Sequans Communications S.A.

fourth quarter and year end 2021 financial results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to hand over the call to your host, Ms. Kim Rogers, Hayden IR. Please go ahead.

Thank you to everyone participating in today's call. Joining me on the call today from Sequon's Communications are George Karam, Chairman and Chief Executive Officer, and Deborah Schott, Chief Financial Officer. Before turning the call over to Georges, I'd like to remind our participants of the following important information on behalf of Sequans. Sequans issued the earnings press release this morning, which was posted to the company's website at www.sequans.com under the newsroom section. Before we start, I would like to remind everyone that this conference call 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 call, including any statements regarding future results of operations and financial positions, business strategy and plans, including financing alternatives for our 5G business, expectations for massive IoT and portable router sales, the impact of COVID-19 on our supply chain and on customer demand, the impact of component shortages and manufacturing capacity, 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 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. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission. And now, I'd like to hand the call over to George Karam. Please go ahead, George.

Thank you, Kim. Good morning, ladies and gentlemen. Welcome to our fourth quarter and full year 2021 financial results conference call. Sequence exited 2021 with growing momentum in our massive IOT and broadband CBRS businesses, setting us up for a strong 2022 as more design wins move toward mass production. The fourth quarter revenue grew by 16.1% sequentially, and when adjusted to exclude last year's jetpack contribution, increased 61.4% year over year. Revenue for 2021 was $50.9 million, on par with last year. But when adjusted by $22 million for the loss of the legacy jetpack contribution, 2021 revenue grew by over 79% versus 2020. This growth was achieved despite global supply chain disruptions, which limited our shipment abilities and slowed some of our customers' product. In early January, we announced our extended partnership with Renaissance. The expansion of our existing 4G, 5G licensing agreements strengthens our go-to-market opportunities and supports two crucial factors to achieving our growth objectives, reducing our manufacturing costs and gaining access to a potential increase in supply capacity. Brenesas Equity's stake and board seat nominee further reinforce the strength of our partnership. We are working closely with all our MCU partners as they are key element of our go-to-market strategy. For example, NXP demonstrated an energy harvesting system powering an LTM-NB-IoT connection using our Monarch platform at the last CES this January. Similarly, we expect our collaboration with Microchip to result in a new platform launch this year. Our go-to-market strategy Leveraging our MCU partnerships has scaled our sales capabilities and contributed to our pipeline growth with new design wins and attractive opportunities. We began 2022 with a record backlog of non-cancellable orders. Our business pipeline exceeds $650 million of product revenue, representing a three-year lifetime of which $310 million are design wins. At this time, around 80% of the design wins are for massive IoT applications, highlighting the success of our LTM NB-IoT Monarch 2 platform and the enthusiastic response to our Kali P2 launch. We are currently engaged on over 100 projects. many with high-profile Tier 1 customers. The majority of the design wind projects are still in the development phase and have not yet contributed significantly to our revenue. We expect many of them to go into production in 2022, with three major ones having an annual run rate potential of over 1 million units. Let's dive into the massive IOT business. In 2021, MassiveIoT total revenue grew 79% year-over-year, and related product revenues grew by nearly 100%. It represented more than 50% of our total revenue. This growth has been driven by both the Cat1 and LTM NB-IoT categories. Our largest module partner, ShiftBus product categories, to customers in the US and Japan. And given our great visibility with this partner, we expect to ship large quantities to them in 2022 as well. Also, Sequence direct module business accelerated on both modem categories due to the carrier's 3G switch-off plan and new projects moving to mass production. Thanks to its low power capability and its advanced features, our second-generation Monarch 2 platform experienced tremendous global success, driving pipeline growth. Renaissance launch of its LTM NBI-UT module product line using the Monarch platforms also contributed to pipeline growth. In the last quarter, we announced the addition of a GNSS software feature on the Monarch 2 platform, enabling low-cost and low-power GNSS for tracking devices, which is being used in a number of design wins. Also, we announced the GSMA common criteria certification of our integrated SIM. We refer to this as iSIM, making Monarch 2 the first LTM NB-IoT chip to pass common criteria testing for the highest level EAL 5 Plus security certification. This iSIM feature has been tested with 10 carriers around the globe, and many customers are engaging with us to use it with their products. The Monarch 2 chip with iSIM and GNSS features carries a higher ASP and helps revenue growth. These new innovations are advancing our technological leadership versus our competition and boosting our design wins, further supporting our growth objectives for this product line. We are excited about the recent sampling of our Cat1 CaliP2 platform. The second generation of Cat1 category brings significant cost improvement and power reduction advantages. With this global coverage, the Cat1 market is an important segment of massive IoT, complementing the LTM and the IoT category, as many applications will require higher speed and some will need voice. Given the current level of prospective customer engagements on CalIP2, we anticipate securing numerous design wins that could contribute to revenue in early 2023. In the fourth quarter, we achieved more than a dozen new design wins with musts in the four massive IoT segments we have talked about in the past. Smart metering, smart home, tracking, and medical devices. These are large markets that are expected to grow on average by threefold in the next few years and will be important growth levers for SQLs. Building on our strong position in each of these segments and the current pipeline of design wins, we expect to increase our share to achieve 30% of our addressable market on average in each of these segments as they expand. Smart city and metering is the largest of these segments. We lead in power consumption and portfolio