Sequans Communications S.A.

Good morning, ladies and gentlemen, and welcome to the Sequence Communications first quarter 2025 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, May 6, 2025. I would now like to turn the conference over to Kim Rogers, please go ahead, ma'am.

Thank you, operator, and thank you to everyone participating in today's call. Joining me on the call from Sequons Communications are George Karam, CEO and Chairman, and Deborah Choate, CFO. Before turning the call over to George, I would like to remind our participants of the following important information on behalf of Sequons. First, Sequons issued an earnings press release this morning, and you'll find a copy of the release on the company's website at www.sequons.com under the newsroom section. Second, 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 sales, 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's 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 to everyone. We are pleased to report that we delivered first quarter revenue of $8.1 million, slightly above the high end of our guidance range, reflecting steady execution of our plan. Drilling into the details, product revenue was $3.5 million in line with our target. This represents an increase of 42% compared the first quarter of 2024, mainly driven by the continued rollout of our Monarch 2 projects. Also, license and services revenue grew 28% year over year, largely due to the timing of revenue recognition from the 5G tourist license to Qualcomm. As explained on our previous earning call, The sequential decline was due to the timing of various deliveries under the Qualcomm license and variability of product shipments with some design wind projects still moving through pre-launch phases. On the product and technology front, we are making substantial progress. Monarch 2 remains a key driver of our revenue growth with many design wind projects in the pipeline. In the first quarter, we saw new momentum with several metering projects entering the pilot rollout phase. Also, the Monarch 2 pipeline continues to expand with new projects in tracking, metering, eHealth, and other industrial segments. We began shipping CaliP2 to our first DesignWin customers, preparing for product launches in the second half of 2025. We expect CaliP2 shipments to ramp through the second half of this year and accelerate in 2026, particularly in telematic and security markets. Our next-generation Monarch 3 and CaliP3 chips, which we announced at Mobile World Congress, are planned for launch by the end of 2026. These chips will further improve cost structure, power consumption, and radio performance, while supporting 5G eRedCap modem category to help customers future-proof the network's transition from 4G to 5G IoT. The market response has been extremely positive, and we are engaged in advanced discussions with several customers and partners interested in collaborating with us more closely on this technology. The ACP acquisition accelerated our 5G eRedCap roadmap by approximately 18 months, giving us a first-to-market advantage. We expect this next generation of chips to contribute to our revenue in late 2027. We are also excited about our 5G RedCap platform called Taurus LT, as it's derived from our high-end 5G broadband Taurus IP. 5G REDCap is targeting high bandwidth IoT applications with speeds exceeding 100 megabits per second, like cameras, edge routers, and high-end industrial devices. We plan to sample this platform to early customers by year-end, completing our portfolio to address the full range of IoT connectivity needs. Additionally, with the technology and resources gained from the ACP acquisition, We now offer RF transceiver chips that serve vertical markets such as defense, public safety, and proprietary radio devices. Particularly, we have a very advanced 22-nanometer RF transceiver shipping to one customer and under evaluation with a few others. We are preparing for a broader commercial launch supported by an enhanced marketing campaign to expand our market reach. This represents a significant new opportunity with meaningful revenue contributions expected to begin in late 2026. With our comprehensive and rich portfolio, Sequence is one of the few comprehensive cellular IOT providers outside of China. This has become a meaningful differentiator in today's geopolitical environment and has already contributed to new opportunities and design wins. Turning to customer interest, we are seeing strong momentum across the board. Our total pipeline representing advanced customer engagements or design ins on one side and secure design wins on the other side is reaching approximately $480 million of potential revenue, counting the first three years of sales for each project. More than half of this pipeline, $250 million, is already in the design win phase. In the balance, $230 million covers the design in projects. I'm pleased to report that we were awarded nine new projects in the first quarter from six customers, including four new ones. They cover applications in telematics, metering, and e-health and represent much more than $10 million in expected annual revenue at full production. Some of them are part of our high velocity targets and expected to contribute to revenue in 2026. These projects will be classified as full design wins in our pipeline as soon as our customers have initial hardware designs sampling with our chip or module. Also, we have made progress on many other design-in opportunities where we are shortlisted for final evaluation and selection. So how does the DesignWin pipeline translate to revenue growth? About 18 DesignWin projects are currently in production, contributing to revenue. representing around 20% of our design wind revenue pipeline. We expect this number to grow to over 30 projects by the end of 2025, where around 50% of our design wind pipeline will generate revenue. And most of the remaining design wind projects should reach the production phase by the end of 2026. On the licensing side, we are also seeing progress. Our Chinese partner, who licensed our 5G Taurus broadband platform, is advancing swiftly with its product development, and we expect to begin receiving royalty revenue from this partner in 2026. Separately, we are engaged in discussions on three new strategic deals, all leveraging our 5G REDCap and eREDCAP IP. We anticipate closing one or more of these deals by year-end 2025. Looking ahead, our strategic priorities for the rest of 2025 are clear. We'll continue moving design wind projects into production, converting Monarch II and ramping CalIP II projects. We'll remain focused on winning new customers, expanding our design wind pipeline, and capturing shares in high-growth markets like security, fleet management, and asset tracking. We are also aggressively executing our REDCap and eREDCAP product roadmap to further solidify our leadership position in next-generation 5G IoT and secure new strategic and licensing deals. Finally, we are expanding our vertical market sales by leveraging the RF chip opportunities we acquired with ACP. Financially, we remain disciplined and focused on execution. While macroeconomic conditions are uncertain, we are managing what we can control. We remain focused on our target to achieve operating income breakeven in 2026. We are managing our cash operating expenses with a target of below $10 million per quarter. We have two important levers to help with this. First, the maturity of our Monarch 2 and CaliP2 product lines, which require limited additional investment. And second, the flexibility to adjust spending on next generation chips if needed. As revenue increases, we expect to reduce our cash burn rate to below $5 million per quarter by the end of 2025 and continue growing to achieve our break-even target from there. Many new design wind projects are expected to begin production in the second half of the year. While there is some market uncertainty around potential new U.S. tariffs, it's too early to draw firm conclusions We are monitoring the situation closely and will respond as needed. For now, we are not seeing a direct impact on our business. On the corporate governance side, the board governance committee recommended refreshing our board of directors to strengthen our strategic execution and refine our long-term vision. More information will be provided in our May proxy filing. In closing, I want to thank our employees, customers, partners, and shareholders for their continued support. We are proud of the progress we've made in the first quarter of 2025 and are excited about the opportunities ahead. With the strength of our product portfolio, the accelerating pace of projects into production, and the strategic initiatives we are executing on, We believe we are well positioned to drive significant value for all our stakeholders. I will now turn the call over to Debra to review the first quarter 2025 preliminary financial results and details.