Ladies and gentlemen, welcome to Sequans Fourth Quarter and Full-Year 2014 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. As a reminder, this conference is being recorded. Before I turn the conference over to our host, Mr. Georges Karam, I would like to remind you that the following important information in behalf of Sequans. This call contains projections and other forward-looking statements regarding future events or our future financial performance. All statements other than present and historical facts and conditions discussed in this call, including any statements regarding our future results of operations and financial positions, business strategy and plans, sources of funding, 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 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. Please go ahead, sir.

Thank you, Gaile. Good morning, ladies and gentlemen. This is Georges speaking. I’m with Deborah Choate, our Chief Financial Officer. And we are very pleased to welcome you to our fourth quarter and full-year 2014 results conference call. We have many new developments to share with you today, but before getting into all the details, I would like to summarize the year we recently completed and explain how it impacts our current situation. Then we will describe most recent development, and the outlook for the rest of this year. When looking back over the past year, we have accomplished a great deal. Looking little bit from the business view, I can say that, first, in our emerging markets business grew significantly. As you know this emerging market is really focused on the home router and portable router devices on our side. We have secured the right market share and established a strong and diversified customer base addressing this segment. In fact, just taking into account one key customer, the revenue increase year-over-year, was on the order of 4X. This business continues to grow at a rapid pace with India and China poised to begin contributing this year. Including the contribution of India and China, we could see this part of our business double in 2015. The U.S. market focused on Verizon during 2014 is our major growth driver, and as you know, this spreads over the three business segments we address. Here, we won two major designs in the Home and Portable Router segment, displacing a competitor in one case. Although one device did not go forward as planned, the Verizon Ellipsis JetPack was launched late Q4 and our performance and execution throughout the year put us in a strong position for future designs. We also won several U.S. mobile…

Thank you, Georges. And hello, everyone. I would like to add some details about our Q4 financial results, and cover our guidance for Q1 and the financial outlook for this year. Revenues in the fourth quarter of 2014 were $6.6 million, a 2% sequential increase and a 32% increase compared to the fourth quarter of 2013. We shipped over 500,000 units in the quarter, which is an increase over Q3, and the proportion of modules in the mix was lower in Q4 compared with Q3. We had four 10% customers in the quarter, a Taiwanese OEM with 38% of the total, a Chinese OEM with 20%, a Chinese distributor with 11%, and a Taiwanese ODM with 11%. We realized an overall IFRS gross margin of 6.1%, which includes a $1.9 million write-down of slow-moving WiMAX inventory. Excluding the inventory write-down, non-IFRS gross margin was 34.7%, roughly in line with guidance. Operating expenses were $9.6 million in Q4, a decline from Q3 as expected. Our fourth quarter operating loss which includes the inventory provision as well as stock-based compensation expense was $9.2 million, compared to an operating loss of $8 million in the third quarter and $8.2 million in the fourth quarter 2013. Net loss was $9 million in Q4, compared to losses of $8.1 million in Q3 and $8.3 million in the fourth quarter of 2013. Basic and diluted loss per share was $0.15 in the fourth quarter of 2014 based on 59.1 million shares outstanding, compared to a net loss of $0.14 in the third quarter, also based on 59.1 million shares. Basic and diluted loss per share in the fourth quarter of 2013 was $0.17. To facilitate comparisons we have also reported our results on a non-IFRS basis which excludes the inventory provision and stock-based compensation expense from…

Thanks, Deborah. So just for my closing remarks, I mean, I went through - I will say deep detail in my section. But if you were to conclude this presentation and turn it to questions, obviously 2014, we can say, we would expect to have a higher growth than 2014, but if you look to it, as looking to half-full or half-empty glass. And it’s very important to realize, to note what has been happened in 2014 turning the company from pure WiMAX play to pure LTE play, very successful in the emerging market which is happening. And very good milestone happening at the end in the U.S. obviously, they didn’t materialize much revenue in 2014, but they are obviously with all this - now, foundation for our 2015. So we have a better condition with design win shipping in 2015 on which we have a big pipe of opportunity. Design win in hand that we believe they will be coming quarter-on-quarter starting in the second quarter and will support the growth of 2015 as I explained where I believe it’s going to be a good year and nice year for us. Also very important, if you look down the road, not on the short term for 2015 and if you look further and you see the position of the company for the Internet of Things being first with CAT 1 product, could be first with CAT 0 as well. It’s - we see that our market is expanding and our segment that you can qualify it, in each segment where Sequans is playing, is becoming a major big segment for a company in the size Sequans, where we have really the right idea, the right technology to lead in this market and create, keep the growth momentum going after 2015. So I’m very pleased with this, and obviously, we have all the foundation here to win few points, obviously, the worry on the cash that has been raised on many opportunity by - I’m assuming when you look to the cash need for the company, but hopefully we cover this in detail here between what I said, and what Deborah give you as input. We have a lot of things in hand where we can leverage some funding, easy funding for the company. We have proven that we are able to do this in 2014. We can do it as well and do more in 2015 and they are in the pipe. The strategic relationship is the key strategy for us to complement this and avoid going to market to raise money. So hopefully, this applies to challenge - the challenge I see and we believe all together that 2015 is going to be a great year for Sequans. Thank you for listening and I will be happy to take your question now. Operator?

