Sequans Communications S.A.: Sequans Communications Announces First Quarter 2021 Financial Results

Sequans Communications S.A. (NYSE: SQNS), a leading developer and provider of 5G/4G chips and modules, today announced financial results for the first quarter ended March 31, 2021.

First Quarter 2021 Summary Results Table:

(in US$ millions, except share and per share data)	Q1 2021			Q4 2020			Q1 2020
Revenue	$12.3			$15.8			$8.8
Gross profit	6.2			7.1			4.5
Gross margin (%)	50.1			45.1			51.3
Operating loss	(5.8			(5.4			(7.8
Net loss	(11.4			(11.3			(15.3
Diluted earnings per ADS	($0.33			($0.36			($0.64
Non-IFRS diluted earnings per ADS (1)	($0.15			($0.28			($0.36
Weighted average number of diluted ADS	34,664,779			31,044,769			23,904,935
(1) See Use of Non-IFRS/non-GAAP Financial Measures disclosure on page 3

"First quarter revenue grew by 40% year-over-year driven by significant gains in Massive IoT. Sequans continued to see strong momentum in our product revenue pipeline and design wins, particularly from solid demand in Massive IoT," said Georges Karam, CEO of Sequans. "On a sequential basis, our seasonally slower first quarter revenue was also impacted by supply chain constraints that delayed approximately $2 million of shipments, and the anticipated decline in demand for the modem we supply for the Verizon Jetpack. We continue to execute our long-term growth strategy on three fronts continued growth in Massive IoT and CBRS IoT, expansion of our go-to-market channels, and ongoing development of our 5G product line. We remain committed to delivering our first 5G NR solution in 2022 and entering the next growth phase for our company."

Q2 2021 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. This statement is forward-looking and actual results may differ materially.

Despite the continued supply chain constraints for materials, and factoring in the risk related to the portable router business, management is targeting a 10% sequential increase in revenue.

First Quarter 2021 Financial and Operational Results Summary

Revenue for the first quarter was $12.3 million, a decrease of 22.0% compared to the fourth quarter of 2020 and an increase of 40.5% compared to the first quarter of 2020. The decrease from the prior fourth quarter was primarily due to the seasonally slower first quarter combined with delayed shipments related to supply chain constraints, while the increase in revenue year-over-year was primarily due to product shipments in the Massive IoT market.

Gross profit for the first quarter of 2021 was $6.2 million, a decrease from the prior quarter gross profit of $7.1 million and an increase from the prior year first quarter of $4.5 million. Gross margin for the first quarter of 2021 was 50.1% compared to 45.1% in the fourth quarter of 2020 and 51.3% in the first quarter of 2020. The sequential improvement in gross margin was primarily due to the increase in the product revenue mix from chip sales.

Operating loss was $5.8 million compared to $5.4 million in the fourth quarter of 2020 and $7.8 million in the first quarter of 2020. The year-over-year decline in operating loss was primarily due to the increase in revenue and a slight reduction in operating expenses.

Net loss was $11.4 million, or ($0.33) per diluted ADS, compared to $11.3 million, or ($0.36) per ADS, in the fourth quarter of 2020 and $15.3 million, or ($0.64) per ADS, in the first quarter of 2020. Net loss in the first quarter of 2021 includes a non-cash charge resulting from the change in the remaining embedded derivative fair value associated with the Company's convertible notes, which includes the change in value of the tranches of convertible notes converted through their conversion dates, partially offset by a foreign exchange gain related to the revaluation of euro liabilities in the quarter.

Non-IFRS Net loss and diluted loss per ADS: Excluding the non-cash stock-based compensation, the non-cash impact of the fair-value and effective interest adjustments related to the convertible debt with embedded derivatives and other financings, the non-cash impact of convertible debt amendments, and deferred tax benefit or expense related to the convertible debt and other financings, non-IFRS net loss was $5.1 million, or ($0.15) per ADS, compared to $8.5 million, or ($0.28) per ADS in the fourth quarter of 2020, and $8.7 million, or ($0.36) per ADS, in the first quarter of 2020. The non-IFRS net loss includes foreign exchange gain of $1.4 million, or $0.04 per ADS, in the first quarter of 2021, versus a foreign exchange loss of $1.9 million, or ($0.06) per ADS, in the fourth quarter of 2020 and a foreign exchange gain of $0.7 million, or $0.03 per ADS, in the first quarter of 2020.

