Sequans Communications Announces Third Quarter 2022 Financial Results

Rhea-AI Summary

Sequans Communications (SQNS) reported Q3 2022 financial results showing a 39% year-over-year revenue increase to $16.5 million, with gross profit rising to $12.8 million and gross margin at 77.6%. Operating profit turned positive at $1.2 million, while net loss decreased to ($2.9 million). Non-IFRS diluted earnings were $0.01 per ADS. The growth was largely driven by increased licensing revenue, including a new strategic 5G partnership. Despite some supply chain challenges affecting product revenue, the company anticipates growth in product shipments in upcoming quarters.

Positive

• Revenue increased by 39% year-over-year to $16.5 million.
• Gross profit reached $12.8 million, with a gross margin of 77.6%.
• Operating profit improved to $1.2 million, turning positive from previous losses.
• Non-IFRS diluted earnings were $0.01 per ADS, indicating growing profitability.

Negative

• Net loss remained at $2.9 million, despite improvements in other financial metrics.
• Lower product revenue due to supply chain issues affecting customer product launches.

PARIS, Nov. 2, 2022 /PRNewswire/ -- Sequans Communications S.A. (NYSE: SQNS), a leading developer and provider of 5G/4G solutions for IoT devices, today announced financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 Summary Results Table:
(in US$ millions, except share and per share data)	Q3 2022	Q2 2022	Q3 2021
Revenue	$16.5	$14.2	$11.9
Gross profit	12.8	8.6	5.8
Gross margin (%)	77.6 %	60.7 %	49.2 %
Operating profit (loss)	1.2	(2.1)	(5.1)
Net Profit (Loss)	(2.9)	(3.2)	0.2
Diluted earnings (loss) per ADS	($0.06)	($0.07)	$0.00
Non-IFRS diluted earnings (loss) per ADS *	$0.01	($0.02)	($0.15)
Weighted average number of diluted ADS (IFRS)	47,802,526	47,656,861	41,024,405
Weighted average number of diluted ADS (Non-IFRS)	52,620,229	47,656,861	41,024,405
* See Use of Non-IFRS/non-GAAP Financial Measures disclosure on page 3. IFRS Net Profit (Loss) includes significant non-cash interest expense, debt amendment and change in value of embedded derivative that are excluded from Non-IFRS measures

 

"Third quarter revenue increased by 39% year-over-year and 16% sequentially, reflecting an increase in licensing revenue, including revenue recognized from our new 5G strategic partner agreement announced in August," said Georges Karam, CEO of Sequans. "This lifted gross margin to 77.6% and turned the Company to non-IFRS profitability of $0.01 per ADS on a fully diluted basis. The higher licensing revenue more than offset the as-expected lower product revenue in the third quarter. Product revenue in the quarter was primarily impacted by various supply chain factors temporarily affecting our customers' ability to ship or launch their products. We still expect product shipments to grow in the coming quarters."

"Our pipeline continues to grow and, in particular, we are excited by the demand we are seeing for our next generation Cat 1 Calliope 2", continued Georges Karam.  "We secured two sizeable design wins for Calliope 2, adding to the already strong funnel for Cat M/NB Monarch 2 and reinforcing our leadership in Massive IoT.  In addition, the recently announced 5G strategic deal is progressing well and confirms market interest in our 5G technology, creating a licensing revenue pipeline on top of our product business."    

Q4 2022 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 or supply chain constraints. This statement is forward-looking and actual results may differ materially.

Taking into consideration current customer demand and the ongoing impact of supply chain constraints on the Company's ability to ship orders, management expects revenue to be flat or slightly down sequentially for the quarter ending December 31, 2022, while still representing significant growth compared with the fourth quarter of 2021, with gross margin expected to exceed 65%. 

Third Quarter 2022 Highlights:

Revenue: Revenue was $16.5 million, an increase of 16.2% compared to the second quarter of 2022 and an increase of 39.0% compared to the third quarter of 2021.The increase for the third quarter was primarily due to increased services and license revenue as a result of the new 5G strategic partnership, partially offset by decreases in product revenue.

Gross margin: Gross margin was 77.6% compared to 60.7% in the second quarter of 2022 and compared to 49.2% in the third quarter of 2021 due to the higher proportion of services and license revenue versus product sales in the revenue mix.

Operating profit / loss: Operating profit was $1.2 million compared to operating losses of $2.1 million in the second quarter of 2022 and $5.1 million in the third quarter of 2021.

