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.

Thank you, George, and good morning, everyone. Our revenue for the fourth quarter was $13.8 million. a decrease of 12.5% versus Q4 2020, and an increase of 16.1% sequentially. The quarter includes an increase in services revenue driven by the recent deal with Renesas, and product revenue accounted for 50% of total revenue, an 8% decrease versus Q3, reflecting primarily lower shipments of Cat1 modules to one of our customers, who had boosted their inventory level in previous quarters to anticipate potential supply chain issues. Revenue from massive IoT in Q4 2021 accounted for approximately 45% of our total revenue. As George stated earlier, as of this quarter, we will only report two categories, massive IoT and broadband IoT. Going forward, we will consolidate the services and licensing revenue that are related to our 5G strategic deals under the broadband IoT segment. Revenue from broadband IoT increased from Q3 2021 as growth from CBRS private networks is starting to pick up. Service and licensing revenue generated by our 5G strategic deals increased in Q4 compared to Q3 2021, primarily related to additional revenues generated by the extended Renaissance Agreement. As expected, compared to Q4 2020, revenue from this portion of our business declined due to the absence of jetpack sales. For the quarter, we had three customers and one channel partner that each represented 10% or more of our revenue. As massive IoT design wins move into production, we expect to diversify the number of end customers served. Gross margin in Q4 2021 was 57.1%. up from 45.1% in Q4 2020, and up from 49.2% in the third quarter of 2021. The improvements were due to the increase in the mix of chipset revenue versus module revenue and the increase of services and licensing compared to prior periods. Our full-year gross margin for 2021 was above 50% at 53.4%, despite quarter-to-quarter fluctuations resulting from shifts in our revenue mix. IFRS operating expenses were $11.9 million, up 9% from $10.9 million in Q3 2021, due to both $800,000 in higher non-cash stock compensation expense and a reduction in net R&D capitalization of over $700,000. Year over year, IFRS operating expenses decreased $600,000 compared to $12.5 million in Q4 2020. Non-IFRS operating expenses, which excludes stock-based compensation expense, were $10.1 million in Q4 2021, only slightly up from $9.9 million in Q3. Our fourth quarter operating loss was $4 million, an improvement compared to both an operating loss of $5.1 million in the third quarter of 2021 and a $5.4 million loss in the fourth quarter of 2020. Our net loss in Q4 was $7.7 million, or 21 cents per diluted ADS, and included non-cash charges of $2.4 million from both non-cash interest expense and the loss on the revaluation of the embedded derivatives related to our convertible debt. This compares to a net profit of $200,000, or less than 1 cent per diluted ADS in Q3, which included non-cash gains from the revaluation of the embedded derivative of $7.7 million, as well as non-cash interest expense of $1.2 million. The net loss in the fourth quarter of last year was $11.3 million, or 36 cents per ADS, which included a non-cash gain on the revaluation of the embedded derivatives of $111,000 and non-cash interest expense of $1.7 million. On a non-IFRS basis, our net loss for Q4 was $3.5 million or $0.09 per diluted ADS. Again, an improvement compared to a non-IFRS net loss of $5.3 million or $0.14 per ADS in the third quarter and a non-IFRS net loss of $8.5 million or $0.28 per diluted ADS in the fourth quarter of 2020. In Q4, we had a gain on foreign exchange of $122,000 primarily related to the revaluation of Euro-denominated net liabilities on the balance sheet. This compares to a foreign exchange gain of $409,000 in Q3 and a loss of $1.9 million in Q4 2020. Investors should be aware that the company's results are subject to certain market risks, and as a result, our net profit and loss may fluctuate quarter to quarter. Specifically, the financial income expense category on the income statement, which is below our operating results, includes foreign exchange gains or losses, again, primarily related to remeasurement of Euro-based balance sheet items, and the marketing to market of the embedded derivative related to the convertible debt, and can cause significant differences in net income or loss from quarter to quarter. These fluctuations may be more extreme during periods of increased market volatility in foreign exchange rates or in the company's share price. While swings in the value of the embedded derivatives are excluded from our non-IFRS presentation, foreign exchange gains and losses, whether realized or unrealized, are not. And please remember that our IFRS net loss includes significant non-cash interest expense related to our convertible debt that is excluded in the non-IFRS presentation. Cash and short-term deposits total $4.8 million at the end of Q4, compared to $15.2 million at the end of Q3, and $18.5 million at the end of 2020. The 2021 closing amount excludes nearly $17 million related to the new Renaissance commercial deal and investment, which was received in Q1 2022. Cash used by operations for the fourth quarter of 2021 was $4.7 million, an improvement over the $10.5 million used by operations in the third quarter. Short-term debt from financing receivables remain nearly flat at $9.5 million versus $9.4 million at the end of Q3. As George mentioned, we are actively engaged in dialogues with potential strategic partners to finance our 5G investment to minimize its cash burden and reinforce our balance sheet. Turning to the outlook for Q1. We are targeting revenues to be essentially flat for the first quarter of 2022 compared to Q4 2021. We expect the services and licensing revenue to be strong, helping to drive a gross margin above 55%. Our guidance takes into account that our first quarter has historically been a seasonally down quarter and factors in our supply capacity. Our current backlog gives confidence in this outlook. We continue to expect that non-IFRS operating expenses, which exclude stock compensation expense, and assuming a stable euro-dollar exchange rate, will average slightly above $11 million per quarter in the coming few quarters. We expect IFRS interest expense in Q1 2022 to be around $2.3 million, and non-IFRS interest expense to be about $1.1 million, meaning that we expect our non-IFRS net loss to have lower interest expense by $1.2 million. We're not providing guidance on any impact of revaluing the embedded derivative, nor possible foreign exchange gains or losses, given this is largely determined by market conditions. Finally, for modeling purposes, the number of ADS outstanding today is 39.9 million. At the conclusion of this call, we will post a written version of our formal remarks in the investor relations section of our website on the webcasts and presentations page. the same location where you will find the audio replay. And now I'll turn the call back to George.

