Patria Investments Ltd (PAX) Q3 2026 Earnings Report, Transcript and Summary

Hello, and welcome to the Third Quarter 26 Sequans Earnings Conference Call. My name is Towanda, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. There will be a Q&A session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please note that this conference is being recorded. I will now turn the call over to David Hanover, Investor Relations. David, you may begin.

Thank you, operator. And thank you to everyone participating in today's call. Joining me on the call from Sequans Communications are Georges Karam, CEO and Chairman; and Norman Broek, CFO. Before turning the call over to George, I would like to remind our participants of the following important information on behalf of Sequans. First, Sequans issued an earnings press release this morning and you will find a copy of the release on the company's website at www.sequans.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 financial 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, 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 2000, Section 27A of the Securities Act of 1.93 thousand as amended, and Section 21E of the Securities Exchange Act of 1.93 thousand 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 environment, 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 would like to hand the call over to Georges Karam. Please go ahead, Georges. Thank you, David, and good morning, everyone. Before discussing our core business, I will start with a brief update on our balance sheet. As we have now fully concluded our Bitcoin treasury strategy. As announced on September 24, we sold the remaining 314 Bitcoin held on our balance sheet as of June 30. Completing the treasury exit, that began with the full redemption of our convertible debt in May. These final sales were executed at an average price of approximately $78.5 thousand. Per Bitcoin. For total proceeds, of $24.6 million As a result, Sequans no longer holds any digital assets. And we have no outstanding debt other than a small amount tied to government financed R&D We ended the third quarter with $391 million. in cash, equivalents and short term deposits. Compared to $21 million in cash and 314 Bitcoin at the end of the second quarter. With this exit complete, the Bitcoin treasury chapter is closed. And the full strategy and financial attention of the company is now in our semiconductor business. Our priority going forward is squarely on executing our semiconductor strategy. Scaling our IoT product business developing our new defense and drone business, and advancing our 5G eRedCap roadmap to create long-term shareholder value. We entered the fourth quarter with a strong balance sheet and the financial flexibility to support our operations, and invest in growth. Now turning to our semiconductor business. Our 4G IoT products showed strong momentum in the third quarter. Third quarter revenue came in at approximately $9.1 million in line with our guidance range. that is up 22% from $7.5 million in the second quarter and up 183% from $3.2 million in the third quarter of 2020. The vast majority of our Q3 revenue was generated by product sales, which increased by more than 4x year-over-year Through the first 9 months of 2020. Revenue totaled $22.6 million. That already exceeds our full-year 2025 revenue. Of $18.3 million excluding the $8 million of nonrecurring Qualcomm-related 5G revenue we recorded in the first half of 2020. We are seeing strong order momentum across our customer base, driven by design wins that have reached mass production, several of which we expect to keep scaling through 2027. This is reflected in a strong and growing backlog extending into the second half of 2020, which gives us solid visibility and confidence in our product growth trajectory. As in the previous 2 quarters, our Q3 book to bill ratio was well above 1. Our product design win pipeline measured by potential 3-year product revenue keeps expanding. We update this figure once a year So for now, we are maintaining the $300 million reported at the end of 2020 5. However, in the third quarter alone, we added 9 design win projects and 8 advanced engagements. As reported at the end of the second quarter, $165 million of this pipeline is in mass production generating revenue. 2 additional projects moved to mass production in Q3. And we expect several more to follow in Q4. Bringing the mass production portion of the pipeline to more than $180 million by year end. Smart metering, telematics, and asset tracking remain our strongest verticals. And the volume and visibility we are building in these markets reflect the strength of our product positioning and customer relationships. Looking at our product families, our Monarch CAT M products, remain a core growth driver. Accounting for more than 80% of Q3 product revenue With asset tracking smart metering applications, leading the way. We expect this business to keep growing in terms of Revenue from our Calliope CAT1bis product is driven by our design wins in telematics and security. Where several projects have now reached mass production. We expect this momentum to carry into Q4 and beyond. With significant revenue growth materializing in 2020. For all our cellular IoT pipeline. For both CAT M and CAT1bis. Keeps growing. With many new opportunities every quarter. Beyond the design win pipeline, we are currently working on more than a dozen new projects that we hope to win in the near future. In addition, we have begun substantive discussions on several 5G eRedCap projects with customers preparing for the network transition from 4G to 5G a market we are targeting with a highly competitive chip now in development. As we previously said, our 5G eRedCap chip is in house. We expect to complete end to end lab testing late this year with a plan to engage customers in the second half of 2020 and generate revenue in 2020. As the IoT market transitions from 4G to 5G, the Redcap remains a key pillar of our long term strategy. It positions Sequans to capture a significant product design win opportunity and expand our market share in cellular IoT while enhancing our IP leadership and supporting future licensing agreements. Beyond IoT, our Iris RF transceiver is attracting strong interest. Across defense, drone, and space applications. Since we began shipping our development kit platform in Q2, we have generated more than 20 leads in this market. Including many tier-1 customers. The first drone customer we announced last quarter is now ready for production and we expect shipments to begin in Q4. While most of the RF pipe pipeline is still in the engagement phase, it already represents more than a $30 million 3-year revenue potential with very high margins. We are fully committed to scaling this defense and drone business by building out our go to market strategy and strategic partnerships several of which are currently under discussion. Turning to services and licensing. This business remains an important source of high margin revenue. Although the timing of individual engagements vary from quarter to quarter. Our goal is to leverage our RF and 5G IP portfolio to address new markets and regions beyond our own addressable market. We have already concluded several