27.10.2016 12:00:00

Sequans Communications Announces Third Quarter 2016 Financial Results

4G chipmaker Sequans Communications S.A. (NYSE:SQNS) today announced financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Highlights:

Revenue: Revenue of $12.5 million increased 26.0% compared to the second quarter of 2016, reflecting significantly higher levels of both product revenue and other revenue. Revenue increased 33.1% compared to the third quarter of 2015, due to both higher product revenue and higher other revenue.

Gross margin: Gross margin was 46.8% compared to gross margin of 44.6% in the second quarter of 2016, and compared to 40.8% in the third quarter of 2015.

Operating loss: Operating loss was $4.0 million, compared to an operating loss of $5.7 million in the second quarter of 2016 and an operating loss of $4.2 million in the third quarter of 2015.

Net loss: Net loss was $5.1 million, or ($0.08) per diluted share/ADS, compared to a net loss of $5.1 million, or ($0.09) per diluted share/ADS in the second quarter of 2016 and a net loss of $2.4 million, or ($0.04) per diluted share/ADS in the third quarter of 2015.

Non-IFRS Net loss: Excluding the non-cash items of stock-based compensation, the fair-value and effective interest adjustments related to the convertible debt and other financings, non-IFRS net loss was $4.3 million, or ($0.07) per diluted share/ADS, compared to a non-IFRS net loss of $5.8 million, or ($0.10) per diluted share/ADS in the second quarter of 2016, and a non-IFRS net loss of $4.6 million, or ($0.08) per diluted share/ADS, in the third quarter of 2015.

Cash: Cash, cash equivalents and short-term deposit at September 30, 2016 totaled $24.7 million, reflecting the net proceeds from the issuance of 15.2 million shares in the September 2016 equity financing. The underwriter purchased an additional 0.5 million shares pursuant to the over-allotment option in October 2016.

                     
In millions of US$ except percentages, shares and per share amounts Key Metrics
    Q3 2016     %*     Q2 2016     %*     Q3 2015     %*
Revenue $12.5 $9.9 $9.4
Gross profit 5.8 46.8% 4.4 44.6% 3.8 40.8%
Operating loss (4.0) (31.7%) (5.7) (58.0%) (4.2) (45.3%)
Net loss (5.1) (41.1%) (5.1) (51.2%) (2.4) (26.0%)
Diluted EPS ($0.08) ($0.09) ($0.04)
Weighted average number of diluted shares/ADS 61,642,549 59,280,702 59,144,741
Cash flow from (used in) operations (9.5) (4.2) (8.2)
Cash, cash equivalents and short-term deposit at quarter-end 24.7 7.5 13.0
 
Additional information on non-cash items:
- Stock-based compensation included in operating result 0.2 0.2 0.2
- Change in the fair value of convertible debt embedded derivative - (1.5) -2.5
- Non-cash interest on convertible debt and other financing 0.6 0.6 0.3
Non-IFRS diluted EPS (excludes stock-based compensation, fair value and effective interest adjustments related to the convertible debt and its embedded derivative, and the non-cash impact of revaluation of interest-free government loan) ($0.07) ($0.10) ($0.08)
                                   
* Percentage of revenue
 

"We reported a 26% sequential increase in revenue and a smaller than expected loss for the third quarter,” said Georges Karam, Sequans CEO. "Assuming the mid-point of our Q4 guidance, we are on track to report a 40% increase in revenue for the full year compared to 2015.

"We gained new design wins across all our platforms and products during Q3. The breadth of our design wins demonstrates the success of our strategy to supply a variety of tailored solutions optimized for the broadband and IoT markets. We continue to expect our growth to accelerate in 2017 and beyond as multiple products on several platforms, including Cat M1 and NB1, ramp on more LTE networks around the world.”