Net profit / loss: Net loss was $2.9 million, or ($0.06) per diluted ADS, compared to a net loss of $3.2 million, or ($0.07) per ADS, in the second quarter of 2022 and a net profit of $0.2 million, or $0.01 per ADS, in the third quarter of 2021. Net loss in the third quarter of 2022 includes a $1.2 million loss on the change in fair value of the convertible debt derivative compared to a $0.7 million gain in the second quarter of 2022 and a $7.7 million gain in the third quarter of 2021. Net loss in the third quarter of 2022 includes a $0.5 million gain on the impact of the convertible debt amendment.

Non-IFRS Net profit / loss and diluted profit / loss per ADS:  Excluding the non-cash stock-based compensation, the non-cash impact of the fair-value, the amendment and effective interest adjustments related to the convertible debt with embedded derivatives and other financings, non-IFRS net gain was $0.4 million, or $0.01 per diluted ADS, compared to non-IFRS net losses of $1.2 million, or ($0.02) per diluted ADS in the second quarter of 2022, and $5.3 million, or ($0.14) per diluted ADS, in the third quarter of 2021. The non-IFRS net gain / loss includes foreign exchange gains of $1.0 million, or $0.02 per diluted ADS, in the third quarter of 2022, $1.2 million, or $0.02 per diluted ADS, in the second quarter of 2022 and $0.4 million, or $0.01 per diluted ADS, in the third quarter of 2021.

Cash: Cash and cash equivalents and short-term deposits at September 30, 2022 totaled $5.8 million compared to $16.8 million at June 30, 2022. The amount at September 30, 2022 excludes cash received from the 5G [1] strategic partnership of $13.5 million received in October 2022.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss the financial results for the third quarter of 2022 today, November 2, 2022 at 8:00 a.m. ET /13:00 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: 13733000. 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 16, 2022 by dialing toll free 844-512-2921 or +1 412-317-6671 from outside the U.S., using the following access code:13733000.

Forward Looking Statements

This press release contains projections and other forward-looking statements regarding future events  and our future financial performance. 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 future product 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, 2021, 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 resulting from inflationary pressures, including manufacturing and operating 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 the Ukraine-Russia conflict on our independent contractors located in Ukraine, (xiii) 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 or Covid-19 workforce shortages, (xiv) 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 planned 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)			Sept 30, 2022		June 30, 2022		Sept 30, 2021
	Revenue :
		Product revenue		$          4,385		$          7,674		$          7,545
		License and services revenue		12,143		6,547		4,346
	Total revenue			16,528		14,221		11,891
	Cost of revenue			3,708		5,592		6,043
	Gross profit			12,820		8,629		5,848
	Operating expenses :
		Research and development		6,960		5,875		6,634
		Sales and marketing		2,446		2,499		2,116
		General and administrative		2,199		2,351		2,181
	Total operating expenses			11,605		10,725		10,931
	Operating profit (loss)			1,215		(2,096)		(5,083)
	Financial income (expense):
		Interest income (expense), net		(2,784)		(2,858)		(2,685)
		Change in fair value of convertible debt derivative		(1,193)		663		7,706
		Impact of debt amendment		476		—		—
		Foreign exchange gain (loss)		1,030		1,218		409
	Profit (Loss) before income taxes			(1,256)		(3,073)		347
	Income tax expense			1,617		120		155
	Profit (Loss)			$        (2,873)		$        (3,193)		$             192
	Attributable to :
		Shareholders of the parent		(2,873)		(3,193)		192
		Minority interests		—		—		—
	Basic loss per ADS			($0.06)		($0.07)		$0.01
	Diluted loss per ADS			($0.06)		($0.07)		$0.00
	Weighted average number of ADS used for computing:
	— Basic			47,802,526		47,656,861		37,382,595
	— Diluted			47,802,526		47,656,861		41,024,405

 

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)			2022		2021
Revenue :
	Product revenue		$            17,984		$            23,486
	License and services revenue		26,656		13,583
Total revenue			44,640		37,069
Cost of revenue			13,736		17,768
Gross profit			30,904		19,301
Operating expenses :
	Research and development		19,249		19,736
	Sales and marketing		7,466		6,707
	General and administrative		7,042		7,148
Total operating expenses			33,757		33,591
Operating profit (loss)			(2,853)		(14,290)
Financial income (expense):
	Interest income (expense), net		(8,314)		(8,807)
	Change in fair value of convertible debt derivative		5,867		5,024
	Impact of debt amendment		476		5,177
	Foreign exchange gain (loss)		2,618		803
Profit (Loss) before income taxes			(2,206)		(12,093)
Income tax expense			1,841		452
Profit (Loss)			$            (4,047)		$          (12,545)
Attributable to :
	Shareholders of the parent		(4,047)		(12,545)
	Minority interests		—		—
Basic loss per ADS			($0.09)		($0.34)
Diluted loss per ADS			($0.09)		($0.34)
Weighted average number of ADS used for computing:
— Basic			45,538,645		36,396,026
— Diluted			45,538,645		36,396,026

