Sequans Communications S.A.

Greetings and welcome to the sequence communications essay fourth quarter 2022 financial earnings call. At this time, all participants are in a listen only mode. A brief 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. It is now my pleasure to introduce your host, Kim Rogers, Managing Director of Hayden IR. Thank you, Kim. You may begin.

Thank you, Maria, and 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 I turn the call over to George, I'd like to remind our participants of the following important information on behalf of Sequon. 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'd 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, expectations for future product sales, potential for future strategic licensing deals or other strategic transactions, the impact of the 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 1993, 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 Security 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 2022 financial results conference call. I'm pleased to report that we ended 2022 with solid financial performance results showing $60.6 million of yearly revenue and 71% gross margin. Year over year, this represents 19% growth in revenue and 17.4 basis point increase in gross margin. Consequently, we achieved non-IFRS operating profit of $1.6 million for the full year 2022, compared with a non-IFRS operating loss of $13.2 million in 2022. These results are a particularly outstanding achievement given our industry's supply chain and inflationary challenges in 2022. In fact, the supply chain disruption was the principal cause of the delay we faced on our design wind project launches in 2022. A significant factor in achieving a year of growth and improved operating results was our ability to leverage our 5G asset, and its scarcity value to create a new IP licensing business that was able to compensate for product shipment delays and boost our gross profit. Looking back at the key highlights of 2022, there were three notable accomplishments that benefited our results, and more importantly, will position Sequence for sustainable long-term growth in the cellular 4G, 5G IoT market. As said before, the first milestone was securing 5G licensing revenue. We closed the multi-year strategic 5G licensing partnership for our Taurus 5G platform, valued at more than $50 million. The deal adds licensing revenue over three years and will transition to royalty payments for up to 10 years once the Taurus platform start shipping to customers. The licensing revenue from this deal supported our revenue growth, increased gross margin, and narrowed our net loss in the second half of 2020. The second key highlight was the growth of our product sales pipeline to over $700 million of three-year life revenue, with $350 million in design wins primarily driven by our LTM and BIUT Monarch 2 platform. These design win projects are expected to convert into $100 million in annualized peak revenue at full round. We also have further potential from the other half of the pipeline that covers the advanced design-in opportunities, which have at least a 50% probability of converting to design wins. The third key accomplishments was the continued innovation in our product line that positions Sequence with the comprehensive 4G, 5G portfolio optimized for IoT. The market reception of our second-generation Cat1 chip, CaliP2, has been incredible, and the platform is already adding new design wins and design ins to our revenue pipeline. In tandem, Innovation in our LTM and BIUT Monarch 2 platform added new features and improvements for furthering our leadership in this sector. Lastly, we made tremendous progress on our Taurus 5G platform and plan to sample the 5G NR platform this year. Let me go into each of these in more detail. Taking a closer look at the financial results, The fourth quarter revenue increased year over year by 15%, in line with our expectations. The contribution of licensing revenue and the mix of products between chips and modules lifted our gross margin to over 75%, significantly exceeding our forecast. The improvement in gross margin delivered a substantial improvement in our bottom line, improving our net loss by $2.8 million compared to the fourth quarter of 2021. For the full year, the primary growth drivers were the nearly 40% increase of massive IoT LTM revenue, despite project delays, and the over 50% growth in broadband IoT from our 5G licensing revenue. These gains were offset by the expected decline in our first-generation