Thanks, Debra. Operator, we are now ready to open the call for Q&A, please.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. The first question comes from Scott Searle with Roth Capital. Please go ahead.

Hey, good morning, good afternoon. Thanks for taking my questions. Nice job, guys, in terms of securing supply for the 2022 outlook. Hey, just real quickly, in terms of the sequential outlook, you indicated that services licensing NRE would remain strong in the first quarter. I'm wondering, like products, how do we expect that to move sequentially as we go into the first quarter and start things out? And then, George, in terms of that $650 million backlog pipeline, I think in the past that it excluded 5G, given that you just taped out the 5G product. Is there any 5G contribution, you know, factored into how that pipeline currently looks?

No, obviously, you know, it's really focusing, first of all, the pipeline, Scott, is really focusing on product revenue. So it excludes all the services and the strategic deal that you could have there. And we, what I would like to say, we didn't include yet, I mean, there is a little bit of from one of the deals that we have there, but it's minor to consider in terms of product revenue related to the 5G. So this will come later on once we will be progressing forward, I would say, in terms of readiness to go to market.

Okay, great. You know, it sounds like you've got the wafer issues. You've got visibility on that front with TSMC going back, you know, into 2021. There were other issues related to substrates and other components within the module and product supply line. How does the rest of that look right now? Are you feeling pretty comfortable on that front as well?

We feel we're managing this well. I believe on this angle, it was more a question when we had the problem last year, it was more a question of lead time because the dynamic has changed overnight.

Ladies and gentlemen, it seems like we have lost the management line. So kindly stay connected while we... reconnect the management line. Thank you. Hello, we are back in the call, and you can go ahead and continue. You can proceed. Thank you.

Hamat, we cannot hear the management team. Hello?

Yes, it seems like we have lost the connection with the management team. And you stay connected while we try to connect with the management team because I don't have the number.

Okay, I'm telling them to call in.

Sure, thank you. Thank you. Thank you. Thank you. Thank you.

Hello? We have the management back in the call. Yes, please go ahead.

Sorry, guys. I mean, we got dropped and we're trying hard to all the numbers to connect back. So happy to come back. Sorry for this inconvenience.

Fine. So we have Mr. Scott Searle. Are you there? Are you able to hear us?

Yes. Hey, George, maybe just to continue along on a couple of different fronts. Just the 5G strategics, could you just clarify? It sounds like you continue to be actively engaged and things are progressing well. Any other color that you could provide, timelines associated with it? It sounds like now any activity that would happen there will fully fund you in terms of 100% 5G development. Is that correct?

Yeah, absolutely. I mean, you know, we're really quite, you know, what I would say optimistic, not to say more, but we have many engagements, as I said, and at least we have some of them quite advanced in terms of discussion and negotiation. You know, it's very hard to give a timeline on this, but we hope the sooner the better it will be.