completeness, offering both LTM and BIUT, and Cat 1 categories. The number of design wins we have secured with Tier 1 metering customers gives us confidence that we can significantly grow our share of this market segment. Asset and car tracking is the next biggest market segment. The new GNSS technology integrated on our Monarch 2 platform and our cost advantage are key differentiators. CalIUP currently makes up most of our sales in this space, but the new wins are moving to LTM technology using our Monarch 2 solution. Numerous projects are progressing towards mass production with significant volume order in our backup. Smart home and security is another massive IoT market that's expected to triple in size by 2024, where we believe we can take market share with both our Cat1 and LTM NB-IoT platforms. Our second-generation Cat1 CaliP2 is a key differentiator, as many applications will require Cat1 speeds for camera and voice support. The recent CaliP2 launch has driven numerous designs in this space, and we see an opportunity for future engagements with big brand names. Medical and fitness. and the other segment, people, are two smaller markets where we have gained market share. In medical and fitness, we have a half a dozen design wind projects on the Monarch 2 platform targeted to ship this year in addition to the ones we have in mass production. The people segment covers wearable and hearable devices and trackers for kids, personal assets, and pets. We are shipping several tracker devices on the Monarch 2 platform, with others in development to launch over the course of the year. CalIP2 advantages in this market, particularly for wearable and hearable devices, requiring an ultra-low power Cat1 solution should help us adding further growth. Switching now to our broadband IoT business. Our broadband IoT business historically covered our Cassiopeia Cat4, Cat6 products. Beginning with the fourth quarter of 2021, we are consolidating this segment with the services and licensing revenue that are related to our 5G strategic deals with the Fortune Global 500 partner and with other 5G licensing deals related to tourist development. Going forward, we'll report only two categories, Massive IoT and Broadband IoT, and will distribute the vertical revenues between the two segments based on the product category used in the vertical deals. Note that in 2021, all vertical deals were using Cassiopeia platform, and we attributed this to broadband IoT. In 2021, the broadband IoT business grew 78% year-over-year, excluding the Jetpack Headwinds impact. The main growth drivers were the services and licensing revenue generated from our 5G strategic partnership deal, the 5G tourist licenses, and the new vertical projects, along with CBRS product revenue growing from almost zero to above $3 million year-over-year. Although flat, our Cat4, Cat6 emerging market business remains productive, while our differentiated CBRS offering helped us re-establish our broadband IoT business. We have shipped our CBRS modules to customer building modem, routers, recognized tablet, headsets, and tracker devices for private LTE networks in general. The CBRS market remains fragmented, but given our pipeline of design wind projects, we anticipate that this category could double this year and continue growing nicely in the future. Note that CBRS is also an option for utilities, complementing our product offering for smart metering applications that we currently address with our massive IoT product line. Our value-added services business related to non-terrestrial 4G, 5G networks like satellite remains lumpy and overall is not expected to be a source of annual growth in 2022. That said, we have design wins in hand and are working on new projects that we believe could land in the next 12 months, mainly for high margin services and licensing business that would add to our 5G strategic and Taurus licensing needs. Now for a 5G Taurus update. As I stated on our last earning call, we believe the long-term value of our 5G strategy is not reflected in our current valuation. As a result, we have been engaged in ongoing constructive dialogues with potential strategic partners to finance our 5G investment and are encouraged by the level of interest. Sequence has a proven track record of closing strategic deals, which reinforces our confidence that we will reach a mutual beneficial agreement with the new 5G partner. We continue to move forward with the 5G Taurus platform development. I'm excited to share that we have taped out our 5G RF transceiver chip and we should be sampling soon. Given our unique position with our Taurus platform, we remain committed to our strategy and optimistic about our prospects in 5G, the next major growth lever for Sigmos. Let me provide further clarification on our supply chain. On our last earning call, we confirmed that our wafer allocation through Q1 2022 aligned with our shipment forecast and that we were still working to secure adequate supply for the rest of 2022. Specifically, we needed to resolve issues we had towards the end of Q2 and during Q3 to achieve our revenue goals. We are increasingly optimistic that we will have adequate allocation to meet our customer demand for all of 2022. While supply chain constraints remain a potential disruptor, we now have improved visibility for sufficient supply capacity this year as most of the anticipated shortfall with TSMC has been resolved. That said, the situation continues to be fluid and we remain pragmatic about the potential for and foreseen developments. Looking ahead in 2022, in summary, we ended the year in a strong position with a sizable platform for growth. We are successfully delivering on our growth levers, launching new products and feature sets that will allow us to increase our market share, expanding our distribution footprint by leveraging our go-to-market channels and furthering our relationships with MCO partners, and advancing the development of our 5G platform. We are engaged with numerous high-quality Tier 1 customers on design wins and have several large customers with potential run rates of over 1 million units per year. This pipeline continues to expand with many new exciting opportunities in both massive and broadband IoT, strengthened by projects with our MCU and channel partners. With the improved visibility on our wafer supply from TSMC, absent any unforeseen developments, we are on track to deliver revenue growth in 2022 in the 30 to 40% range. Sequin's solid competitive advantages and a broad portfolio of differentiated products support our leadership position in the IoT market and our confidence that we can deliver sustained long-term growth. My team and I are committed to expanding our market share, growing our revenue, and improving shareholder value. We appreciate your commitment to Sequence, and thank you for your continued confidence and trust. I'll now turn the call over to Debra. Debra.