Q4 2016 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 fourth quarter of 2016 to be in the range of $13 to $15 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 ($0.05) and ($0.07) for the fourth quarter of 2016, based on approximately 75.0 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 third quarter of 2016 today, October 27, 2016 at 8:00 a.m. EDT/14:00 CEST. To participate in the live call, analysts and investors should dial 800-230-1085 (or +1 612-288-0340 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/webcasts-and-presentations/. A replay of the conference call will be available until November 27, 2016 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: 403282.

Forward-Looking Statements

This press release contains projections and other forward-looking statements regarding future events or our future financial performance. 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, plans 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, the non-cash financial expense related to the convertible debt and its embedded derivative issued in April 2015 and April 2016 and the impact of revaluation of an interest-free government loan issued in October 2015. 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 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 adjustment 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.com; www.facebook.com/sequans; www.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) Sept 30,

June 30,

Sept 30,
      2016       2016       2015
 
Revenue :
Product revenue $ 9,523 $ 7,699 $ 7,887
Other revenue     2,934         2,185         1,471  
Total revenue     12,457         9,884         9,358  
Cost of revenue
Cost of product revenue 5,900 4,667 5,153
Cost of other revenue     731         804         391  
Total cost of revenue     6,631         5,471         5,544  
Gross profit     5,826         4,413         3,814  
Operating expenses :
Research and development 6,391 6,889 5,525
Sales and marketing 1,926 1,495 1,406
General and administrative     1,459         1,761         1,119
Total operating expenses     9,776         10,145         8,050  
Operating loss     (3,950 )       (5,732 )       (4,236 )
Financial income (expense):
Interest income (expense), net (1,062 ) (916 ) (509 )
Other financial expense - (83 ) -
Change in the fair value of convertible debt embedded derivative - 1,544 2,488
Foreign exchange gain (loss)     (61 )       196         (91 )
Loss before income taxes     (5,073 )       (4,991 )       (2,348 )
Income tax expense (benefit)     53         70         81  
Loss $ (5,126 ) $ (5,061 ) (2,429 )
Attributable to :
Shareholders of the parent (5,126 ) (5,061 ) (2,429 )
Minority interests     -         -         -  
Basic loss per share     ($0.08 )       ($0.09 )       ($0.04 )
Diluted loss per share     ($0.08 )       ($0.09 )       ($0.04 )
Weighted average number of shares used for computing:
— Basic 61,642,549 59,280,702 59,144,741
— Diluted     61,642,549         59,280,702         59,144,741  
 

     
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)     2016         2015  
 
Revenue :
Product revenue $ 22,634 $ 18,118
Other revenue     8,992         3,544  
Total revenue     31,626         21,662  
Cost of revenue
Cost of product revenue 14,695 12,342
Cost of other revenue     2,282         860  
Total cost of revenue     16,977         13,202  
Gross profit     14,649         8,460  
Operating expenses :
Research and development 20,007 18,553
Sales and marketing 4,922 4,476
General and administrative     4,598         3,888  
Total operating expenses     29,527         26,917  
Operating loss     (14,878 )       (18,457 )
Financial income (expense):
Interest income (expense), net (2,606 ) (975 )
Other financial expense (83 ) (141 )
Change in the fair value of convertible debt embedded derivative (1,583 ) 2,213
Foreign exchange gain     (77 )       15  
Loss before income taxes     (19,227 )       (17,345 )
Income tax expense (benefit) 189 200
Loss (19,416 ) (17,545 )
Attributable to :
Shareholders of the parent (19,416 ) (17,545 )
Minority interests     -         -  
Basic loss per share     ($0.32 )       ($0.30 )
Diluted loss per share     ($0.32 )       ($0.30 )
Weighted average number of shares used for computing:
— Basic 60,049,335 59,144,741
— Diluted     60,049,335         59,144,741  
 