 

SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
		At Sept 30,		At Dec 31,
(in thousands of US$)		2022		2021
ASSETS
	Non-current assets
	Property, plant and equipment	$                  9,253		$                    8,010
	Intangible assets	46,741		37,984
	Deposits and other receivables	620		2,311
	Other non-current financial assets	307		357
	Total non-current assets	56,921		48,662
	Current assets
	Inventories	10,102		6,433
	Trade receivables	17,258		13,622
	Contract assets	420		789
	Prepaid expenses	1,905		2,108
	Other receivables	3,980		7,252
	Research tax credit receivable	7,972		5,863
	Cash and cash equivalents	5,831		4,835
	Total current assets	47,468		40,902
Total assets		$               104,389		$                  89,564
EQUITY AND LIABILITIES
	Equity
	Issued capital, euro 0.01 nominal value, 191,714,374  shares authorized, issued and outstanding at September 30, 2022 (151,419,322  shares at December 31, 2021 and euro 0.02 nominal value)	$                  2,295		$                    3,687
	Share premium	2,443		298,389
	Other capital reserves	61,060		57,198
	Accumulated deficit	(60,138)		(383,554)
	Other components of equity	(812)		(26)
	Total equity	4,848		(24,306)
	Non-current liabilities
	Government grant advances, loans and other liabilities	5,132		9,354
	Convertible debt	41,437		36,373
	Convertible debt embedded derivative	4,213		10,081
	Lease liabilities	2,338		3,373
	Trade payables	2,486		964
	Provisions	2,158		2,137
	Deferred tax liabilities	113		138
	Contract liabilities	1,717		2,706
	Total non-current liabilities	59,594		65,126
	Current liabilities
	Trade payables	10,103		13,916
	Interest-bearing receivables financing	9,857		9,518
	Lease liabilities	1,213		1,247
	Government grant advances and loans	3,985		6,206
	Contract liabilities	6,901		8,677
	Other current liabilities and provisions	7,888		9,180
	Total current liabilities	39,947		48,744
Total equity and liabilities		$               104,389		$                  89,564

 

 

 

SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
				Nine months ended Sept 30,
(in thousands of US$)				2022		2021
Operating activities
	Profit (Loss) before income taxes			$           (2,206)		$       (12,093)
	Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities
		Depreciation and impairment of property, plant and equipment		2,901		2,733
		Amortization and impairment of intangible assets		5,574		5,417
		Share-based payment expense		3,667		3,273
		Increase in provisions		298		463
		Interest expense, net		8,314		8,807
		Change in the fair value of convertible debt embedded derivative		(5,867)		(5,024)
		Impact of debt reimbursement		(476)		(5,177)
		Foreign exchange loss (gain)		(897)		(743)
		Loss (Gain) on disposal of property, plant and equipment		—		7
	Working capital adjustments
		Decrease (Increase) in trade receivables and other receivables		(3,412)		5,973
		Decrease (increase) in inventories		(3,669)		342
		Increase  in research tax credit receivable		(636)		(2,700)
		Increase (Decrease) in trade payables and other liabilities		(7,499)		5,324
		Decrease in contract liabilities		(3,703)		(9,506)
		Decrease in government grant advances		(2,292)		(574)
	Income tax paid			(683)		(542)
Net cash flow provided by (used in) operating activities				(10,586)		(4,020)
Investing activities
	Purchase of intangible assets and property, plant and equipment			(5,892)		(8,511)
	Capitalized development expenditures			(11,308)		(14,926)
	Sale (Purchase) of financial assets			1,741		(1,760)
	Decrease of short-term deposit			—		2,900
	Interest received			47		36
Net cash flow provided by (used in) investments activities				(15,412)		(22,261)
Financing activities
	Proceeds from issue of warrants, exercise of stock options/warrants			—		99
	Public and private equity offering proceeds, net of transaction costs paid			30,125		9,881
	Proceeds (Repayment of) from interest-bearing receivables financing			342		(128)
	Proceeds from convertible debt, net of transaction cost			—		39,647
	Payment of lease liabilities			(929)		(810)
	Repayment of convertible debt			—		(8,750)
	Repayment of government loans			(633)		(356)
	Repayment of venture debt			—		(8,042)
	Repayment of interest-bearing research project financing			(812)		(804)
	Interest paid			(1,096)		(4,800)
Net cash flows from (used in) financing activities				26,997		25,937
	Net increase (decrease) in cash and cash equivalents			999		(344)
	Net foreign exchange difference			(3)		2
	Cash and cash equivalents at January 1			4,835		7,574
Cash and cash equivalents at end of the period				5,831		7,232