[Operator Instructions] We’ll go to the line of Anthony Stoss with Craig-Hallum. Please go ahead.

Hi, Georges and Deborah. Georges, with the signing of any one of these strategic partnerships, hamper or hurt you from designing the additional ones? Also do any of these partnerships, are they getting you into new markets or just helping you expanding your existing markets? And lastly, maybe if you can just give us a sense of would you view this as stopgap, short-term financing or is it larger nature which should take care of your financing needs? Thanks.

Okay, Tony, hi. Obviously, - and I would like to show you that we will not do anything that fragile our future as a company. So all what we are doing is, doing this in the right way that essentially not diminishing our market share and not reduce our position to be a big player there. So this is what I can say on this. And the one which is very close, I mean, that we said, we are going to sign it soon, they will have zero impact on any other relationship that we’ll have in the future. And obviously, another point which as I mentioned is not only about helping funding in the short-term, but it’s also building the strategic partnership that secure or expand some of the market, because it’s obviously we are addressing the same kind of segment, the same kind of market who are not inventing a new world for Sequans. So I believe our strategy is right and the market is big where we are playing, but obviously those relationships will reinforce our position there, because we’ll have - we’ll strengthen some of those relationship with those strategic partner that can boost revenue as well.

And then, Georges, on the size of the funding potential, is it just going to help you in the near-term or is it larger nature where it should help you over the next couple of years?

We mentioned that is a multi-year, for example, obviously the one that I didn’t conclude them, I cannot comment more, because they could be we give - but at least to give you a color on the one which is eminent, this one is a multi-year project so obviously it helps this year, but it helps as well next year.

Okay. Thank you.

Our next question is from Quinn Bolton with Needham & Company. Please go ahead.

Hi, Georges. Hi, Deborah. Just wanted to follow-up on the strategic developments, I know you talked in the past about pursuing developments both for sort of CAT 1, CAT 0 devices, but also some of the CAT 6 or higher. Give any more color, are you still seeing interest in those strategic developments at both ends of the spectrum or the discussions leaning toward either more IoT applications or more advanced technology, higher bandwidth applications? And then I’ve got a follow-up. Thanks.

Hi, Quinn. Indeed I mean, we move - there is no change here. I mean we are pursuing discussion on the two fronts. Obviously, there is this evolution on the Streamrich family that we have, which is technology more for beyond the CAT 6. And obviously - there is a lot of excitement on this Internet of Things, CAT 0 another angle we are working on.

Okay, great. And then just looking at the ramp that you expect to begin in the second quarter, and then ramping through your end, that gets you close to breakeven profitability. Can you give us some sense, you’ve the Jetpack win, I know that’s been a pretty sizable design win for you? Are there a couple of other big design wins that account for the majority of that ramp? Would you have a number of smaller projects that all sort of contribute to that ramp? Just trying to get a sense of, are you fairly concentrated in a couple of designs to get to that ramp in the second half of the year as it is more diversified? Thanks.