Cash: Cash, cash equivalents and short-term deposits at March 31, 2021 totaled $13.5 million compared to $18.5 million at December 31, 2020. The balance at March 31, 2021 excludes the $50 million of proceeds from the hybrid equity and convertible debt financing closed on April 9, 2021 and the $1.7 million in proceeds from a government grant received April 1, 2021, as well as the repayment of $18.8 million in convertible notes and other debt on April 14, 2021 and April 15, 2021.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss the financial results for the first quarter of 2021 today, April 27, 2021 at 8:00 a.m. ET /14:00 CET. To participate in the live call, analysts and investors should dial 877-407-0792 or [phone] if outside the U.S. When prompted, provide the event title or access code: 13718024. 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 May 11, 2021 by dialing toll free 844-512-2921 or [phone] from outside the U.S., using the following access code:13718024.

Forward-Looking Statements

This press release contains projections and other forward-looking statements regarding future events or our future financial performance and potential financing sources. 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 Massive IoT and Broadband and Critical IoT sales, the impact of the coronavirus on our manufacturing operations, supply chain, and on customer demand, the impact of component shortages and manufacturing capacity, 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, 2020, 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) 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 coronavirus 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, (xiii) 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, 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 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

SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
			Three months ended
(in thousands of US$, except share and per share amounts)			March 31, 2021					December 31, 2020					March 31, 2020
Revenue :
	Product revenue				8,548					12,064					5,501
	Other revenue				3,773					3,727					3,271
Total revenue					12,321					15,791					8,772
Cost of revenue
	Cost of product revenue				5,691					8,183					3,897
	Cost of other revenue				452					494					373
Total cost of revenue					6,143					8,677					4,270
Gross profit					6,178					7,114					4,502
Operating expenses :
	Research and development				7,254					7,938					7,421
	Sales and marketing				2,294					2,003					2,264
	General and administrative				2,460					2,606					2,605
Total operating expenses					12,008					12,547					12,290
Operating loss					(5,830					(5,433					(7,788
Financial income (expense):
	Interest income (expense), net				(2,711					(3,643					(3,491
	Change in fair value of convertible debt derivative				(4,090					111					(5,621
	Foreign exchange gain (loss)				1,358					(1,936					675
Loss before income taxes					(11,273					(10,901					(14,826
Income tax expense (benefit)					147					361					443
Loss					(11,420					(11,262					(15,269
Attributable to :
	Shareholders of the parent				(11,420					(11,262					(15,269
	Minority interests
Basic loss per ADS					0.33					0.36					0.64
Diluted loss per ADS					0.33					0.36					0.64
Weighted average number of ADS used for computing:
Basic					34,664,779					31,044,769					23,904,935
Diluted					34,664,779					31,044,769					23,904,935

SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
		At March 31,				At Dec 31,
(in thousands of US$)		2021				2020
ASSETS
	Non-current assets
	Property, plant and equipment		9,086				9,187
	Intangible assets	27,771				25,312
	Deposits and other receivables	3,303				588
	Other non-current financial assets	369				386
	Total non-current assets	40,529				35,473
	Current assets
	Inventories	4,621				6,225
	Trade receivables	7,078				17,277
	Contract assets	496				371
	Prepaid expenses	1,190				962
	Other receivables	7,728				3,264
	Research tax credit receivable	5,224				5,110
	Short-term deposits					10,900
	Cash and cash equivalents	13,486				7,574
	Total current assets	39,823				51,683
Total assets			80,352				87,156
EQUITY AND LIABILITIES
	Equity
	Issued capital, euro 0.02 nominal value, 141,774,810 shares authorized, issued and outstanding at March 31, 2021 (133,934,090 shares at December 31, 2020)		3,459				3,269
	Share premium	288,714				276,560
	Other capital reserves	53,223				46,677
	Accumulated deficit	(374,629				(363,209
	Other components of equity	(466				(423
	Total equity	(29,699				(37,126
	Non-current liabilities
	Government grant advances, loans and other liabilities	14,548				11,203
	Venture debt	638				2,172
	Convertible debt	16,102				26,074
	Convertible debt embedded derivative	9,951				12,395
	Lease liabilities	4,092				4,762
	Trade payables	646				851
	Provisions	2,017				1,874
	Deferred tax liabilities	20				19
	Contract liabilities	599				2,397
	Total non-current liabilities	48,613				61,747
	Current liabilities
	Trade payables	14,716				15,701
	Interest-bearing receivables financing	11,026				14,228
	Venture debt	5,964				6,104
	Lease liabilities	1,202				1,014
	Government grant advances and loans	6,134				3,867
	Contract liabilities	12,894				13,145
	Other current liabilities and provisions	9,502				8,476
	Total current liabilities	61,438				62,535
Total equity and liabilities			80,352				87,156