Cat1 product revenue, mostly due to higher than normal revenue in 2021 from this product line, as one main customer built over six months of inventory to avoid a potential supply shortage. Consequently, the net result is a nearly 20% total revenue growth in 2022, despite the various delays we had with customers' products launches that were expected in the second half of the year. The delays were mostly due to the supply challenges our customers were facing with their legacy products, which caused them to prioritize fixing shortages in existing all-generation products and reduce the priority of new projects with sequence. The good news is that none of these new projects was canceled. And as the supply shortage issue appears to be behind us, Customers are pushing to finish developing their new products. We expect the mass production launches to start in 2023 and early 2024. Turning now to look at the $700 million product sales pipeline and our success in various markets. Today, over 80% of the product sales pipeline is in massive IOT. The broadband IOT portion is expected to accelerate in the future with the launch of our 5G Taurus platform. Keep in mind that this sales pipeline KPI represents the sum of three years of revenue of all sales opportunities, starting from the market launch date of each customer product. Half of the sales pipeline is from secure design win projects with some in mass production already generating revenue and others in the design phase with revenue to come once our customers launch their products. The other half is about advanced design in opportunities we are working on to win. Note that we are not counting here all opportunities our sales team sees, but only those with at least a 50% chance to be won, and we call advanced. About 70% of the massive IOT design wind pipeline is dominated by our LTM and the IOT Monarch 2 platform, and the remaining is with Cat1. The fantastic market reception to Cat1 Calliope 2 platform is already adding to the design wind pipeline, and this will be our next product growth level, with design winds expected to accelerate this year. Calliope 2 has the potential to double our addressable massive IoT market. Given that sequence recognized early on that Cat1 would be required in many IoT applications and would complement LTM and BIoT, we now have a competitive advantage that will enable us to take significant market share in this segment. In terms of massive IoT applications, We have secured many customers and projects in smart city, specifically in the smart meter. These applications represent over 40% of our massive IoT design wind pipeline. The power consumption performance of Monarch 2 was a critical advantage in this segment, now estimated to be about 30% of the massive IoT market and expected to grow threefold in the next few years. Also, The Cat1 product category is required for some smart metering, specifically electrical meters in Japan. With nine customers in metering, mostly Tier 1 players, we should be able to grow our market share to over 40% and secure a sustainable revenue source for the next 10 years. That said, keep in mind that meter qualification can take at least a year longer than other IoT devices before deployment. Thus, the metering segment traveling around is slower than other applications. We are entering 2023 with a couple of metering projects in mass production, a few others planned to launch in 2023, and several more to launch in 2024 and even early 2025. Patience is the price to pay to enter this large and persistent market. Another key massive IoT vertical where we are having great success is asset tracking and telematic fleet management. Sequence platforms are ideal for these applications where both LTM and CAT1 are required. Today, applications in this vertical represent about 20% of our current massive IoT design wind pipelines. The balance is made up of wins in a smart home and security, both important segments, and other smaller vertical like medical and a few other industrial applications. Let's analyze how the three-year life revenue of our design win pipeline will convert to yearly revenue. Considering our massive IoT design win pipeline, we estimate that when all the customer projects are launched, the annualized peak revenue of in-hand design wins will exceed $100 million. Reaching this level depends only on the launch date and the ramp-up rate of each project. Currently, less than 20% of our design win projects are in full production. Based on customer's plan, we anticipate launching another 45% in 