     
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
           
At Sept 30, At December 31,
(in thousands of US$)     2016     2015 *
 
ASSETS
Non-current assets
Property, plant and equipment $ 6,859 $ 7,116
Intangible assets 6,553 5,255
Deposits and other receivables 678 345
Available for sale assets     328         321  
Total non-current assets     14,418         13,037  
Current assets
Inventories 6,968 4,065
Trade receivables 14,263 16,497
Prepaid expenses and other receivables 3,874 3,170
Recoverable value added tax 607 541
Research tax credit receivable 1,925 2,865
Short term deposit 344 393
Cash and cash equivalents     24,307         8,288  
Total current assets     52,288         35,819  
Total assets $ 66,706 $ 48,856
 
EQUITY AND LIABILITIES
Equity
Issued capital, euro 0.02 nominal value, 74,498,762 shares authorized, issued and outstanding at September 30, 2016 (59,166,741 at December 31, 2015) $ 1,911 $ 1,568
Share premium 188,265 165,536
Other capital reserves 27,798 16,864
Accumulated deficit (204,182 ) (184,766 )
Other components of equity     (491 )       (450 )
Total equity (deficit)     13,301         (1,248 )
Non-current liabilities
Government grant advances, loans and other liabilities 5,249 5,385
Convertible debt and accrued interest 15,477 8,984
Provisions 1,610 1,396
Other Liabilities     1,914         3,267  
Total non-current liabilities     24,250         19,032  
Current liabilities
Trade payables 15,056 9,498
Interest-bearing receivables financing 5,629 6,472
Government grant advances 1,065 916
Convertible debt embedded derivative - 6,091
Finance lease obligations - 12
Other current liabilities 4,487 4,604
Deferred revenue 2,718 3,162
Provisions     200         317  
Total current liabilities     29,155         31,072  
Total equity and liabilities $ 66,706 $ 48,856
 
* Prior to the issuance of the audited 2015 financial statements, the estimate of costs to complete one service contract was revised based on the best information available at that time, resulting in a remeasurement of the percentage of completion as of December 31, 2015. This remeasurement resulted in a shift of $177,000 in revenue from the fourth quarter of 2015 to the first quarter of 2016, and a corresponding increase in net loss in the fourth quarter of 2015.
 

     
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine months ended Sept 30,
(in thousands of US$)     2016       2015
 
Operating activities
Loss before income taxes $ (19,227 ) $ (17,345 )
Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities
Depreciation and impairment of property, plant and equipment 2,353 2,579
Amortization and impairment of intangible assets 1,532 1,385
Share-based payment expense 663 621
Increase (decrease) in provisions 50 (41 )
Financial expense (income) 2,616 975
Change in the fair value of convertible debt embedded derivative 1,583 (2,213 )
Other financial expenses 83 141
Foreign exchange loss (gain) 181 (208 )
Loss (Gain) on disposal of property, plant and equipment - (3 )
Working capital adjustments
Decrease (Increase) in trade receivables and other receivables 1,504 (814 )
Decrease (Increase) in inventories (2,903 ) 2,977
Decrease (Increase) in research tax credit receivable 940 1,141
Increase (Decrease) in trade payables and other liabilities 1,893 (2,996 )
Increase (Decrease) in deferred revenue (444 ) 41
Increase (Decrease) in government grant advances (559 ) (204 )
Income tax paid (175 ) (192 )
Net cash flow from (used in) operating activities (9,910 ) (14,157 )
 
Investing activities
Purchase of intangible assets and property, plant and equipment (3,724 ) (2,590 )
Sale (purchase) of financial assets (11 ) 319
Sale of short-term deposit 49 (234 )
Interest received 10 23
Net cash flow used in investments activities (3,676 ) (2,482 )
 
Financing activities
Public equity offering proceeds, net of transaction costs paid 23,445 -
Proceeds from issue of warrants, exercise of stock options/warrants 267 1
Proceeds from (repayment of) Interest-bearing receivables financing (843 ) 2,024
Proceeds from government loans, net of transaction cost - 2,134
Proceeds from convertible debt, net of transaction cost 6,932 11,582
Repayment of borrowings and finance lease liabilities (12 ) (157 )
Interest paid (159 ) (108 )
Net cash flows used in financing activities 29,630 15,476
 
