Sequans Communications S.A.

Good morning ladies and gentlemen and welcome to the sequence communications third quarter 2024 financial results conference call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 5, 2024. I would now like to turn the conference over to Mrs. Kim Rogers, Managing Director, Pieden AR. Please go ahead.

Thank you, Chloe. And thank you to everyone participating in today's call. Joining me on the call today from Sequons is George Karam, Chairman and CEO, and Deborah Choate, CFO. Before turning the call over to George, I'd like to remind our participants of the following important information on behalf of Sequon. First, Sequon's issued an earnings press release this morning, and you can find a copy of the release on the company's website at www.sequons.com under the newsroom section. And 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 release, including any statements regarding our business strategy, cost optimization plans, strategic options, the ability to enter into new strategic agreements, expectations for massive IoT sales, our availability 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 risks 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, everyone. I'd like to thank you all for joining us today. I'm excited to share an update on where SQL stands as we continue our transformation following the successful closing of the Qualcomm deal. As you may know, we've been navigating a rebuilding phase, and I am pleased to say that we believe Sequence is on a strong trajectory toward growth and long-term success. Let me walk you through the recent development, highlighting why we believe in our future success and growth. First, we successfully closed the Qualcomm transaction, securing $200 million in funding for the company. This was a critical milestone for us. The deal not only enhances our financial standing, but more importantly, validates our technological leadership in the cellular IoT space. This bolstered the confidence of both our existing and potential customers in our ability to innovate, compete, and support them in multi-year relationships. Our financial stability is no longer a challenge, and a major industry leader has endorsed our technology. Second, as we have retained perpetual licensing rights to our 4G IoT technology, we can maintain and enhance our 4G product offerings with LTM and BIUT Monarch 2 and Cat1BIS CalIP2 platforms. This enables us to support our design wind pipeline and drive short-term revenue growth. Meanwhile, we'll focus our R&D resources on developing next-generation innovative 5G REDCap and eREDCAP solutions to continue our growth trajectory and create more value for our shareholders. Let me provide more detail on these points. Starting with financial stability, I'm pleased to confirm that in October, we fully repaid all mature debt and cleared all overdue payables to our suppliers. Our balance sheet is now nearly debt-free. marking a significant turning point in our ability to operate with greater flexibility. With our strategy centered on massive IUT, we are now well positioned to make targeted investments in R&D while effectively managing and reducing our cash burn rate in 2025. Combined with anticipated revenue growth next year, we are confident in our trajectory toward achieving breakeven by 2026. I want to recognize the incredible support we have received from our customers. Over the past year, our customers have remained steadfastly committed to Sequence despite our challenges. As a result, we have retained almost 100% of our existing design wind projects representing a corresponding three-year revenue pipeline that accounts for approximately $250 million of future revenue. These design wins cover a variety of IoT applications for multi-year deployments, with must in the large markets of metering, tracking, and fleet management. While previous financial challenges limited our ability to secure new project wins. This didn't reduce our customer traction, particularly in our Cat1Biz CalIP2 product. Now with a solid financial footing, we are back to work on the pipeline of opportunities and anticipate securing new design wins in 2025. In fact, both existing and potential new customers, as well as partners, were impressed by our Qualcomm transaction and they fully support our strategy post-deal. The testimonial in our recent press release affirmed their view of the value of our technology and of Sequence as a trusted partner. Their recognition of our leadership in the 4G, 5G IoT industry underscores the competitive strength of our products and solutions. Now with our team solely focused on executing our business strategy, we are devoting all of our energy and resources to driving growth. Importantly, we are more confident than ever in our competitive edge. This confidence stems from our ability to execute on innovative product strategy that enhances our existing 4G IoT platform. and drives the introduction of next-generation 5G REDCap and eREDCAP products. We expect this will accelerate new design wins while the existing design win projects move to mass production. Let's take a closer look at our revenue growth and outlook for the upcoming quarters. Two key factors provide us with a strong visibility into