Great. And lastly, and then I'll hop back in the queue, but talking about the growth this year, the 30% to 40% growth in 22, it sounds like you have both a combination of strong visibility to that in terms of your backlog and pipeline, as well as your supply at a wafer level. Can you flex higher? Does Renesas help on this front? And I'm kind of wondering in that, you know, what are you factoring in, in terms of contribution from the new Cat 1 product portfolio, and if there are any larger smart city opportunities in there, because I think that there were some larger potential opportunities there, timelines there were a little bit fluid. So I'm wondering what's kind of factoring into your current thoughts for 2022. Thanks.

We're factoring essentially the deal we have in hand more than what could happen or quite in advance and could turn to some revenue this year. Obviously, all the new engagement or engagement, they are not really on track now to move to mass production quickly. The probability that they will contribute to revenue this year will be very limited, maybe towards the end of the year, but it's on the edge. Specifically, the new platform, Cat1, we're not factoring revenue this year. We're assuming this will be more beginning of the next year. We could have some positive surprise if things move differently from this angle. Obviously, we're leveraging the deals that are quite secured with our partners, you know, the design win, whether Renaissance or others. So there will be a contribution of Renaissance in our revenue this year. We're sure about it. Now, on top of what I said in terms of guidance, you know, we're taking into account the supply chain constraints. Obviously, if we have, you know, more positive demand from customers and so on, we could start hurting the supply. So when I'm giving my comment on the supply, it's really the supply we need to cover those kind of numbers. If at the end we have much more demand than this accelerating, then the limiting factor becomes, again, the supply. It doesn't mean we'll not be able to fix it because, as I mentioned, The RSS deal could help from this angle as well. But for the time being, I'm just limiting to what we, you know, deals we have in hand and supply to serve this deal. This is the number I'm factoring. This is the element I'm taking into account to mention this number, 30%, 40% growth. Great.

Thanks so much. Nice job. Thanks, Scott.

Thank you. The next question comes from Michael. Walkley with Canaccord Genuity. Please go ahead.

Great. Thanks for taking my question. Just a clarification, kind of from one of Scott's other questions, too. Just for the Flattish revenue guidance, should we assume a similar mix of revenue? And for the services and licensing revenue, Is it going to remain strong for the year? Does it help overall gross margins? You know, the $6 million per quarter run rate, kind of a new way to think about it, or is it even higher?

Yeah. Hi, Mike. I mean, for the Q1 guidance, yes, please assume you can consider a similar level. We remain strong on this. And, you know, for the year, in the second half, we're going to have less than the first half revenue in terms of services revenue. And I can explain why we have a little bit of a boost, if you want, in terms of service revenue between Q4 and Q1, and maybe to some extent a little bit in Q2 as well. All this is related, obviously, to the revenue recognition model that we use with the percentage of completion on the 5G strategic deal. It happens, you know, depending on the progress when you tape out the chip and so on. to land by generating a little bit of revenue, but also not to neglect as well the recent deal we did with Renesas. This deal has some component in license and services that it's being recognized more in the first half of the year. And that's why all this is boosting a little bit in the first half.

Okay, great. That's helpful. And then with the expanded partnership with Renaissance, and you talked about how it could reduce costs, you know, as the supply improves and product revenue ramps throughout the year, how should we think about mix and gross margin leverage on the product side of the business?

Yeah, I mean, for the time being, we're not, you know, really reflecting what I would call is cost improvement, you know, there, because obviously it's work in progress, and, you you know, they need to implement to move the production. So I don't expect this to be effective really in the first half. It will be more effective in the second half of the year. And globally, if you factor where we are today in terms of gross margin on the product, Debra, how much you... Yeah, I think overall for the year, we're looking at, you know, very high 40s, maybe just under 50% gross margin.

Yeah.

Right, that's very helpful.

And then I guess last question for me is, as you invest for this growth with the strong backlog, do you feel like you have the adequate resources on the team? Do you need to add more? And how should we think just about OpEx modeling for the year?

No, we're really, you know, because, you know, we invested a lot. We added a lot of people in the last year, and some of them, you know, when we were tipping out, for example, the RF chip, we have many consultants to reduce them. at the beginning of the year. So in Q1, we're still maybe staying flat versus Q4. And I consider more flat, a little bit down over the time. I mean, maybe in the model, I'll keep it flat. This will be a fair assumption. But there is no extra resources to hire.

No plans to add net resources this year.

Great. That's very helpful.

I'll pass the line. Thank you.