licensing deals in the past, some of which are now generating royalty revenue that we expect to grow in 2027. We also have several active licensing and strategic engagements under discussion. with global customers and partner across a range of end markets and geographies. Individually, these opportunity range from several $100 thousand to well over $10 million. And their total revenue potential exceeds $75 million. We are making progress on most of them, and aim to close some in Q4. These opportunities provide potential upside to our revenue, advance our path to breakeven. And expand our strategic reach into new markets and applications. Now a few words on supply chain and product cost. We continue to navigate a challenging supply and cost environment. While memory remains the primary constraint, we are increasingly seeing pressure across the broader semiconductor supply chain. To mitigate these challenges, we have implemented multiple sourcing options for key components and manufacturing materials including substrates, flash memory, and assembly and packaging, which should put us in a stronger position heading into 2020. However, we still need to address silicon supply as TSMC will be operating under capacity allocation for all mature nodes in 2027. The significant growth expected next year, our main challenge is At the same time, we are mitigating customer pressures by passing through increases to customers where appropriate. Limiting the impact on our gross margin. This is particularly important for memory components where pricing remains volatile and changes from month to month. We managed all of these challenges well in 2026 and our ability to manage these challenges again in the coming year. Third quarter cash burn came in line with our plan, We remain focused on disciplined cost management and on reducing cash burn over time as revenue grows with the objective of reaching breakeven as quickly as possible. Overall, our third quarter reflected real progress in strengthening our core IoT business completing the simplification of our capital structure, and positioning the company for sustained growth. For the fourth quarter, we expect revenue in the range of $9.5 million to $11 million. This guidance assumes the limited contribution from license and services. Should we close the major licensing deal, during the quarter, revenue could exceed this. From a position of strength. We have a simplified balance sheet with approximately $40 million in cash, and short term deposits. No debt other than government-financed R&D funding. And significant financial flexibility. We have an IoT business with strong underlying momentum. Supported by a growing backlog and a maturing design win pipeline that is increasingly converting into production We have an exciting new market opportunity in defense, drone, and space which adds scale and diversification to our business with significant potential. And we have a differentiated strategic IP portfolio in 5G and RF which we believe remains 1 of the most important long term value drivers for us. We remain focused on scaling our product revenue across both our IoT and defense and drone market advancing our 5G eRedCap roadmap, and executing against the key drivers we believe will unlock the full value of Sequans over time. With that, I will now turn the call over to Norman to review our quarter financial results in greater detail. Thank you, Georges, and good morning, everyone. I will now turn to the first quarter financial results. Total revenue for the third quarter was $9.1 million an increase of 21.9% compared to the $7.5 million in the second quarter of 2026 and up 183% from $3.2 million in the third quarter of 2020. Revenue in the quarter was largely product related This product sales more than 4x higher year-over-year. Reflecting the continued growth of our IoT business. For the first 9 months of 2026, revenue was $22.6 million compared to the $19.4 million in the same period of 2020. License and services revenue, in the prior-year period, revenue for first 9 months nearly doubled. Gross margin was 33%. Compared to 32.9% in the second quarter and 20.3% in the third quarter of 2020. Operating expenses consisting of R&D, and SG&A expenses for approximately $10.3 million down from $11.9 million in the second quarter. This is a reduction [inaudible], of 24% year over year. We expect operating expenses in the second half of 2020 6 to be lower than the first half, while you continue to invest During the quarter, we completed the sale of our remaining [inaudible]. And reported unrealized net gain compared to a realized net gain of $5.3 million in the second quarter. There was no impairment on digital assets in the third quarter, compared to the 3 there is no Bitcoin left on our balance sheet. Financial results, will no longer be affected by Bitcoin pricing. Operating loss of [inaudible] compared to a loss of $7.2 million in the second quarter. The $2 million gain and also reflects the high revenue and lower operating expenses. Net loss for the quarter was $1.5 million or $0.10 per diluted ADS compared to $9.8 million loss for $0.65 per ADS and a $16.6 million loss That interest expense was $2 million down from about $4 million On a non IFRS basis, including noncash impairment stock based compensation, noncash items. Now turning to the balance sheet. Frankly our financial position improved to $21 million to $39.1 million. In addition, in October, we received following up on Georges' comment on licensing. We have several discussions that are well-entrenched. Before I hand the call back to Georges for his remarks, I want to reiterate 1 answer. With this foundation, we believe we can execute on our operating and strategic priorities. Thank you, Norman. As we close, our priorities are clear. We are focused on scaling our IoT semiconductor business expanding into software defined radio applications across drones defense, and space, and advancing our 5G eRedCap. The third quarter showed solid momentum across the board. Revenue grew 22% sequentially and 183% year over year. Product revenue more than quadruple. And our book to bill ratio was again well above 1 supported by a backlog that now extends into the second half of 2020. More design wins are moving into mass production, and we expect the mass production portion of our pipeline to exceed $180 million by year end. Beyond IoT, our Iris RF transceiver is building traction in the defense and drone, and space. And our licensing pipeline gives us additional upside on top of our product. We have also completed an important transformation of our balance sheet with our convertible debt was fully redeemed and our Bitcoin treasury exit complete We now have approximately $40 million in cash and short term deposits and a simple capital structure. Giving us the flexibility to support our operations and invest in growth as we move toward the breakeven. Overall, we believe Sequans is well positioned with a clean balance sheet, improving visibility into product revenue, a differentiated technology portfolio across 4G, 5G, and RF, and multiple avenues for growth. We remain focused on executing and on creating long term value for our shareholders. With that, operator, we are ready to open the call for questions.

