SQNS - Sequans Communications Announces Second Quarter 2023 Financial Results

August, 07 2023 03:10 AM Sequans Communications S.A. American Depositary Shares each representing one

Announces that Sequans has signed a Memorandum of Understanding (MOU) with Renesas
Company to Hold a Conference Call Today at August 7 at 8:30 am ET to Discuss the Transaction

Paris, France--(Newsfile Corp. - August 7, 2023) - Sequans Communications S.A. (NYSE: SQNS), a leading developer and provider of 5G/4G solutions for IoT devices, today announced financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Summary Results Table:

(in US$ millions, except share and per share data)
Q2 2023

Q1 2023

Q2 2022

Revenue
$9.2

$11.9

$14.2

Gross profit
7.5

9.3

8.6

Gross margin (%)
82.3
%
78.5
%
60.7
%
Operating profit (loss)
(5.4)

(4.0)

(2.1)

Net profit (loss)
(9.1)

(5.0)

(3.2)

Diluted earnings (loss) per ADS
($0.16)

($0.10)

($0.07)

Non-IFRS diluted earnings (loss) per ADS *
($0.10)

($0.09)

($0.02)

Weighted average number of diluted ADS (IFRS)
57,119,468

48,382,629

47,656,861

Weighted average number of diluted ADS (Non-IFRS)
57,119,468

48,382,629

47,656,861

* 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

"Our second-quarter results reflect the expected delay in our production ramp, alongside a significant contribution from licensing revenue, which lifted our gross margin to 83%," said Georges Karam, CEO of Sequans. "During this period, our revenue pipeline has continued to grow, driven by the strong momentum of design wins from new deals secured with both Cat-M Monarch and Cat 1 Calliope platforms and Taurus 5G advanced design ins. We have witnessed increased engagement and interest from customers in our Taurus 5G platform, which has further bolstered our pipeline. We anticipate commencing sampling of this platform in the fourth quarter of 2023."

Mr. Karam continued, "We are excited to announce that Renesas and Sequans have signed a Memorandum of Understanding (MOU), subject to completion of the works council consultation, to initiate a tender offer transaction for Sequans to be acquired by Renesas. By joining forces, Sequans will be able to leverage Renesas' worldwide sales and support organization to enhance our design wins, and with the Sequans brand under the Renesas umbrella, we will be better equipped to compete in the Cellular IoT market."

Second Quarter 2023 Financial summary:

Revenue: Revenue was $9.2 million, a decrease of 23.0% compared to the first quarter of 2023 and a decrease of 35.6% compared to the second quarter of 2022.

Gross margin: Gross margin was 82.3% compared to 78.5% in the first quarter of 2023 and compared to 60.7% in the second quarter of 2022.

Operating profit / loss: Operating loss was $5.4 million compared to operating loss of $4.0 million in the first quarter of 2023 and operating loss of $2.1 million in the second quarter of 2022.

Net profit / loss: Net loss was $9.1 million, or ($0.16) per diluted ADS, compared to a net loss of $5.0 million, or ($0.10) per diluted ADS, in the first quarter of 2023 and net loss of $3.2 million, or ($0.07) per diluted ADS, in the second quarter of 2022. Net loss in the second quarter of 2023 includes a $0.3 million gain on the change in fair value of the convertible debt derivative whereas in the first quarter of 2023 there was a gain of $2.3 million and a gain of $0.7 million in the second quarter of 2022.

Non-IFRS loss and diluted 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 loss was $6.0 million, or ($0.10) per diluted ADS, compared to non-IFRS net loss of $4.2 million, or ($0.09) per diluted ADS in the first quarter of 2023, and a non-IFRS net loss of $1.2 million, or ($0.02) per diluted ADS, in the second quarter of 2022. The non-IFRS net loss includes foreign exchange losses of $40,000 , or ($0.00) per diluted ADS, in the second quarter of 2023, $0.2 million, or ($0.00) per diluted ADS in the first quarter of 2023 and foreign exchange gain of $1.2 million, or $0.03 per diluted ADS, in the second quarter of 2022.

Cash: Cash and cash equivalents and short-term deposits at June 30, 2023 totaled $7.9 million compared to $5.3 million at March 31, 2023. The quarter-end cash balance does not reflect the collection in the first week of July of $3.4 million due from a major customer on June 30, 2023.

Conference Call and Webcast

Note: Sequans will not host an earnings conference due to the planned tender offer by Renesas announced today, August 7, 2023.