Thank you. The next question comes from Tristan Jera with Baird. Please go ahead.

Hi, good afternoon. I know it's a different business model and also a different technology, but would you expect to benefit at all from the bankruptcy of Sigfox? Would that result in some customers converting into... you know, a cellular IoT technology potentially using your chips, or is it pretty much a non-event based on their situation and market share?

Hi, Tristan. I mean, you know, I believe, you know, locally they have some good projects in France, to be honest, and obviously it depends on the guy, you know, taking them over after his bankruptcy, what service they will continue there. If they move their business to, like, LTM with Orange, obviously this will give us an option to win more projects because we are very close to those guys and the ecosystem in France. So it can give us some design win. But, you know, I'm not expecting really a big boom or anything factored for the time being. It will not be negative. It will be more positive to neutral. But it's too early because it depends how their business they will move it, if they will – maintain like Sigfox LoRa technology, then it's natural for us. If those projects, some of them start moving to LTM, we have an option of many more deals, some couple of deals. I believe they have a couple of projects in France that are nice to turn to LTM.

Great. And then clearly you have been able to secure more capacity, notably for the Q2, Q3 timeframe. Is the difference between the revenue growth outlook that you provided today versus what the consensus outlook was for this year, is that the difference we should basically use to assess how much incremental supply you've been able to secure or just any way to quantify how much more revenue you now think you can generate this year as a result of that improved supply versus your expectation a quarter ago?

Well, I mean, I don't believe we should take, you know, the comparison to the consensus for the supply. I'm afraid that we'll confuse it. Whatever comment I say on this can confuse you to build the model. I mean, the reality is that, you know, at the end of the last quarter, I was still optimistic. You know, I didn't give up on the support of TSMC because I saw positive sign and willingness to help us. But obviously, when I was looking to what I have in hand, I had a big problem in Q3 and some problem in Q2. And so far, we fixed them because they helped us there. We have very minor things pending in the work, but really minor. So I feel comfortable today with the supply we have, factoring in this growth. In other words, if I take my growth number and build it in terms of products and look to the capacity, I can serve it. Now, obviously, if I have More upside in terms of potential customer, where I can do, let's say, 50% or 60%, then I will start hitting the supply again, and I will need to resolve it by, you know, whether having help from TSMC, which is still an option, obviously, but also the support of Renaissance, which now could help us as well in terms of supply.

Great. Thank you very much. Thanks, Christophe.

Thank you. The next question comes from Raji Gill with Nidem and Company. Please go ahead.

Yeah, thanks, and good job on the momentum in the business. George, just wanted to quickly talk about your partnerships with all the MCU suppliers, the major ones, Renesas, NXPI, Microchip. You talked about that they're very crucial in enabling you to scale and add to your sales trajectory. I wonder if you could elaborate a little bit further on kind of what you're seeing each of those MCUs doing this year in terms of rolling out your technology and folding it into their MCU portfolio. You mentioned NXPI, for instance. But I wanted to get a little bit more clarity on how those MCU companies are incorporating your cellular IoT in their IoT portfolios.

Hi, Rajeev. I mean, indeed, you know, I mean, as I mentioned, you know, this is really – Since two years, I mean, we took this path by partnering with the MCU partner, knowing that none of them has cellular, and obviously we can be for them what arm is for them on the MCU, you know, providing the cellular technology. And our strategy with them, to be honest, is really to play fair play with all of them and not to have any exclusive relationship preventing us from working with the other guys and offering to every one of them the full potential from a deal which could be just only partnering on the marketing side to go farther in the tools and the development to get an integrated product by resale, and even towards IP integration, you know, if this makes sense for MCU. So this portfolio, you know, it's very transparently offered of options to all of them. Now, obviously, each one of them has his own agenda, his own way of moving on cellular, the timeline, you know, how critical it is, and I cannot elaborate more because everyone has really his own strategy and everyone has his NDA with me, so I will keep it confidential what I know about each one of them. But in general, all that I could say, they are different from my income today. The way we are approaching with them, everyone is following a track which is different from the other, which is to some extent nicer for me because I see how which one is more successful. And, you know, the public one, we know that today, NXP, they announced a platform with us, which is not by resale. In other words, we are joining customers and offering a platform together, and they will sell and I will sell. Renesas took the decision to integrate our product in their portfolio, so they resell. Their sales team is completely engaged. They have pipeline, which is controlled by them, not by me. And I have visibility on it, but obviously it's their pipeline and they drive it the way they want. Microchip has something maybe in the middle today. I cannot elaborate more because it's not public. So that's how it is, you know. So I still believe that working with them is very helpful because all the IoT devices integrate MCU and all of them, when they need cellular, they need an MCU in 80% of the cases. So the relationship with the MCU vendor is crucial. But the way we take it to market, obviously, it remains specific to each one of them. All I can say today, Renaissance is going to be direct revenue that we'll be shipping to Renaissance this year. And I will not say negligible number, but it's not really. It's the beginning of the relation. But we have hope that this will go much bigger next year and maybe will be two digit next year as soon as we go to next year. based on the pipeline I see today. And with others, as there is no buy-resell today, it remains minimum revenue if you want direct revenue, but obviously we have design wind together that are integrated in my pipe when I talk about my pipe.