2023 towards the second half of this year and the balance in 2024. This gives us a high level of confidence that despite the level of product shipment we have today and the headwinds from excess inventory in the channel, we could attain the $100 million in 2025 just by supporting our current customers to move their projects into production. This would not include future design wins and more specifically, those currently in the advanced design in stage that constitute the other half of the $700 million in our sales pipeline. I haven't focused on this portion in past calls, but I want to call your attention to the potential this portion of the pipeline has for future revenue. If in 2023, we can move 50% of advanced design in projects to design work the design win portion of the three-year life revenue pipeline KPI would grow to over $500 million by year end. This would increase the design win annualized peak revenue to $150 million, mainly based on sales of Monarch 2 and Kalaipi 2. The success of Kalaipi 2 significantly contributed to our design in pipeline in 2022. About 60% of the advanced design in pipeline is Kala IP2, which also reflects the higher ASP of Cat1 versus LTM. We are uniquely positioned. There is a big Cat1 market, and we primarily compete with Chinese technology. Keep in mind that our channel partners have helped us grow our sales pipeline, and this will continue in 2023. specifically with Renesas, who will be launching new modules integrating our chips. The Renesas partnership has been highly successful for Sequence. They assisted us in increasing our market reach and solidifying our brand strength. Together, we can provide bundled technology to customers, combining Sequence cellular IoT products with other IoT technology from Renesas as they have a large product portfolio. Together, We closed many Tier 1 design wins and are working on many more potential wins for 2023. Our third key accomplishment in 2022 was our continued innovation and product launches. The most exciting news here was the Calliope 2 launch, and interest has exceeded our expectations. The goal was to expand our market share in Cat 1 beyond what we achieved with our first-generation Calliope platform, giving us a comprehensive massive IoT product roadmap that offers multiple cellular IoT variants for a broad scope of use cases. Ideal applications for Calliope 2 are in smart home and security that use video and voice, where LTM capabilities are limited. We also see an opportunity for Cat1 speed in some electrical metering and telematic applications particularly when mobility is required. Since the Cat1 standard was conceived as a derivative of the Cat4 category, most cellular networks have better coverage with Cat1 than LTM or NB-IoT, particularly in Europe. So to ensure better coverage, many mobile applications, even with low data rates, consider the small price premium towards the better coverage of Cat1. To date, we have secured three Tier 1 design wins with CaliP2 and are engaged in over a dozen additional advanced opportunities, some of which may close this quarter. CaliP2 positions us to become the market share leader in Cat1, and my confidence level in delivering returns on this investment is extremely high. Other innovations we delivered in 2022 include improving our Mark II platform offer with the new advanced features to maintain our leadership in the LTM and the IUT. Two new capabilities, GNSS and ISIM, have been added. With higher ASP, they bring 15% more revenue per unit, as well as improve the gross margin. Sequence GNSS supports most of the IUT tracking use cases and is fully integrated with Monarch 2 software. It provides a very competitive low-power GNSS solution, delivering accuracy on par with legacy GNSS chips. We have customers adopting this, and we'll have Monarch 2 shipments with GNSS enabled this year. Another key technology differentiator we released in 2022 is our iSIM-enabled Monarch 2, where a fully secured SIM IP is embedded directly into the chip. Sequence was the first to put this capability on a modem chip. We are working with several partners to bring an end-to-end solution to market with remote SIM provisioning for IoT devices. A few alpha customers are now engaged, and we should start shipping iSIM-enabled MARAC2 this year. We are also seeing strong interest in metering and other IoT applications that may remain in use for years and may need to change SIM provisioning during the device's lifetime. Another improvement on the Mark II platform was a 20% reduction of power