Net increase (decrease) in cash and cash equivalents 16,044 (1,163 )
Net foreign exchange difference (25 ) (4 )
Cash and cash equivalent at January 1 8,288 12,329
Cash and cash equivalents at end of the period $ 24,307 $ 11,162
 

         
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
                 
Three months ended
(in thousands of US$, except share and per share amounts) Sept 30,

June 30,

Sept 30,
      2016       2016       2015
Net IFRS loss as reported $ (5,126 ) $ (5,061 ) $ (2,429 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 183 226 186
Change in the fair value of convertible debt embedded derivative - (1,544 ) (2,488 )
Non-cash interest on Convertible debt and other financing (2) 626 556 254
Non-cash impact of revaluation of interest-free government loan - - (121 )
Non-IFRS loss adjusted   $ (4,317 )     $ (5,823 )     $ (4,598 )
 
IFRS basic loss per share as reported ($0.08 ) ($0.09 ) ($0.04 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $ 0.00 $ 0.01 $ 0.00
Change in the fair value of convertible debt embedded derivative $ 0.00 ($0.03 ) ($0.04 )
Non-cash interest on Convertible debt and other financing (2) $ 0.01 $ 0.01 $ 0.00
Non-cash impact of revaluation of interest-free government loan   $ 0.00       $ 0.00         ($0.00 )
Non-IFRS basic loss per share     ($0.07 )       ($0.10 )       ($0.08 )
IFRS diluted loss per share ($0.08 ) ($0.09 ) ($0.04 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $ 0.00 $ 0.01 $ 0.00
Change in the fair value of convertible debt embedded derivative $ 0.00 ($0.03 ) ($0.04 )
Non-cash interest on Convertible debt and other financing (2) $ 0.01 $ 0.01 $ 0.00
Non-cash impact of revaluation of interest-free government loan                 ($0.00 )
Non-IFRS diluted loss per share     ($0.07 )       ($0.10 )       ($0.08 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue $ 4 $ 4 $ 3
Research and development 79 96 81
Sales and marketing 31 35 29
General and administrative 69 91 73
 
(2) Related to the difference between contractual and effective interests
 

     
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
           
Nine months ended
(in thousands of US$, except share and per share amounts) Sept 30, Sept 30,
      2016       2015
Net IFRS loss as reported (19,416 ) (17,545 )
Add back
Stock-based compensation expense according to IFRS 2 (1) 663 621
Change in the fair value of convertible debt embedded derivative 1,583 2,213
Non-cash interest on Convertible debt and other financing (2) 1,547 469
Non-cash impact of revaluation of interest-free government loan - (121 )
Non-IFRS loss adjusted     (15,623 )       (14,363 )
 
IFRS basic loss per share as reported ($0.32 ) ($0.30 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $ 0.00 $ 0.01
Change in the fair value of convertible debt embedded derivative $ 0.03 $ 0.05
Non-cash interest on Convertible debt and other financing (2) $ 0.03 ($0.00 )
Non-cash impact of revaluation of interest-free government loan   $ 0.00         ($0.00 )
Non-IFRS basic loss per share     ($0.26 )       ($0.24 )
IFRS diluted loss per share ($0.32 ) ($0.30 )
Add back
Stock-based compensation expense according to IFRS 2 (1) $ 0.00 $ 0.01
Change in the fair value of convertible debt embedded derivative $ 0.03 $ 0.05
Non-cash interest on Convertible debt and other financing (2) $ 0.03 ($0.00 )
Non-cash impact of revaluation of interest-free government loan   $ 0.00         ($0.00 )
Non-IFRS diluted loss per share     ($0.26 )       ($0.24 )
 
(1) Included in the IFRS loss as follows:
Cost of product revenue

$

12

$

13
Research and development 283 266
Sales and marketing 105 103
General and administrative 263 239
 
(2) Related to the difference between contractual and effective interests

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