At 8:30 am EST, the company is holding a conference call to discuss the Renesas tender offer transaction. To join the call, please use the information provided below:

Conference Call Details

Date:

Monday, August 7, 2023

Time:

8:30 a.m. ET / 14:30 CET

Dial in:

U.S. toll-free: 877-550-1707

International: +1 848-488-9020

Access code:

153049

A live and archived webcast of the call will be available from the Investor Relations section of the Sequans website at www.sequans.com/investors/webcasts-and-presentations. An audio replay of the conference call will be available until August 14, 2023 by dialing toll-free 1-844-512-2921 in the U.S., or +1 412-317-6671 from outside the U.S., using the following access code: 153049.

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 [the proposed tender offer and acquisition by Renesas and expected benefits therefrom our future results of operations and financial positions, the anticipate timing for the sampling of the Taurus 5G platform, business strategy, plans, including the ability to enter into new 5G strategic agreements, the exploration of strategic options, expectations for Massive IoT sales, 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, 2022, 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 and rising interest rates, including manufacturing and operating expenses and interest expense, (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 fluctuations 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) our ability to raise debt and equity financing, (xiv) the potential failure to satisfy conditions to the completion of the proposed Renesas transaction due to the failure to receive a sufficient number of tendered shares in the tender offer, (xv) the failure to obtain necessary regulatory or other approvals, (xvi) the outcome of legal proceedings that may be instituted against Sequans and/or others relating to the transaction, (xvii) the possibility that competing offers will be made, (xviii) risks associated with acquisitions, such as the risk that transaction may be more difficult, time-consuming or costly than expected or that the expected benefits of the transaction will not occur, and (xix) 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.

Important Additional Information and Where to Find It

In connection with the proposed acquisition of Sequans Communications S.A. ("Sequans") by Renesas Electronics Corporation, a Japanese corporation ("Parent" or "Renesas"), Parent will commence, or will cause to be commenced, a tender offer for all of the outstanding ordinary shares, American Depositary Shares of Sequans. The tender offer has not commenced. This communication is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell securities of Sequans. It is also not a substitute for the tender offer materials that Parent or Renesas Electronics Europe GmbH, a wholly owned subsidiary of Parent ("Purchaser") will file with the Securities and Exchange Commission (the "SEC") upon commencement of the tender offer. At the time that the tender offer is commenced, Parent and Purchaser will file tender offer materials on Schedule TO with the SEC, and Sequans will file a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC with respect to the tender offer. THE TENDER OFFER MATERIALS (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND CERTAIN OTHER TENDER OFFER DOCUMENTS) AND THE SOLICITATION/RECOMMENDATION STATEMENT WILL CONTAIN IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY AND CONSIDERED BY SEQUANS' SECURITY HOLDERS BEFORE ANY DECISION IS MADE WITH RESPECT TO THE TENDER OFFER. Both the tender offer materials and the solicitation/recommendation statement will be made available to Sequans' investors and security holders free of charge. A free copy of the tender offer materials and the solicitation/recommendation statement will also be made available to all of Sequans' investors and security holders by contacting Sequans at ir@sequans.com, or by visiting Sequans' website (www.sequans.com). In addition, the tender offer materials and the solicitation/recommendation statement (and all other documents filed by Sequans with the SEC) will be available at no charge on the SEC's website (www.sec.gov) upon filing with the SEC. SEQUANS' INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE TENDER OFFER MATERIALS AND THE SOLICITATION/RECOMMENDATION STATEMENT, AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AND ANY OTHER RELEVANT DOCUMENTS FILED BY PARENT OR SEQUANS WITH THE SEC WHEN THEY BECOME AVAILABLE BEFORE THEY MAKE ANY DECISION WITH RESPECT TO THE TENDER OFFER. THESE MATERIALS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TENDER OFFER, PARENT AND SEQUANS.

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)

June 30, 2023


March 31, 2023


June 30, 2022


















Revenue :











Product revenue
$
996

$
2,340

$
7,674



License and services revenue

8,162


9,559


6,547


Total revenue

9,158


11,899


14,221


Cost of revenue

1,625


2,556


5,592


Gross profit

7,533


9,343


8,629


Operating expenses :











Research and development

6,346


7,488


5,875



Sales and marketing

2,982


3,033


2,499



General and administrative

3,588


2,818


2,351














Total operating expenses

12,916


13,339


10,725


Operating profit (loss)

(5,383
)

(3,996
)

(2,096
)

Financial income (expense):











Interest income (expense), net

(2,796
)

(2,515
)

(2,858
)


Change in fair value of convertible debt derivative

325


2,302


663



Foreign exchange gain (loss)

(40
)

(165
)

1,218


Profit (Loss) before income taxes

(7,894
)

(4,374
)

(3,073
)

Income tax expense

1,223


666


120


Profit (Loss)
$
(9,117
)
$
(5,040
)
$
(3,193
)