consumption in connected mode operation, which is crucial for gas metering applications. Also, we have enabled the integrated low-power sensor hub feature, resulting in a lower cost solution. Last but not least, we have made significant progress in developing our 5G Taurus platform. We sampled the radio transceiver chip last year and are on track to sample the baseband chip this year. We have engaged many customers building various 5G broadband devices. And the feedback on Taurus specifications and cost structure is highly attractive to them. We are very excited about bringing this platform to market this year and start adding another growth lever to our sales pipeline. For 5G Taurus addressable market, will exceed $1.5 billion of chip sales by 2025, thus doubling the size of our massive IoT market. One last item I want to discuss is IP licensing, which is a new growth lever for SQLs. We successfully launched an IP licensing platform with our 2022 5G licensing and royalty partnership. This deal is progressing very well, and we met all deliverables and milestones as planned. Besides the three-year licensing revenue, we firmly believe this program will generate royalty revenue beyond the three-year period. Our partner has a substantial market share in two market segments where the sales of the Taurus platform should provide Sequence an additional $5 million to $10 million of yearly royalty revenue. Also, we are having new discussions with our partner to expand our collaboration on a couple of fronts. Particularly, we are discussing an exciting massive IoT opportunity with the product revenue to SQL. We hope to update you on this development in the near future. Now, from this first licensing win, we plan to scale this 5G IP platform to new applications and markets. Currently, we are engaged in discussions for several new potential IP licensing opportunities for our 5G tourist technology. Our discussions are advancing, and we are targeting to close at least one licensing agreement by the end of the second quarter. This IP licensing and royalty business is practically a full margin business that will add to our product revenue to improve gross margin and profitability. We are convinced that the scarcity value of our 5G IP can be leveraged to drive our growth and profitability, and this will create more value for shareholders. As we look to 2023, we anticipate product revenue growth to resume in the second half of the year. We are not experiencing a demand issue as evidenced by the significant increase in our sales pipeline over the years. The issue we face is a matter of timing related to our customer launches. Across the semiconductor industry, high inventory supplies are pressuring forecasts for the first half of 2023. We are also seeing this particularly with one key customer who was regularly buying $2 to $3 million per quarter. Industry consensus sees a bottoming of this effect in the second quarter and a resumption of growth in the second half of the year. Our outlook for the year and the first quarter, which has historically been a seasonally lower quarter for us, aligns with this market view. In summary, 2022 was a solid year in terms of our financial performance. significant growth of our design wind pipeline, the acceleration of our competitive position in the product landscape, and the monetization of one of our most valuable assets. We are tapping multiple growth levers. We have built a differentiated, innovative, and comprehensive product portfolio, covering all massive IoT market segments. We have a growing sales pipeline with tier one customers, The risk of losing design win projects is low. Our team and channel partners focus on bringing more opportunities into the pipeline. Siquance had significant wins in 2022, giving us a solid foundation to build over the next few years. Taurus 5G is a unique asset with great potential for both product and licensing revenue streams. Siquance has a well-defined diversified strategy to grow. In 2023, we intend to further monetize our pipeline, win new projects, close at least one more IP licensing deal, and sample our Taurus 5G solutions. Finally, let me stress that SQL's unique position in the cellular IoT space makes us attractive to many potential partners. We have numerous avenues open to us And the board has formed a special committee to explore strategic options as well. We will evaluate every tool in our toolbox to unlock shareholder value. My confidence level has never been higher for our enduring success. I'll now turn the call over to them.