Very good. In broadband, I'm wondering if you could elaborate the opportunities in CBRS. There's kind of a multitude of end markets and use cases exist. such as private networks for stadiums, campuses, you know, remote education. 5G is going to be a catalyst towards that. I'm wondering how you're thinking about the CBRS rollout maybe this year and going into 2023. Thank you.

I mean, the CBRS, you know, we are present in all this, and we did a really phenomenal job last year because we have many design wins, many customers. The challenge about this is that it remains fragmented. You know, to be honest, All of them, each deal is a small deal, maybe excluding the tablet where it was sizable. I qualify it. And this is really, for example, a tablet for a jail, you know, just to give you for a prisoner. It's a recognized tablet used by the prisoner, and we were shipping in volume for it. And there is a nice market, by the way, there. I'm sorry for the prisoner, but it's not a bad market for us. Okay. And, you know, it's very hard still to see where it can go in terms of market. All the study, all the analysts, they remain very fragmented. We can talk all about application. When we come to the number, the projections are really not accurate, and we remain cautious on this. However, we see it for ourselves that maybe doubling year over year and, you know, this year maybe go to close to $7 million, $8 million revenue coming from CBRS, $6 million, $7 million, maybe $8 million. So this is the target I'm putting for myself this year. Based on design win, we have it in hand and customer moving to production. And beyond this, you know, obviously the 5G, what you're talking about, the private 5G, because, you know, when you push it further, you have a lot of private 5G beyond as well as CBRS. We have the enterics, we have the utility. So there is a lot of stuff which could develop in the future, but it's going to take longer time to happen.

Very good. Thank you.

Thank you. Again, if you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from Craig Ellis with B. Riley. Please go ahead.

Yeah, thanks for taking the question, and good afternoon, George and Deborah. George, I wanted to start with a follow-up to... some of the helpful color you provided around this year's growth at 30 to 40%. I think in the past, we had looked at the business as having 50% year-on-year growth potential on a longer-term basis. And clearly, there are a lot of supply chain dynamics. So the 30 to 40% is understandable. The question is this, you know, looking beyond this year and not asking for specific guidance, but just thinking about the dynamics in the business, especially given the acceleration in the share that seems possible in some of your big end markets. How do you think about the longer-term growth potential when we get into the 23 to 25 range for the business, given the traction you're seeing with massive IoT and the scale you're getting in CBRS?

Hi, Craig. Thanks for the question. You know, obviously here this is really focusing on the current year and giving a kind of to give more visibility of what we are seeing and factoring into things, the supply, but also the project ramping. I mean, all the projects are not in full year number. And obviously, there is more in the pipe that didn't turn yet to design wind. We remain in a market which is the growth of the market in average is around 40% year over year between CAT-M and CAT-1. And the way we look when our addressable market outside of China, We believe our position is like today in the teens, you know, maybe market share, you know, and below 15, I will say, 14, 13 in aggregate percent, you know, of the current market in 2021. And we see this market really, we see our market share really doubling. And I mentioned this clearly. We made analysis bottom up, segment by segment, looking to the design win and so on. we feel comfortable of claiming that our market share obviously depends on a segment. Some will go from the teen to above 20, and some will go above 30. But in average, we see this going close to 30%. And this means, in average, our growth should be much more than the market, bigger than the 40% market share. And I remain in a position saying that our growth trajectory, in average, when you look to 23%, 24%, 25%, In average, we should be above 50% growing year over year. So that's, you know, and more than what I'm projecting this year, I would say, with a 30%, 40% number.