Attributable to :











Shareholders of the parent

(9,117
)

(5,040
)

(3,193
)


Minority interests

-


-


-


Basic loss per ADS

($0.16
)

($0.10
)

($0.07
)

Diluted loss per ADS

($0.16
)

($0.10
)

($0.07
)

Weighted average number of ADS used for computing:










- Basic

57,119,468


48,382,629


47,656,861


- Diluted

57,119,468


48,382,629


47,656,861

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)


2023


2022












Revenue :









Product revenue

$
3,336

$
13,599



License and services revenue


17,721


14,513

Total revenue


21,057


28,112

Cost of revenue


4,181


10,028

Gross profit


16,876


18,084

Operating expenses :









Research and development


13,834


12,289



Sales and marketing


6,015


5,020



General and administrative


6,406


4,843












Total operating expenses


26,255


22,152

Operating profit (loss)


(9,379
)

(4,068
)
Financial income (expense):









Interest income (expense), net


(5,311
)

(5,530
)


Change in fair value of convertible debt derivative


2,627


7,060



Foreign exchange gain (loss)


(205
)

1,588

Profit (Loss) before income taxes


(12,268
)

(950
)
Income tax expense


1,889


224

Profit (Loss)

$
(14,157
)
$
(1,174
)
Attributable to :









Shareholders of the parent


(14,157
)

(1,174
)


Minority interests


-


-

Basic loss per ADS


($0.27
)

($0.03
)
Diluted loss per ADS


($0.27
)

($0.03
)
Weighted average number of ADS used for computing:







- Basic


52,774,984


44,388,055

- Diluted


52,774,984


44,388,055

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION






At June 30,


At Dec 31,

(in thousands of US$)


2023


2022

ASSETS









Non-current assets









Property, plant and equipment

$
7,486

$
8,489



Intangible assets


55,474


48,705



Deposits and other receivables


749


783



Other non-current financial assets


343


337



Total non-current assets


64,052


58,314



Current assets









Inventories


8,404


9,387



Trade receivables


12,307


8,494



Contract assets


664


176



Prepaid expenses


1,822


1,399



Other receivables


4,958


5,799



Research tax credit receivable


6,806


4,515



Short-term deposits


5,000


5,000



Cash and cash equivalents


2,893


5,671



Total current assets


42,854


40,441

Total assets

$
106,906

$
98,755

EQUITY AND LIABILITIES









Equity









Issued capital, euro 0.01 nominal value, 233,824,336 shares authorized, issued and outstanding at June 30, 2023 (193,426,478 shares at December 31, 2022)

$
2,747

$
2,306



Share premium


8,805


2,418



Other capital reserves


66,429


62,870



Accumulated deficit


(66,529
)

(65,099
)


Other components of equity


(610
)

(391
)


Total equity


10,842


2,104



Non-current liabilities









Government grant advances, loans and other liabilities


4,797


6,235



Convertible debt


6,548


43,455



Convertible debt embedded derivative


554


3,203



Lease liabilities


2,171


2,278



Trade payables


1,136


1,788



Provisions


2,172


2,196



Deferred tax liabilities


272


258



Contract liabilities


404


404



Total non-current liabilities


18,054


59,817



Current liabilities









Trade payables


10,796


9,342



Interest-bearing receivables financing


6,837


7,723



Lease liabilities


1,173


1,291



Convertible debt


41,262


-



Convertible debt embedded derivative


22


-



Government grant advances and loans


4,172


4,159



Contract liabilities


5,461


5,964



Other current liabilities and provisions


8,287


8,355



Total current liabilities


78,010


36,834

Total equity and liabilities

$
106,906

$
98,755

SEQUANS COMMUNICATIONS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW




Six months ended June 30,

(in thousands of US$)

2023


2022

Operating activities







Profit (Loss) before income taxes
$
(12,268
)
$
(950
)

Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities







Depreciation and impairment of property, plant and equipment

1,953


1,805


Amortization and impairment of intangible assets

4,669


3,464


Share-based payment expense

3,559


2,535


Increase in provisions

(1
)

207


Interest expense, net

5,311


5,530


Change in the fair value of convertible debt embedded derivative

(2,627
)

(7,061
)

Foreign exchange loss (gain)

281


(363
)

Working capital adjustments







Decrease (Increase) in trade receivables and other receivables

(5,163
)

5,218


Decrease (increase) in inventories

983


(545
)

Increase in research tax credit receivable

(1,211
)

(853
)

Increase (Decrease) in trade payables and other liabilities

1,040


(4,803
)

Decrease in contract liabilities

(621
)

(7,247
)