Thank you, George, and good morning, everyone. Revenues for the full year 2022 increased 19% from 50.9 million in 2021. 60.6 million in 2022. Gross margin improved to 70.8% versus 53.4% in 2021 due to the significant increase of licensing in the revenue mix. Product gross margin improved as well, moving from 27.7% in 2021 to 32.7% in 2022. Our top line and margin improvements combined with only a 2.7% increase in operating expenses meant that we were able to reduce our IFRS operating loss to $3.8 million, down from 18.3 million in 2021, as well as reduce our IFRS net loss to $9 million from 20.3 million in 2021. On a non-IFRS basis, we achieved operating income of 1.6 million in 2022, compared to an operating loss of 13.2 million in 2021. And we achieved a net loss of 5.4 million in 2020 to down from 19.5 million in 2021. Moving to Q4, our revenue for the fourth quarter was in line with our guidance at 15.9 million. This is an increase of 15% versus Q4 2021 and down slightly compared to 16.5 million in the third quarter of 2022. Product revenue increased sequentially but declined compared to the same quarter last year. Revenue from massive IoT product sales in Q4 2022 continued to account for nearly all of our product revenue. Licensing revenue, all in the broadband IoT segment, declined slightly from the elevated Q3 2022 level as expected. Year over year, licensing revenue increased significantly due to the revenue recognized from the strategic 5G licensing deal. For the quarter, we had one customer and one channel partner that each represented 10% or more of our revenue. IFRS operating expenses were $13 million in the quarter, up 11.7% from 11.6 million in Q3 2022. The increase was primarily due to a nearly $700,000 increase in non-cash stock-based compensation expense, hitting mainly in the GMA line. and the impact of our large 5G government grant being fully recognized by October 2022, and therefore no longer reducing R&D spend beginning in Q4. Year over year, IFRS operating expenses increased 8.8% compared to 11.9 million in Q4 2021. Non-IFRS operating expenses, which exclude stock-based compensation expense, were $11.2 million in Q4 2022, up sequentially from $10.5 million in Q3. Our fourth quarter operating loss was $986,000, a significant improvement compared to a $4 million operating loss in the fourth quarter of 2021. In the prior quarter, operating income was $1.2 million. The sequential change in the quarter is due to a slightly lower gross margin on lower revenue, along with the increase in operating expenses. Our net loss in Q4 was $5 million, or 10 cents per diluted ADS, and included non-cash income of $1 million from the revaluation of the embedded derivatives related to our convertible debt. In the fourth quarter of 2022, we recognized income tax expense of $907,000. Our net loss compared to the net loss in the fourth quarter of 2021 of $7.7 million, or 21 cents per ADS, which included a non-cash loss on the evaluation of the embedded derivatives of $1.2 million. In Q3 2022, we had a net loss of 2.9 million or 6 cents per ADS, which included a non-cash loss on the evaluation of the embedded derivatives totaling $1.2 million, as well as income tax expense of 1.6 million. The majority of the sequential increase in net loss was due to non-operational below the operating line fluctuations in non-cash items, including the unrealized foreign exchange loss in Q4 versus a gain in Q3. On a non-IFRS basis, our net loss for Q4 was 2.8 million or 6 cents per diluted ADS compared to a non-IFRS net profit of 424,000 or 1 cent per ADS in the third quarter, and a net loss of 3.5 million or 9 cents per diluted ADS in the fourth quarter of 2021. In Q4, we had a loss on foreign exchange of $1.5 million, or 3 cents per ADS, primarily related to the revaluation of Euro-denominated net liabilities on the balance sheet. This compares to foreign exchange gains of $1 million in Q3 and $135,000 in Q4 2021. Investors should be aware that possible changes in foreign exchange rates related to balance sheet items and the marking the market of our embedded derivative related to the convertible debt can cause significant differences in net income or loss from quarter to quarter. While the impact of swings and the value of the embedded derivative is excluded from our non-IFRS presentation, foreign exchange gains and losses, whether realized or unrealized, are not. Cash and short-term deposits total $10.7 million at the end of Q4 compared to $5.8 million at the end of Q3. We have close to $7 million in milestone payments from our 5G licensing agreement scheduled to be received in each of Q1 and Q2 this year, as well as later in the second half. Cash used by operations for the full year 2022 was $1.8 million, of which approximately $2 million came from the buildup of inventories to above normal levels. We expect this excess inventory to be absorbed over the first half of 2023, and therefore purchases of inventory during this period should be extremely low. The outlook for Q1, we are targeting revenues of around $12 million, reflecting the impact of excess inventory in the channels, but primarily at one key customer, as well as the delay by our customers in the launch of design lens into mass production. However, as the revenue mix should still be weighted toward licensing revenue, we are targeting gross margin to be about 70%. We expect non-IFRS operating expenses in 2023 to average about $12 million per quarter assuming a stable Euro-dollar exchange rate. We expect interest expense in Q1 2023 on an IFRS basis to be approximately $2.5 million. This comprises the contractual interest expense of around 1.1 million and the IFRS adjustment that we deduct to come to our non-IFRS net result of about 1.4 million. Most of our interest expense is PIC-related interest on our convertible debt and is not paid in cash. We are not providing guidance on any impact of revaluing the embedded derivative or possible foreign exchange gains or losses, given this is largely determined by market conditions. Finally, for modeling purposes, the number of ADSs outstanding today is 48.4 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 webcast and presentations page, the same location where you will find the audio replay. And now I'll turn the call back to George.