That's really helpful. The next question relates to a point that came up a quarter ago, and it was the fact that the massive IoT business was breakeven in the calendar third quarter. And I know, you know, at this point in its growth, that might be a little bit lumpy quarter to quarter. But can you just talk about the visibility you have to massive IoT being, one, more consistently break-even, and then, two, consistently moving into profitability? When might that occur, and what are some of the things that would drive us to sustain profitability in that business from here?

I mean, you know, the massive IoT, I mean, I don't know. because when you talk about profitability, it depends what you load under massive IoT, right? So in general, we tend to talk about our legacy business, which is include all that we have and take out the 5G investment, if you want. This is referring to the timeline and so on, what we spoke about. We remain in this game. If we take this year in average, with the growth factor, you know, growth target we put to ourselves, if I take out the 5G investment, definitely will be profitable as a company. I mean, there is no doubt on this. And obviously the driver behind it, making this growth, because you can imagine the broadband is very limited, you know, the services, they are what they are, they are more flat. So the main growth is coming from massive IoT that we said doubled year over year in terms of product revenue, and we expect to continue this year. You know, the growth on the massive IoT is expected, you know, if not doubling in any case, to be close to 70-80%, 70% this year, year over year. So the main growth is coming from this segment. And this is based on the, again, the four segments I spoke about, you know, between smart home, smart cities, and the tracking and the health and medical, with design within hand, turning to mass production. And this is what gives us the confidence that we'll achieve this.

That's great. And then one product question before I flip one to Deborah. I was very interested in the Monarch 2 chip with iSIM and GNS capability. And you commented that was a high ASP product. Can you provide a little bit more color on where ASP shakes out relative to the rest of the portfolio? And how should we think about that product's ability to contribute this year and next year?

Indeed, you know, if you take a GNSS, you know, GSSS, GNSS, we expect to sell our feature, I would say, on average, let's say $1. You know, I don't want to give numbers, precise number there, but you can add $1, and this is just only pure software, more or less. You know, there is limited. So if you take a module in the $7, $8, and you add $1, it gives you the value of its module sales. If you are talking about chip sales, you're talking about the $3 to $4 chip sales and you add $1 on this. So it's significant. Obviously now the attach rate of the GNSS is not 100%. So you're talking about maybe 10% of the deals will be getting GNSS or 20% will be taking GNSS and not all of them will use software GNSS from us because some of them could be looking for a separated GNSS with more features if you want and they are willing to pay $2 for this feature to have a separate chip. The ISM is a different picture because you could go above $1.50, all included. I would say, obviously, we'll have some royalty to pay back. All this is not pure margin, but in the $1.50 range. And the ISM, the attach rate could be strong because you can go to an attach rate of 100% of the product using the ISM of Sequence because customer will save space. We'll get flexibility, we'll get power, and they will pay less in general. The cost of ownership will be less. So the only limiting factor of the ISIM to penetrate the market is really having this adoption and acceptance, if you want, by the carrier to push it to the customers, because the carrier, they resist a little bit, and there is some steps that we need to go through before making this market. So I believe the ISIM revenue will not impact this year. It will be more next year. The GNSS, we could have some extra revenue happening this year. But on the surface, I will say I will not change too much the model.

Okay. But two nice kickers, nonetheless, with different contribution timing. Nice to see that. Then, Deborah, just coming back to cash, and nice to see the significant early 1Q boost taking cash levels close to $22 million, it sounds like. Can you just comment on any notable items that would either be a benefit or a use of cash beyond just operating needs as we go through calendar 22?

So I think the main item is we're expecting about $3.2 million in grant proceeds from the French government grant for 5G that should come in in Q2. And otherwise, no particular items. We now have the French tax credit is financed, and so that contributes each quarter rather than one big lump in the third quarter as it used to be. And the other grant revenues we have coming – or grant proceeds are much smaller and come in, yeah, scattered over the year. So the one big one is the $3.2 million that we're expecting – in June.

Got it. Thanks for all the help, Tim. Thanks, Craig. Thanks, Craig. Thank you.

Ladies and gentlemen, we have reached the end of question and answer session, and I would like to turn the call back to Dr. George Karam for closing remarks. Thank you.

Thank you again for all of you joining the call today. We look forward to catching up with you on our first quarter 2022 earning calls. Note that we are participating in the upcoming Roth Capital Conference on March 14th and 15th in Dana Point, California, and the B. Reilly Institutional Investor Conference on May 25th and 26th in Los Angeles. We look forward to seeing you at one of these upcoming events. Thank you again, and thanks, operator.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.