Sequans munications S.A.(SQNS) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 2019 was $8.1 million, a sequential increase of 15.1% from Q1 2019, primarily due to higher revenue in broadband and IoT, but a decrease of 36% compared to Q2 2018 [19][22] - Gross margin in Q2 was 40.1%, down from 41% in Q1 2019, but up from 39.4% in Q2 2018 [21] - Operating loss for Q2 was $6.6 million, an improvement from a loss of $7.4 million in Q1 2019 and $7 million in Q2 2018 [22] - Net loss in Q2 was $8.9 million or $0.09 per diluted share, compared to a net loss of $9 million or $0.10 per diluted share in Q1 2019 [22][23] Business Line Data and Key Metrics Changes - Product revenue increased by 49% sequentially in Q2, driven by growth in both IoT and broadband businesses [6][19] - The IoT business, particularly CAT 1 products and CAT M/NB, showed significant sequential growth, with several new design wins contributing to future revenue [7][10] - The broadband business is recovering, with new design wins in the CBRS space and a growing pipeline for single-mode CAT 4 and CAT 6 solutions [11][12] Market Data and Key Metrics Changes - Strong activity for CAT M in the U.S. and Japan, with expectations for Europe to ramp up as well [9][10] - The company has a growing pipeline of business in various vertical markets, including satellite, avionic, and public safety, with potential to generate over $10 million per year in revenue [13] Company Strategy and Development Direction - The company aims to reinforce its leadership in 4G solutions for non-handset applications in the 5G market, focusing on transitioning from 4G to 5G technology [14] - Strategic initiatives include engaging with potential partners for non-exclusive licensing arrangements to develop new market strategies [15][17] - The company is optimistic about finalizing additional strategic relationships to enhance its financial position without creating dilution [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ramp-up of product revenues and the potential for significant growth in 2020, with expectations for several times the revenue achieved in 2019 [10][45] - The company is cautious about providing specific revenue guidance due to dependencies on various product revenues and potential market fluctuations [45] Other Important Information - The company has secured a backstop for up to $15 million of convertible debt and/or equity from a major shareholder to strengthen its financial position [17][26] - The long-term target gross margin is close to 50%, with expectations that a higher proportion of revenues will come from chip-based products rather than modules [54] Q&A Session Summary Question: Cash situation and strategic dialogue - Management confirmed $3.7 million from R&D tax credits and a $15 million backstop offer, emphasizing the importance of negotiating from a position of strength [32][33] Question: Product development and revenue contribution - Management indicated that Monarch 2 and Monarch N are on track for Q3, with expectations for revenue contributions from NB-IoT deals next year [35][36] Question: Future revenue pipeline and growth expectations - The estimated future revenue pipeline of $300 million is expected to ramp up over three years, with significant growth potential in 2020 [40][44] Question: Impact of Huawei ban on customer interest - Management noted a unique position to capitalize on the NB-IoT market due to competitors' focus on dual-mode solutions, which may benefit Sequans [47][48] Question: Operating expenses and profitability - The company aims to maintain non-IFRS operating expenses at $9.5 million per quarter, with no immediate plans for additional cost-cutting measures [51][52] Question: Compliance with NYSE - Management believes compliance will be restored through an increase in stock price rather than a reverse split [56][57]