Thank you. Thank you. Ladies and gentlemen, as a reminder to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Our first question comes from the line of Scott Searle with Roth. Your line is open.

Hey, Georges, just quickly to clarify on the cash front, I believe there was still an outstanding incoming payment from the French government. Of $3 million. So I want to clarify whether or not that came into the third quarter or is that expected in the fourth quarter. And just to clarify, $180 million of those design wins now going into production over a 3-year estimated time period. So in 2027, we are looking at some point ramping up to, you know, a $60 million a year product run rate. Is that the correct way to interpret it?

Hi, Scott. I mean, on the first question, yeah, in fact, we received $2.5 million from the French government in October. it is not recorded in the balance sheet end of September, obviously. It came almost the first week of October, and on a pro forma basis, yes, I mean, And on the design win pipeline, the target is to be above $180 million by year end. And you are right. This represents 3 years' revenue. So this will give you the average run rate over the coming 3 years. I will not say $60 million is the number for the first year. But in average for the 3 years, we have $60 million. So we will be somewhere, you know, between $50 million-plus, I would say, because it is growing over the 3 years. You still have product ramping every year. Over those 3 years.

Gotcha. And, on the RF front with the Iris product line, seems like you are starting to get a lot of traction there. I wanted to clarify the comments that you made on the call. I thought you said $30 million. Is that from the initial drone win by itself? That it could ramp up to $10 million a year over time? And it seems like the not only the timeline to win, but the timeline to production has actually been pretty fast on this front. So engaging with 20-plus customers now, how do you expect that to I guess, roll and progress over the course of 2027?

