Sequans munications S.A.(SQNS) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 revenue was $12.2 million, a sequential increase of 39.4% from Q1, primarily driven by a 59% increase in product revenue [53] - Revenue in Q2 increased 54.6% compared to the same quarter a year ago, with expectations for further sequential growth in the final two quarters of the year [54] - Gross margin in Q2 was 48.3%, down from 51.3% in Q1 but up from 37.7% in Q2 of 2019 [54][56] - Operating loss in Q2 was $5.6 million, improved from a loss of $7.8 million in Q1 [56] - Net loss in Q2 was $19 million or $0.70 per diluted ADS, compared to a net loss of $15.3 million in Q1 [56][57] Business Line Data and Key Metrics Changes - Broadband IoT revenue more than doubled sequentially, driven by increased demand for modules for portable routers [15][53] - Massive IoT revenue showed sequential growth, with expectations for continued growth in the second half of the year [34][37] - Vertical and strategic business remains on track for significant increases in 2020, mainly due to revenue recognition from large strategic deals signed last year [44] Market Data and Key Metrics Changes - The demand for broadband solutions is expected to remain high, particularly in emerging markets, with new customers now in production [21][48] - The CBRS market is anticipated to contribute several million dollars to revenue next year, with strong interest from various sectors [25][102] - The global digital divide remains a significant issue, with nearly 50% of the world's population lacking internet access, creating opportunities for broadband solutions [18][20] Company Strategy and Development Direction - The company is focused on expanding its 5G capabilities and partnerships, positioning itself as a leader in the IoT market [30][72] - Continued investment in Massive IoT and Broadband IoT is expected to drive growth, with a target of at least 50% revenue growth for 2020 [48][50] - The company aims to leverage its unique position in the 5G market to capitalize on long-term growth opportunities [51] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a strong foundation for growth despite ongoing macroeconomic uncertainties [48][72] - The impact of COVID-19 on demand is expected to be offset by increased interest in remote working and learning solutions [12][16] - Supply chain challenges are being managed, with expectations for improvement in component availability [11][76] Other Important Information - The company raised $32.6 million in equity capital to strengthen its balance sheet [7] - Cash flow used in operations during Q2 was $1.4 million, significantly improved from $7.7 million in Q1 [65] - The company is targeting at least 10% sequential revenue growth in Q3 and expects continued growth in Q4 [68] Q&A Session Summary Question: Supply chain issues impacting Verizon Jetpack and Massive IoT business - Management indicated that supply issues are improving, with expectations for better supply in August, but caution remains due to unpredictable demand [76] Question: Growth dynamics in Critical IoT and geographic mix - Management noted that emerging markets are ramping up, contributing positively to growth, with no significant impact on gross margins expected [78][80] Question: Visibility into demand creation with distribution and MCU partners - Management expressed optimism about the demand creation and design win funnels, indicating a positive trend for the second half of the year [81][84] Question: Sequential growth across business lines - Management clarified that growth will primarily come from Broadband and Massive IoT, with vertical and strategic projects not expected to contribute significantly in Q3 [89] Question: Cash position and funding from French and Israeli governments - Management expects the fundraising to support reaching cash flow breakeven, with potential funding amounts of about $6 million from France and $400,000 per quarter from Israel [91][92] Question: Timing of EPS breakeven and cost structure for next year - Management anticipates no significant increase in operating expenses for 2021, with the 5G team fully ramped [96] Question: Growth opportunities in the CBRS market - Management highlighted the potential for new applications in the CBRS market, with expectations for incremental revenue next year [99][101] Question: Impact of supply chain dynamics on outlook for China - Management noted positive dynamics arising from current market conditions, with potential opportunities in China being explored [102]