Decrease in government grant advances

(333
)

(4,143
)

Income tax paid

(794
)

(487
)
Net cash flow used in operating activities

(5,222
)

(7,693
)
Investing activities







Purchase of intangible assets and property, plant and equipment

(2,118
)

(4,761
)

Capitalized development expenditures

(11,931
)

(7,935
)

Sale (Purchase) of financial assets

28


1,681


Decrease of short-term deposit

-


(7,000
)

Interest received

99


12

Net cash flow used in investments activities

(13,922
)

(18,003
)
Financing activities







Public and private equity offering proceeds, net of transaction costs paid

19,555


30,155


Proceeds (Repayment of) from interest-bearing receivables financing

(910
)

2,611


Proceeds from interest-bearing research project financing

545


-


Payment of lease liabilities

(657
)

(602
)

Repayment of government loans

(782
)

(216
)

Repayment of interest-bearing research project financing

(693
)

(630
)

Interest paid

(694
)

(708
)
Net cash flows from financing activities

16,364


30,610


Net increase (decrease) in cash and cash equivalents

(2,780
)

4,914


Net foreign exchange difference

2


4


Cash and cash equivalents at January 1

5,671


4,835

Cash and cash equivalents at end of the period

2,893


9,753

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, 2023


March 31, 2023


June 30, 2022

Net IFRS gain (loss) as reported

$
(9,117
)
$
(5,040
)
$
(3,193
)
Add back












Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾


1,778


1,781


1,219



Non-cash change in the fair value of convertible debt embedded derivative


(325
)

(2,302
)

(663
)


Non-cash interest on convertible debt and other financing ⁽²⁾


1,706


1,408


1,452

Non-IFRS gain (loss) adjusted

$
(5,958
)
$
(4,153
)
$
(1,185
)
IFRS basic gain (loss) per ADS as reported


($0.16
)

($0.10
)

($0.07
)
Add back












Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾

$
0.04

$
0.04

$
0.03



Non-cash change in the fair value of convertible debt embedded derivative


($0.01
)

($0.05
)

($0.01
)


Non-cash interest on convertible debt and other financing ⁽²⁾

$
0.03

$
0.03

$
0.03

Non-IFRS basic gain (loss) per ADS


($0.10
)

($0.09
)

($0.02
)
IFRS diluted gain (loss) per ADS


($0.16
)

($0.10
)

($0.07
)
Add back












Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾

$
0.04

$
0.04

$
0.03



Non-cash change in the fair value of convertible debt embedded derivative


($0.01
)

($0.05
)

($0.01
)


Non-cash interest on convertible debt and other financing ⁽²⁾

$
0.03

$
0.04

$
0.03

Non-IFRS diluted gain (loss) per ADS


($0.10
)

($0.09
)

($0.02
)
















(1) Included in the IFRS loss as follows:













Cost of product revenue

$
27

$
32

$
44




Research and development


488


470


317




Sales and marketing


361


347


287




General and administrative


902


932


571



(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)


Six months ended June 30,


2023


2022


Net IFRS gain (loss) as reported

$
(14,157
)
$
(1,174
)

Add back









Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾


3,559


2,534



Non-cash change in the fair value of convertible debt embedded derivative


(2,627
)

(7,060
)


Non-cash interest on convertible debt and other financing (2)


3,114


2,670


Non-IFRS gain (loss) adjusted

$
(10,111
)
$
(3,030
)

IFRS basic gain (loss) per ADS as reported


($0.27
)

($0.03
)

Add back









Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾

$
0.07

$
0.06



Non-cash change in the fair value of convertible debt embedded derivative


($0.05
)

($0.16
)


Non-cash interest on convertible debt and other financing ⁽²⁾

$
0.06


$0.06


Non-IFRS basic gain (loss) per ADS


($0.19
)

($0.07
)

IFRS diluted gain (loss) per ADS


($0.27
)

($0.03
)

Add back









Non-cash stock-based compensation expense according to IFRS 2 ⁽¹⁾

$
0.07


$0.06



Non-cash change in the fair value of convertible debt embedded derivative


($0.05
)

($0.16
)


Non-cash interest on convertible debt and other financing ⁽²⁾

$
0.06


$0.06


Non-IFRS diluted gain (loss) per ADS


($0.19
)

($0.07
)













(1) Included in the IFRS loss as follows:










Cost of product revenue

$
59

$
73




Research and development


958


787




Sales and marketing


708


578




General and administrative


1,834


1,096



(2) Related to the difference between contractual and effective interest rates

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/176258

Company Name:	Sequans Communications S.A. American Depositary Shares each representing one
Stock Symbol:	SQNS
Market:	NYSE
Website:	sequans.com

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