Thank you, Deborah. Operator, we are now ready to open the call for Q&A. Please go ahead.

Thank you. We will now 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 that your line is in the question queue. You may press star 2 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. Our first question comes from Scott Searle with Rock. Please proceed with your question.

Hey, good morning, good afternoon. Thanks for taking the questions. Hey, just a quick clarification first, George. On the $700 million pipeline and that $350 million design win, opportunity. It sounds like, right, there's no 5G in that currently, and a majority of that is CAT-M driven at the current time. The CAT-1 production is starting to really ramp up in that design activity. Is that correct?

It's 80% of this is massive IoT, Scott. I mean, the remaining is broadband, 20%. So in other words, you take massive IoT only, we are a little bit below $300 million, like $280 to $90 million. And the broadband has some 5G, but it's really longer run because we have some design, as you remember from day one on this deal, and we have some product revenue expected in the pipe to come once the product will launch. But indeed, 80%, if you take like of the 700, when I said 300, I'm counting the design win. If you take the 700 pipe completely with design win and design in, 80% of this is pure massive IoT, which means Monarch 2 mainly and Kalyp 2.

Perfect. And maybe just looking to the product ramp up in the second half of this year, It sounds like part of that is related to the expectation of new projects going into production. I think you said 20% are in production now, and you expect 45% in the second half. One of the two things, you know, it seems like there's a lot of comfort for that ramp up in the second half. What sort of visibility do you have to the one large customer in terms of their inventory build that gives you comfort on that front? And then do you have actual timelines of when you expect these projects to kick in to revenue in the second half of this year, or is some of that still fluid?

I mean, a few elements in your question, Scott. I mean, one which is related really to the inventory with one specific customer. Reality, all the customers that they bought last year have some inventory. And, you know, this is really the reality of the industry. Most of them, they have maybe one quarter to like five months, if you want, extra inventory. In our case, I would say, We have a couple of them here and there. Maybe if they add all up, maybe it will be around $1 million, $1.5 million. But we have one major one who typically does an average $2.5 million per quarter. The extra, I would say, he purchased more than needed last year as everybody was really building inventory and their customer is building inventory and he's reaching year-end with... Too much inventory. That's why we put on hold the sales to this guy in Q1 and Q2. To some extent, some of Q2, even if we have, by the way, backlog. We have some backlog from them, but we're not shipping as planned originally for Q1, Q2. Just to let them absorb, I will say, the inventory they have. So this is what I will call it really one case not related to our ramp, not related to the project, the design momentum we have. creating a challenge for us at the beginning of the year, extra challenges. The others, as I mentioned, and I wanted really to spend hopefully enough time so everyone can appreciate how we move from a design wind pipeline, which is big, but as I said, this is really three years of revenue for each project. So obviously, if you average this, you need to average this on maybe 4.5 years, depending on the launch of every project. and the level of product revenue we have today. And this is really, the reason is that the design win, even when we consider this design win, and even if we can go to $100 million there, they are not all in production. And we have, as I said, 20%. However, all the projects that they were in the pipe last year, and they continue, and they are accelerating, and we have visibility. And very honestly, the delay we got on those, in the majority of them, they were related to the you know, the focus of those customers on fixing their supply issue with the old generation product. And we have also good visibility and feeling like at least 45% of those projects will be in full production when we exit 2023. That will give us good drum for next year from there and where we can add more projects. So we have good visibility. We are very comfortable on this. Obviously, customers are working on their projects. Things are moving. Most of them, they are in the last phase, if you want, on execution. So we feel good about timing.

Very good. Very helpful. And lastly, if I could, and then I'll hop back in the queue, but on a combination of the 5G IP licensing special committee and kind of the balance sheet. First, just to clarify, it sounds like you have expanded discussions going on with your existing 5G China-based customer, that is not one of the advanced discussions. Is that correct? It sounds like there could be an expansion there in addition to the advanced discussions, it sounds like, with one or two other guys that you would expect by the middle of this year. I want to clarify that. I want to understand kind of the magnitude of what those potential payments up front could be for that new customer. And then just if you could, from a cash coming onto the balance sheet standpoint, There were some payments, I believe, in the fourth quarter related to the existing 5G relationship. What does the timeline of new payments look like, you know, in 2023? And then if you could, on the strategic committee, you know, what is the composition of the committee? What is the mandate on that front? Thanks so much.