Yeah. I mean, honestly, the traction is really, I should say, overwhelming. We have a lot a lot of demand on this platform. We are out of all the EVKs we built in the first batch and sold them to customers. Now we are fighting to catch up to get more and feed more customers. We have built and shipped more than 30 units so far. We have 20 lead customers there. So this is developing. I mean, the $30 million I gave, this is really the potential of the leads we have in hand now. Estimate of what we have in hand that we are working on today. it is not the design win we have, alone. You know, we have 1 design win is smaller than this. But this design win moved to production, as I said, because we have an initial order to ship in support of production and we are expecting in Q4 and in 2027 more orders to come from this customer. And on the last remark, you know, the time to turn this to production, we need to keep in mind that this radio, there is-- We do not have a lot of software there. So it is really, you know, a piece of hardware that you add to a baseband technology and so on. So depending on the situation, if the if the they have their own existing product and they are changing radio to the benefit of the radio from Sequans, which has features allowing, you know, anti jamming. We can move very quickly. And this is what happened with the first customer. He has an existing product. He moved to change the radio. And, obviously, almost in 6 months, he got this product up and running. And now we are seeing revenue. If you are in a situation where the customer is building from scratch on this platform, obviously, it will be much longer not limited by Sequans technology. It will be limited by the overall system the customer is building. Okay.

Very helpful. And lastly, if I could, on the licensing front, sounds like there is an active pipeline I want to clarify a couple of things. it is not really built into the fourth quarter guidance at the current time. It sounded like the total opportunity pipeline, I think the number you said was $75 million, but you are also expecting to see potentially some of these opportunities convert in the fourth quarter. Just want to clarify that. Thanks.

Yeah. Indeed. I mean, we have, as we said, the you know, the. These are a number of deals that we are engaged with, and to sum them all, it will exceed $75 million opportunity. Honestly, all of them are likely. So I give them do not have a deal, which is maybe 10% chance to get it. I am really. The deals we are counting in are I should say, 50% chance to close it. And of them are quite advanced, and hopefully, we can sign something in Q4 Now, obviously, from the time you signed to take the revenue, all depends as, you know, you have the revenue recognition comes into play, and sometimes you are not able to factor in the revenue in Q4 because it depends if we are able to make delivery in order that can allow us to make some of the revenue even if we sign in Q4. So we could sign in Q4 and take 0 revenue. So that is why we are in Norman's guidance. We are not factoring big deal inside also. We are taking also normal business that we have in hand mainly product with little bit of small licensing deals that are already secured by the company. Great. Thanks so much. I will get back in the queue.

Thank you. Our next question comes from the line of Josh Nichols with B. Riley Securities.

Yes. Thanks for taking my question. Good to see the company fully transitioned to IoT semiconductor business, with the completion of the Bitcoin treasury part. So 2 questions I want to ask. Sorry. It was a little bit garbled on my end. But 1 is, you gave a revenue level of, like, $9.5 to $11 million for Q4, but that excludes significant license revenue. Looking at that, just you talked about some of the pricing headwinds on memory. Should we assume that Q4 gross margin is, like, comparable to 3Q, ex any large licensing deals generally?

Hi, Josh. I mean, First of all, I mean, you are right. I mean, this. Within fact, the major license, there is a little bit of licensing inside. More or less small ones or some of them already signed and we take some revenue as we move forward. But to go back on the question on the gross margin, to be honest, it is really you know, I do not know how to know what prediction I can give there, but we have a big problem with those memory. That the price change every month. Really every month, literally. And this is really creating a lot of challenge for us to predict if you want exactly even the price increase will reflect on our customer. So it is really like a catch-up. We adjust the price and later on, on some basis, very hard to anticipate a lot of cost increase. I mean, you take whatever logical we can pass to customers and end up catching up in the middle of the quarter when we have. So I believe I remain cautious on the margin in Q4. I do not believe we have settled for the margin now. Hopefully, this will change in 2027 because we have a lot of actions with double sourcing that will enter into play. For example, we put some double sourcing specifically for the flash memory. But this is not factored in yet in our shipment to customer because it takes some time to transition to a new model as we need to adjust a little bit the software and some of the customers And this is coming more in 2027 than in Q4. So in Q4, I remain, you know, cautious on my gross margin similar to what we have seen in Q3.

Appreciate the context. Thanks. I will hop back in the queue. Thanks, Georges.

Thank you. Please stand by for our next question. Our next question comes from the line of Jacob Stefan with Lake Street Capital Markets. Jacob, your line is open.