Yes. I mean, if I - I mean, as you said, for the shorter, I’m not looking what will happen end of 2015, and for 2016, because we’ll have new carrier, new market coming and hopefully we’ll have new design there. But if I’m looking on the evolution of 2015, it’s going to be essentially supported by the emerging market, where we already in good position and we’ll benefit from the growth of the market itself. I mean talking with those carriers I know that the carriers that they did probably, for example, last year 200 or 300 routers, this year they want to double it if you want. So all this will help us plus the addition of new customers diversifying our customer base, because last year we were more or less concentrated around three. We had recently in the end of the year, we took them to five, really shipping, and obviously this will help winning increasing our market share, because you can imagine some customer are - they could be better positioned for given - any country, any region versus others. So this will help us, so there is a growth coming from the existing business from emerging market, plus obviously that the business that you have in hand, we talk about the Jetpack from Verizon, that we believe this should be decent revenue stream for us next year, because it’s just only launched at the end of the fourth quarter. So we are going to benefit from this design in the coming 12 months hopefully. And we will have - we have a new design win that we have now in hand, that they are coming in Q1. We talk about the M2M small deals are - that will be shipping, going to market, certifying in end of Q1, so they will contribute to revenue, plus obviously, new big design - new design win and the way you look to it is not only one helping all the year, but if you want - the one we have, they are going to be for three quarters. And we have something happening in Q2, some big one, if you want that let us believe that our second quarter will be a good quarter. And obviously, we have others happening in Q2 and Q4, supporting this one. So it’s not really concentrated in terms of design win. Once we have some major one making the big chunk of it and then variety of small ones complementing the growth.

And just in a last follow-up, sort of new big design win that you expect to begin to ramp in the second quarter, can you just remind me is that in the home router, portable router space or is that a mobile computing design win?

This one is in mobile computing space or that I mentioned something that we had in hand last year then get delayed for many reasons, and now it’s resumed, and it’s in the product to happen in Q2.

Great. Thank you.

Our next question comes from Tristan Gerra with Baird. Please go ahead.

Hi, guys. Question on the pricing that we see out of the TD-LTE based end-market in China that ASP is cutting at $8, what is - can you explain a little bit the benefit that you can provide with your technology that would be sensitized OEMs from using a multi-mode project chip just because the pricing is already very low.

I mean, there is high pressure. I mean, obviously, first of all, we see this, we agree that there is pressure on pricing in China that somehow impacting, I tend to say more the emerging market, just by the feeling, say, okay, even China is getting cheap why, obviously pricing will follow from one market to another. However, you need to keep in mind two things. Our product is optimized with all what you need in terms, for example, application processes are inside. So when we sell our product, it can be those pricing. We can build in Mi-Fi router, portable router without external processor. So it’s a kind of application processor almost included there. And when the people compare pricing and so on, they are talking about the modern piece multi-mode. , :

Okay. And then you talked about CAT 1 and CAT 0 product, what is the cost structure of those products relative to the 2015 portfolio products that you have in hand and those products are probably lower ASPs. What does that mean from a gross margin standpoint?

I mean, obviously just to make to - I would like to stress the fact that, CAT 1 is something, so it’s a product here in hand, and the market is expecting this now. CAT 0 obviously, it’s started in development and this is really to come, I can see, to see in the market next year. So and to give you the right position in terms of pricing CAT - the idea is that CAT 1 compete to the 3G pricing, and CAT 0 compete with 2G pricing in terms of the pressure that show up on the market. For us, if you take a solution in terms of CAT 1 solution, not chipset, that is really to be around $15 module for CAT 1 solution. So obviously, Sequans, we have a nice - still nice piece of this dollar amount. And our gross margin is protected in terms of percentage by the fact that, we design to CAT - all our CAT is optimized, our design is optimized to maintain the right structure of cost allowing us to reduce the total cost - the total price of the solution. So there is no impact on the gross margin. We’re still targeting a company running around, let’s say, ideally at 50% gross margin, but let’s say, between 40% and 50% depending on the pressure we could see in given market and so on. But obviously the ASP will reduce when you go from CAT 4 to CAT 1 and reduce further when you go to CAT 0, but hopefully, the ASP will be compensated by more volume on this product allowing us to maintain a decent revenue stream.

Okay. And then last question and, perhaps, I missed it. Could you talk about when you expect a mainstream volume ramp for CAT 1 and eventually CAT 0?

CAT 1 we believe, I mean, as we said, we are sampling, it’s the chip we have it in hand and we are designing with customers for certification and everything. So we expect obviously to have those products at year-end 2015. It’s very hard to say the revenue will get to 2015, because it’s the ramp up of the production. So we see it in mainstream revenue in 2016 - the full-year of 2016, and in the production at the end of this year. CAT 0 is, if you ask, one year later, if I have to project.

Great. Thank you very much.

Our next question comes from Jaeson Schmidt with Lake Street Capital Markets. Please go ahead.