I mean, Scott, on one thing, obviously, I want really to stress that the partnership we have, and I know that... Because we didn't announce the name and maybe, you know, for whatever reason, people are not really valuing at this value, I will say, this partnership. This partnership is really working very well, has potential, as I said, licensing and royalty because the customer is very solid and has business experience. hand so as soon as the product will move to production we will start getting royalty and we have engagement and other opportunity in discussion with them with them even some related to product revenue you know extra business that will help and what i when i was referring to new ip licensing deals they are beyond this partner uh and other deals and that you know that will be um adding to this one uh and all the references of this as you know we we We left this open because, you know, the licensing model, we can have a licensing that can start at, you know, $15 million and can be $60 million. The question about the licensing is really how much, what is their royalty level? So if you could have, if you have low licensing, you will have very high royalty. If you have very high licensing, you will have lower royalty. And obviously this is part of the discussion with the partner and we are flexible on our side to conclude something, but it will be meaningful no matter what.

Scott, on the cash, I mentioned that under the 5G licensing agreement, we're scheduled to receive close to $7 million in each of Q1 and Q2, and then later in the second half of the year.

Great. Thank you. Thanks, Scott.

Our next question comes from Craig Ellis with B Reilly. Please proceed with your question.

Yeah, thanks for taking the question and congratulations on a number of the year's milestones as you look back. George, I wanted to start just by clarifying an issue on the supply chain. So you've been clear in terms of the impact of the current environment and supply chain issues on your customers. And frankly, we're seeing that impact across a range of companies that are involved in the IoT. The question, though, is more about your own supply and how you're looking at supply potential from your foundry partners and agreement partners in 2023. And then just as much in 2024, how confident are you that those foundry partners can meet what looks like a really steep ramp coming as we exit 23 into 2024 on the massive IoT side?

Hi, Craig. I mean, you know, we're feeling really that the supply is easing from this point of view. In other words, obviously, even if the tension remains there, you know, with, you know, the story of Taiwan and so on. So there is a big question mark, but at least practically today, there is access to foundry and there is way for that now. There is always limitation, you know, when you're up and we are anticipating this. We build inventory in the company already. And this is, by the way, consume some of our cash. So we're sitting on, you know, more than what we will be sitting on in terms of inventory as well. And that let me feel like 2023 will not have any problem. And from there, you know, for 2024, obviously it's too early to speak about it. But again, you know, with a partnership we built with Renaissance and so on, I don't expect really an issue there, and hopefully we'll be there to support the ramp of our rep.

Got it. That makes sense. And then for the second question, I wanted to follow up on a question that Scott asked. I don't think I heard a response just related to the strategic options, you know, what's the board involvement? Is there a timeframe? to the mandate that you've given them, et cetera. Can you just flesh that out a little bit for us?

Yeah, I mean, Craig, I mean, unfortunately, I mean, as you could imagine for those contacts, I cannot give more details. So very honestly, obviously three board member, I mean, we could give the name, but I don't believe it's important, but obviously three key guys that they're involved when they helped me. And this is what I could say more than this. I believe one will be the right point we'll talk about.

Got it. And then lastly, when we look at the part of the funnel that's that incremental $350 million that hasn't been as much of a focus prior to this call, but is becoming much more so. As we think about the end market exposure of those opportunities, George, how does it compare to what we've been looking at previously where there's a real high smart metering, home, et cetera quotient? Would it be similar mix or significantly different mix from an end market standpoint?