our revenue trajectory from the coming year and beyond for the coming year and beyond. First, on the product side, our design wind pipeline remain robust with more projects transitioning into mass production, starting in the fourth quarter of this year and continuing through 2025. Second, we have a line of sight for new projects coming online in 2025. that we expect to accelerate our growth in 2026. All this anticipated growth is based on existing matured Monarch 2 and Kali P2 platforms that require limited R&D investments. Our design wins pipeline is built with industry leading customers, such as Itron, Honeywell, and Geotab, as well as with major ODM partners aggregating numerous OEM customers. Many of these design lines have an average life cycle that exceeds five years, providing stable revenue streams over the long term. Similarly, we are engaged with tier one customers on numerous new opportunities that we are targeting to close in the coming quarters. It's important to highlight that in addition to 4G, 5G product sales, SQLs will continue expanding its licensing and services business. First, we continue supporting our existing Chinese partner and expect this relationship to generate services and royalty revenue in the future. Second, we have other engagements we believe could lead to new licensing and service deals in 2025. In fact, our existing 5G IP and future innovations on REDCap and eREDCAP should allow us to secure new licensing deals similar to what we have done in the past. Our licensing strategy involves addressing new market segments or regions through partnerships and securing new business opportunities with limited investment. This approach could bring incremental growth through high margin licensing and service revenue, further advancing our path to break even. We are optimistic about near-term revenue growth. With backlog in hand, we expect fourth quarter product revenue to double from the third quarter. Looking ahead to 2025, We anticipate product revenue growth to continue as new design wind projects move to mass production. Additionally, we expect some licensing and service revenue from existing engagements and new deals that we target closing in 2025. Operationally, we are targeting cash operating expenses, meaning excluding depreciation, amortization, and equity compensation expense. to fall below $10 million per quarter in 2025, driven by a combination of cost efficiencies and focused R&D investments supporting our revenue growth. This reduction in expenses will allow us to reduce our cash needs. Now, as a last point, I want to dive into one of the key questions on investors' mind, how Sequence will remain competitive in the IoT market, especially in such a rapidly evolving industry. The answer lies in our ability to continue delivering product innovation. I'm proud to say that we've retained a world-class engineering team with deep expertise in 4G and 5G. This team's expertise is the driving force behind our roadmap for improving Monarch 2 and Calliope 2 platforms and introducing next generation 5G products. Tequance also has a differentiated go-to-market strategy with the flexibility to support our customers in unique ways by providing everything required as one-stop shop, chips, modules, and software solutions, which are customizable as needed for a broad scope of IoT applications. Additionally, 5G RedCap and eRedCap technology are gaining significant importance with IoT industrial customers who are looking for a future-proof cellular connectivity solution in anticipation of the evolution of the network to pure 5G. Our roadmap is closely aligned with 5G standalone deployments with a first-to-market approach, setting the stage for us to take advantage of the growing demand for next-generation 5G connectivity solutions. Another factor supporting our continued relevance is the industry's growing need for at least two reliable sources of Western design technology from suppliers fully committed to cellular IoT with a comprehensive 4G and 5G product offering. This means that customers, especially those in North America, Europe, and Japan, need more than one chip alternative to address sovereign challenges and avoid relying too heavily on one supplier. This factor, combined with the current geopolitical situation, positions sequence exceptionally well, particularly after the endorsement of our technology with the Qualcomm transaction. In summary, there are four key indicators that demonstrate Sequence is in a dynamic rebuilding phase. First, we significantly transformed our balance sheet, eliminating nearly all of our debt and substantially strengthening our cash position. We've retained the rights to our 4G IoT technology, which enables us to continue supporting our existing customers while building new products and next generation 5G solution. Third, we've preserved our critical customers and supplier relationships, ensuring that the design wins we've secured are entering mass production, giving us visibility into product revenue growth for 2025. Last, we anticipate generating new licensing and services revenue sources that will further limit our cash flow. I will now turn the call over to Debra to review the third quarter financial results in detail. Debra?