SEQUANS COMMUNICATIONS S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
				Three months ended March 31,
(in thousands of US$)				2021				2020
Operating activities
	Loss before income taxes				(11,273				(14,826
	Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities
		Depreciation and impairment of property, plant and equipment		875				1,015
		Amortization and impairment of intangible assets		1,895				1,180
		Share-based payment expense		1,160				667
		Increase in provisions		41				52
		Interest expense, net		2,734				3,491
		Change in the fair value of convertible debt embedded derivative		4,090				5,621
		Convertible debt amendment						(1,399
		Foreign exchange loss (gain)		(1,115				(545
		Bad debt expense						18
	Working capital adjustments
		Decrease (Increase) in trade receivables and other receivables		10,141				(1,669
		Decrease in inventories		1,604				518
		Decrease (Increase) in research tax credit receivable		380				(490
		Increase in trade payables and other liabilities		208				1,402
		Decrease in contract liabilities		(2,812				(2,574
		Increase (Decrease) in government grant advances		1,390				(110
	Income tax paid			(120				(76
Net cash flow provided by (used in) operating activities				9,198				(7,725
Investing activities
	Purchase of intangible assets and property, plant and equipment			(3,610				(943
	Capitalized development expenditures			(2,279				(1,431
	Purchase of financial assets			(2,698				(28
	Decrease of short-term deposit			10,900
	Interest received			23				19
Net cash flow used in investments activities				2,336				(2,383
Financing activities
	Proceeds from issue of warrants, exercise of stock options/warrants			87				27
	Proceeds (Repayment of) from interest-bearing receivables financing			(2,976				2,504
	Proceeds from interest-bearing research project financing							405
	Payment of lease liabilities			(448				(439
	Repayment of government loans			(121
	Repayment of venture debt			(1,460				(811
	Repayment of interest-bearing research project financing			(181
	Interest paid			(533				(537
Net cash flows from financing activities				(5,632				1,149
	Net increase (decrease) in cash and cash equivalents			5,902				(8,959
	Net foreign exchange difference			10				(2
	Cash and cash equivalents at January 1			7,574				14,098
Cash and cash equivalents at end of the period				13,486				5,137

SEQUANS COMMUNICATIONS S.A.
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
(in thousands of US$, except share and per share amounts)			Three months ended
			March 31, 2021					December 31, 2020					March 31, 2020
Net IFRS loss as reported					(11,420					(11,262					(15,269
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)				1,160					1,172					667
	Non-cash change in the fair value of convertible debt embedded derivative				4,090					(111					5,621
	Non-cash interest on convertible debt and other financing (2)				1,085					1,663					1,294
	Non-cash impact of deferred tax income (loss)														398
	Non-cash impact of convertible debt amendment														(1,399
					(5,085					(8,538					(8,688
IFRS basic loss per ADS as reported					0.33					0.36					0.64
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)				0.03					0.04					0.03
	Non-cash change in the fair value of convertible debt embedded derivative				0.12					0.00					0.24
	Non-cash interest on convertible debt and other financing (2)				0.03					0.04					0.05
	Non-cash impact of deferred tax income (loss)				0.00					0.00					0.02
	Non-cash impact of convertible debt amendment				0.00					0.00					0.06
Non-IFRS basic loss per ADS					0.15					0.28					0.36
IFRS diluted loss per ADS					0.33					0.36					0.64
Add back
	Non-cash stock-based compensation expense according to IFRS 2 (1)				0.03					0.04					0.03
	Non-cash change in the fair value of convertible debt embedded derivative				0.12					0.00					0.24
	Non-cash interest on convertible debt and other financing (2)				0.03					0.04					0.05
	Non-cash impact of deferred tax income (loss)				0.00					0.00					0.02
	Non-cash impact of convertible debt amendment				0.00					0.00					0.06
Non-IFRS diluted loss per ADS					0.15					0.28					0.36
	(1) Included in the IFRS loss as follows:
		Cost of product revenue			15					28					5
		Research and development			554					647					272
		Sales and marketing			217					190					124
		General and administrative			374					307					266
	(2) Related to the difference between contractual and effective interest rates

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