Well, I mean, it's really going in the same direction when I look to it like backward beginning of last year. We're talking about where we are seeing potential win. In 2022, to be honest, we had more and more metering projects. We won a lot. I mentioned nine customers, not nine projects. I can tell you close to 20 projects, above 20 projects that the company has. And we have more in the pipe. It's really a place where we ended by the fact that we have the two products, Cat1 and CatM, and very low power. And, you know, it's a small plus adding many plus. At the beginning, it was very complicated to win in this segment because you need to prove yourself as a brand. You can stay there for 10 years. But it's really playing very positive for us. So this remains a very solid segment. Telematic and asset tracking will be the second one. And then you will have more security, the third one. But we're seeing this is very diversified as well. And as I said, it's diversified in product as well because we have Cat1 and CatM addressing this one.

That's helpful. And then just lastly, before I hop in the queue, given that you've got nine customers and 20 projects with metering, are you basically penetrated in all the major metering companies globally or where do you stand? Yeah, go ahead.

Absolutely. I mean, Craig, I don't want to be, I'll say, I'm a little bit prudent of saying I have all the top guys, but I could claim this from the top 10.

Congratulations on that. Yeah. Thanks, George. Thank you. Thank you.

Our next question comes from Raji Gill with Needham & Company. Please proceed with your question.

Hi, this is Nick Doyle. I'm for Roger Gill. My question is, you talked about how Calliope 2 now has a competitive advantage and you expect market share gains. Could you just talk a little bit more about that?

Hi, Nick. I mean, you know, Calliope 2, what happened in the market that many people thought at some time when LTM was coming, that LTM will jeopardize the Cat1 market. And honestly, even me, I was thinking like this at the beginning. So for a while, no one was investing in Cat1 next generation, milking whatever they have in hand and relying all on LTM and BI-UT. But as soon as we start playing, working with the customers and so on and realizing the limitation of the LTM in some use cases, I felt like this is something we invest in and there is really space that remains extremely big and SQLs can make the difference. So we moved early in this. We invested when no one was investing there. to come with this platform. And practically, the only guys who invested in this is Chinese. We have some people that even license Chinese technology to bring it to Europe. And with this, give us really competitive advantage because, as you know, there is a sensitivity of playing Chinese, non-Chinese in many markets. So Sequence is unique in this. And obviously, it's a great product, very new. And it reduced the cost structure by at least 30% versus the first generation. So if you take a module first generation, a module second generation, you can cut the cost by 30%, which is major. For all new projects where they need Cat1, we are in very, very good position. And obviously, you have some projects where they use even Cat1 for coverage reasons, not only for speed. So this is really why we feel very good about it. We have done... Three big wins last year in Q4. We are developing the project with them, really major one. We have one of them exceeding $10, $15 million yearly revenue. And we have in the pipe a dozen of them, very, very advanced. Some maybe should close this quarter. My sales team is, you know, we are able to deliver on this. This quarter we should close two, three more deals on this capital. So we are very optimistic on this.

Thanks for that. And then another maybe technical question. Why do the metering applications take longer to qualify? You mentioned a year longer. Is that about two years to qualify these metering applications?

I say maybe two years, sometimes three years, depending on what is the reference. But to be honest, you could have some of them a little bit faster. And all they are doing is changing what they call the communication units. In other words, the meter is there and you add the communication. But you need to keep in mind that any deployment with utility, any projects that the metering company win, they have to deploy and commit for 10 years, 10 years with equality, with penalty on the quality and so on. So that's why the process is very, you know, is really a process where you have a qualification phases and so on that makes things more complicated to get there. But once you are in, in general, it doesn't move, and it rolls for 10 years. So this is really the counterpart, which is very positive versus the ramp on it. And we have, I mean, thanks God, because this is a very important market metering, and it's growing very fast in the massive IUD. And we have a big chunk of our part there. And this may be one of the reasons why things are not going fast as well in terms of ramp of product for sequencers.

Thanks.

It appears that there are no further questions at this time, so I would now like to turn the floor back over to Dr. Karim for closing comments.

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

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