Hey, guys, thanks for taking my questions. I’m wondering if you can quickly remind me what your break-even quarterly revenue run rate is?

We’re currently we’re running with OpEx that’s around $9.5 million. As I said, we’re expecting that to go down by, at least, 10% by the end of 2015. And we’re expecting that if we were at only at chip sales, we would be at 45% or 50% gross margin.

Okay.

So previously, we were looking at something close to $20 million. We now expect that number to come down by a few million due to the savings on OpEx.

Okay. And then Georges, I’m wondering if you can talk about what you think your lead is on your competition on CAT 1 and then CAT 0 as well?

Well, what I can say that CAT 1 was really a big surprise for the market, I mean, and we play it well, and in a sense like the big player, I don’t believe they - they see it happening. And obviously, we have some small players on the R&D design. We are hearing that they are working on it. So we believe we are in really in a leading position, because our product is something and designing in with customers. So this is on CAT 1. CAT 0 is too early, to give timing, I would like - I don’t want to be precise on this for the - just to protect the confidentiality of the company. But obviously, it’s our next step and our leadership on CAT 1 is freeing our hand to work on CAT 0, so you can imagine, we can be fast as well.

All right. Thanks a lot.

[Operator Instructions] We’ll go to Tom Sepenzis with Northland Capital. Please go ahead.

Yes, good morning. Can you talk a little bit more on the large strategic partnership and what is the timing of that? Is that a Q1 bet that you think that will be signed or is that something that it has at any point during the year?

So, I mean, if we precise to the point that the word I put in the - I said was really imminent, I mean, it’s - I don’t want to be - I cannot give you more - I mean, obviously, this means in the quarter.

Okay, good. Thank you. And then just in terms of the visibility that you have for the revenue ramp in Q2, that’s two quarters out. How confident are you that you are going to actually get those orders and you are going to see the significant revenue ramp in June, or is this a - is this - that might be pushed out again?

So, I mean, there are two components, when you look to the second quarter. There is obviously the - I would say, the impact, because when you look to Q1, you have - this is an ability of the change in New Year and so on. So even here we have established business that regularly comes and we have less visibility in Q1 and some challenge in Q1 as older industry has here. So obviously, all this would disappear and Q2 will benefit from this plus obviously the new design win I mentioned that one is planned to go in Q2, so I’m sure about this, and we are doing everything to finish the product and get it ready certified and shipping to the market. And other one on the M2M, they are in the certification of their product to the carrier. So this would go as well.

Good, thank you. And then just lastly, Deborah maybe you can speak to gross margins, the expectations, Q1 you are saying 35% plus, but do you expect to get back into the mid-40% range by the end of the year?

That’s the expectation. In the short-term and particularly in Q1, we continue to have this - some of the issues related to absorbing the fixed cost component. But - yes, we would to - when we get to the higher revenue levels then we are back above 40% and depending revenue mix if it’s more weighted toward chip revenue should be in more than 45% to 50% range.

Okay. Thank you so much.

And our final question today comes from Quinn Bolton with Needham & Company. Please go ahead.

It sounds like the question was just addressed on with the last question, but wanted to ask, what’s the big ramp in the second quarter be in mobile computing, I assume that’s a module, so I was kind - if you could give us anymore thoughts on the mix between chips and modules through the year?

I mean, all this on the quarter the business is a little bit, I don’t say challenging, it’s much more leaning to the digital-stand [ph], but what we said at the top of the year, we are seeing, 20% module and the rest is chip.

And it’s really just a mobile computing that are going with them, or I guess, it’s mobile…

Not necessarily, I mean, it’s small and obviously the module will go to mobile computing or Internet of Things or M2M space, it’s not in the home router/portable router. But as we said, it depends on the business, because we have some business, where when it’s a small, the guys will go to us and take the module, I mean, small. Sometimes they have preference to deal with us directly, and typically, and we have as well relationship, we expanded the relationship with the module vendor. Now, the company has big type of module vendors, sometimes we and mainly these are big, we would love them to make the deal and we transform a module business to a chip business, which is our preference. So if you want a reality, we will have, at least, over 2015, maybe 20%, maybe worst case 25% module business, because we have these in order the people would like to get it from us mainly when they are the old module, if you want the previous generation of - generation of module. In the new generation of module Colibri and so on very likely there will be more buyers to and by being chip sales 100%.

Got it. Thank you.

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