   21,084       15,544  
 
Net increase (decrease) in cash and cash equivalents 3,729 (1,085 )
Net foreign exchange difference (2 ) 9
Cash and cash equivalent at January 1   2,948       20,202  
Cash and cash equivalents at end of the period   $ 6,675       $ 19,126  
 
 

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,
2018
    March 31,
2018
    June 30,
2017
Net IFRS loss as reported $ (8,090 )     $ (8,749 )     $ (5,990 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 526 532 307
Non-cash interest on Convertible debt and other financing (2) 745 671 759
    $ (6,819 )     $ (7,546 )     $ (4,924 )
IFRS basic loss per share as reported ($0.09 ) ($0.10 ) ($0.08 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01 $0.01
Non-cash interest on Convertible debt and other financing (2)   $0.01       $0.01       $0.01  
Non-IFRS basic loss per share   ($0.07 )     ($0.08 )     ($0.06 )
IFRS diluted loss per share ($0.09 ) ($0.10 ) ($0.08 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01 $0.01
Non-cash interest on Convertible debt and other financing (2)   $0.01       $0.01      

$0.01

 
Non-IFRS diluted loss per share   ($0.07 )     ($0.08 )     ($0.06 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ 3 $ 3 $ 2
Research and development 127 139 97
Sales and marketing 73 80 65
General and administrative 323 310 143
 
(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,

  2018     2017
Net IFRS loss as reported $ (16,839 )     $ (11,594 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 1,058 648
Non-cash interest on Convertible debt and other financing (2) 1,416 1,370
    $ (14,365 )     $ (9,576 )
IFRS basic loss per share as reported ($0.18 ) ($0.15 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01
Non-cash interest on Convertible debt and other financing (2)   $0.02       $0.01  
Non-IFRS basic loss per share   ($0.15 )     ($0.13 )
IFRS diluted loss per share ($0.18 ) ($0.15 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $0.01 $0.01
Non-cash interest on Convertible debt and other financing (2)   $0.02       $0.01  
Non-IFRS diluted loss per share   ($0.15 )     ($0.13 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ 6 $ 5
Research and development 266 206
Sales and marketing 153 144
General and administrative 633 293
 
(2) Related to the difference between contractual and effective
interests

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