Yeah. Hey, guys. Appreciate you taking the questions. Nice quarter. Just first, I wanna touch on the advanced discussions that you are having on the 5G RedCap opportunities. Maybe, you know, could you help us kind of think through the sizing of some of those newer deals in the pipeline versus what you have currently?

Yeah. Hi, Jacob. I mean, first of, you know, in terms of design win, in other words, the pipeline when we talk about the $165 million that has been publicly announced, we do own it, and the target I am getting for year end above $180 million this does not have eRedCap in it. Right? This is because what we can. What we factor design win is really customers They have the chip. They integrated. They have hardware, and they are working on their design. And the eRedCap, we are still in the prospect phase on our side, and we have not got something to discussed. So all the portion of this comes into the pipeline above this. If you want, like, in the above even the design win in production. And literally above the $300 million design wins that we have. it is really advanced opportunity that we are working on to close, and we have many of them. it is really a lot. And you have few elements happening there. I mean, just to understand the market First of all, the carrier are transitioning from 4G to 5G. refarming more spectrum. And as you know, all the IoT products today, they run on 4G. So definitely a path to prepare the future, to be future-proof on the meter it is not about you need it today. You need it for you know, to predict. You know, to be ready to have your product operating in 2035 and so on. So that is why there is an urgency to start taking eRedCap products. As soon as possible, you know, to market. Obviously, the carrier are not ready yet. They are deploying their network or preparing to deploy their networks. Ericsson and all the, you know, the vendor, they did not yet finish their release to those carrier. This will happen really as an activity in 2027. And from there on, we will start seeing more and more designs. All new designs will be switching to 5G. You will have the old design maintaining on 4G, but the new ones, definitely, I predict end of 2020, it will be. you need 5G. I do not need any more 4G. On any new SKU. Does not mean we stop shipping 4G. We keep shipping this for maybe 10 years if you want some of them. But at least all new design will be you need to win them with the eRedCap asset. And the opportunity for Sequans there is, like, first, there is higher ASP. On the 5G. Second, the potential of market share could be much bigger because the competitive landscape will be much limited. Will be less Chinese or 0 Chinese competition. If you want, which was not the case in the 4G war. And this should give the chance for Sequans to have much more potential, I will say, in terms of design win. We are leading with our product. We believe we are ahead of competition. To go there. And all this should allow us to increase the pipeline of IoT product and get more 5G skew and continue the growth of the company beyond what we have won in the 4G. Okay.

Great. Maybe if I could just ask on some of the cost assumptions. I know you said in the last answer that, gross margin front would be a little bit difficult to predict, but maybe just looking at r and d, you guys have kind of, you know, been able to taper that down over the last couple quarters. From a total operating expense level, how should we think about the business going forward? Is this $11 million rate sustainable, or do you expect to take a little bit more out?

I mean, the. Definitely, you know, our target, to be honest, is to be below $11 million per quarter. And I believe it is sustainable. Because, you know, as we said, 4G, we are investing less and less. I mean, to some extent, even this year, we are doing very little on 4G. But although we introduced new flavors and new maintenance releases and so on, Next year, it will be even at lower scale. And we will keep investing only into the 5G. Our RF is also mature and ready for the drone and the defense. So there is no big surprise in terms of investment for the year with the current plan we have. And, you know, we are really trying to keep controlling our OpEx to keep it, you know, as close as possible to $10 million. on average, I would say, for 2027. So this should be the math. And on the gross margin, not to be confused. You know, obviously, you know, we have a chip and module. in the IoT business. And, obviously, we have the radio chip that is adding up. So the mix between chip and module, depending on the mix of the product, This is what we are targeting. To be, obviously, with a little bit of services on top, at least the way we are heading there, would take us well above 50%. On a global basis for the company. For this year, the things are a little bit biased, because we are cost structure. We are losing few points on our cost coming from this discrepancy between the price and cost, I would say, or variability of the cost, unfortunately. And, obviously, because we have very low level of licensing, and still the RF is lower, I would say. The chip business is not half chip and half module. The chip business is more below 1-third than 2-thirds module. So it is shifted a little bit towards lower margin this year. But, hopefully, this will be an exception, and we will improve it In 2027 and going forward.

Got it. I appreciate all the color. Thanks, Georges.

Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Georges for closing remarks.

So many thanks, operator. Thanks to all of you for questions and being on the call. And looking forward to have a chance to talk with you soon. Thanks very much. Thanks very much.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.