 

 

 

SEQUANS COMMUNICATIONS S.A.
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
(in thousands of US$, except share and per share amounts)			Three months ended
			Sept 30, 2022		June 30, 2022		Sept 30, 2021
Net IFRS gain (loss) as reported			$        (2,873)		$         (3,193)		$             192
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)		1,133		1,219		1,022
	Non-cash change in the fair value of convertible debt embedded derivative		1,193		(663)		(7,706)
	Non-cash interest on convertible debt  and other financing (2)		1,447		1,452		1,193
	Non-cash impact of convertible debt amendment		(476)		—		—
Non-IFRS gain (loss) adjusted			$              424		$         (1,185)		$        (5,299)
IFRS basic gain (loss) per ADS as reported			($0.06)		($0.07)		$0.01
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)		$0.02		$0.03		$0.03
	Non-cash change in the fair value of convertible debt embedded derivative		$0.03		($0.01)		($0.21)
	Non-cash interest on convertible debt  and other financing (2)		$0.03		$0.03		$0.03
	Non-cash impact of convertible debt amendment		$0.00		$0.00		$0.00
Non-IFRS basic gain (loss) per ADS			$0.01		($0.02)		($0.14)
IFRS diluted gain (loss) per ADS			($0.06)		($0.07)		$—
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)		$0.02		$0.03		$0.03
	Non-cash change in the fair value of convertible debt embedded derivative		$0.03		($0.01)		($0.21)
	Non-cash interest on convertible debt  and other financing (2)		$0.03		$0.03		$0.03
	Non-cash impact of convertible debt amendment		$0.00		$0.00		$0.00
Non-IFRS diluted gain (loss) per ADS			$0.01		($0.02)		($0.15)
	(1) Included in the IFRS loss as follows:
		Cost of product revenue	$                 41		$                 44		$                14
		Research and development	370		317		487
		Sales and marketing	268		287		200
		General and administrative	454		571		321
	(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)			Nine months ended Sept 30,
			2022		2021
Net IFRS gain (loss) as reported			$          (4,047)		$         (12,545)
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)		3,667		3,274
	Non-cash change in the fair value of convertible debt embedded derivative		(5,867)		(5,024)
	Non-cash interest on convertible debt  and other financing (2)		4,117		3,465
	Impact of debt reimbursement		—		(5,177)
	Non-cash impact of convertible debt amendment		(476)		—
Non-IFRS gain (loss) adjusted			$          (2,606)		$         (16,007)
IFRS basic gain (loss) per ADS as reported			($0.09)		($0.34)
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)		$0.08		$0.09
	Non-cash change in the fair value of convertible debt embedded derivative		($0.13)		($0.15)
	Non-cash interest on convertible debt  and other financing (2)		$0.09		$0.10
	Impact of debt reimbursement		$0.00		($0.14)
	Non-cash impact of convertible debt amendment		($0.01)		$0.00
Non-IFRS basic gain (loss) per ADS			($0.06)		($0.44)
IFRS diluted gain (loss) per ADS			($0.09)		($0.34)
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)		$0.08		$0.09
	Non-cash change in the fair value of convertible debt embedded derivative		($0.13)		($0.15)
	Non-cash interest on convertible debt  and other financing (2)		$0.09		$0.10
	Impact of debt reimbursement		$0.00		($0.14)
	Non-cash impact of convertible debt amendment		($0.01)		$0.00
Non-IFRS diluted gain (loss) per ADS			($0.06)		($0.44)
	(1) Included in the IFRS loss as follows:
		Cost of product revenue	$               114		$                  44
		Research and development	1,157		1,554
		Sales and marketing	846		623
		General and administrative	1,550		1,053
	(2) Related to the difference between contractual and effective interest rates

 

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SOURCE Sequans Communications

FAQ

What were Sequans Communications' Q3 2022 revenue and earnings results?

In Q3 2022, Sequans' revenue was $16.5 million with non-IFRS diluted earnings of $0.01 per ADS.

How did Sequans' financial performance compare to Q2 2022?

Sequans' revenue increased by 16% from Q2 2022, and gross profit improved significantly.

What are the future outlook expectations for Sequans Communications?

The company expects product shipments to grow in upcoming quarters despite current supply chain challenges.