Good morning, and welcome to the Sequans Third Quarter 2017 Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. Before I turn the conference over to our host, Mr. Georges Karam, I would like to remind you of the following important information on behalf of Sequans. This call contains projections and other forward-looking statements regarding future events or future financial performance and potential financing sources. 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 other 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 our 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 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. The floor is yours.

Thanks, Steve. Good morning, everybody. This is Georges speaking. I'm with Deborah Choate, our Chief Financial Officer. And we welcome you to our third quarter 2017 results conference call. Revenue for the third quarter was slightly above our updated guidance at $11.3 million, and our non-IFRS loss per share was within the range of both our original and updated guidance at $0.07 loss per share. Our update call on October 4 was devoted mainly to a detailed discussion of issues in our broadband business. On today's call, I want to focus on lot to android during the third quarter, namely the Internet of Things business, which is the primary growth driver for the company going forward. We'll be very happy to answer any question you have about the broadband business. But the situation there remains as discarded on the update call. We have some very specific reasons to expect improvement next year, but clearly during the second half. First, we believe the inventory ratios on the two Verizon devices are being addressed and orders were resumed. Second, we had some newer customers such as [indiscernible] and Comba still profit. We have some projects launching next year, also the new customers. And we'll be producing a new Cat 6 product next year with both performers and cost advantages. Last, we also are in discussions regarding broadband devices for other operators in North America. And we are rather opportunities for new market segments such as CBRS which you may recall is the 3.5 gigahertz bend. That's going to be available in the U.S. for the first time. Together, these opportunities represent potential upside for next year. Meanwhile, we believe the broadband business will stabilize during the fourth quarter. And our current assumption is that it will improve gradually during 2018. Longer term,…

Hello everyone. I'd like to add some details about our Q3 results and discuss the outlook including our guidance for Q4 2017. Our revenue was $11.3 million slightly better than our revised guidance, but down from $13.2 million in the second quarter. We had 4 10% customers in the quarter ranging from 12% to 21% each and the 2 largest are distributors serving a total of 10 Asian OEM and ODM customers. Gross margin was 44.3% reflecting a more favorable product mix between chips and modules this quarter compared to Q2. Operating expenses were $10.6 million in Q3, up from $9.6 million in Q2. The increase was in line with expectations and we expect this level to be sustained going forward. Our third quarter operating loss was $5.6 million compared to an operating loss of $4.1 million in the second quarter and $4.0 million loss in the third quarter of 2016. Net loss was $6.9 million in Q3 compared to $6 million in Q2, and $5.1 million in the third quarter 2016. Basic and diluted loss per share was $0.09 in the third quarter 2017 based on 79.8 million average shares outstanding compared to net losses at $0.08 in the second quarter based on 75.9 million shares and $0.08 in the third quarter of 2016 based on 61.6 million shares. The increase in weighted average shares outstanding reflected the equity offerings in September of 2016 and June 2017, as well as some stock option exercises and conversion of $150,000 in debt. We have also reported our results on a non-IFRS basis, which excludes from net loss, the noncash items related to stock compensation expense and the noncash effective interest adjustments related to the convertible debt and other financing. Non-IFRS net loss was $5.9 million in Q3 2017, compared to net…

Thank you, Deborah. So before turning the call to questions, I'd like just to stress again that the main engine of our business growth, in other words the IoT is moving very well and is in a very good shape. Cat 1 as we said is now moving to an established business as we are shipping in volume to all our customers. Customers only ship chips as well module. And we have a great position in Cat M1/NB1 on all fronts as I explained before, whether in terms of carriers engagement and this is worldwide, U.S. and beyond the United States. Customer wins we have in hand. Visibility on end devices launching in 2018 and a growing part of new opportunities and deal that we are working on to close in the near future. All this IoT business will be adding up on 2 established business, the broadband and vertical that have been -- that they were fueling our revenue in the past years. Thank you very much for listening. And I will turn now the call for questions.

[Operator Instructions]. Our first question will come from the line of Mike Walkley of Canaccord Genuity.

This is Josh for Mike Walkley. George and Deborah, with the convertible debt pushed out a year, can you discuss the anticipated cash burn and potential timing or revenue level for cash flow breakeven given the assumptions of ramping IoT revenue and recovering broadband revenue in 2018? And then also how should we think about the puts and takes in terms of tax credits grant and partner payments impacting cash levels over the coming quarters?

Well, for the time being I'd say there's really no change in the breakeven point. That's still in the low 20s on a quarterly basis, assuming that we have gross margin in sort of in the mid-40s and keeping operating expenses close to where we are in currently. So I think this is something we're expecting to be able to achieve sort of in the midpoint next year, don't know exactly which quarter at this point. And in terms of the cash as I mentioned, we have a number of grants already in hand that are expected to come in in Q4. We typically have at least $2 million on an annual basis sometimes up to $3 million from grants that come in each year. And the tax credit in France typically is between $2 million and $3 million, and we typically collect that in September each year.

Okay. And then we realize many investors have focused on your module wins, such as Gemalto, Huawei, SIMCom and others. However can you discuss additional design wins and opportunities directly to customers such as alarm panels or wearables and with initial Cat 1 and some Cat M1 shipments beginning? How should we think about the overall sales pipeline? Can we just get some more color on that in 2018?

Yes. Josh, I mean obviously I would like to remind everybody that our go-to-market strategy is quite comprehensive because indeed we have some customer that we engage directly at the chip level because -- and quite often those guys depend to be consumer type product or carrier skew. Carrier wants to launch a device and obviously the -- quite often here, there is an OEM directly engaging with us and the relationship is really selling chip to this guy and he will build the product. And we have the other 2, I will say way of engagement which are engaging with module vendor, we ship to them chip and they make module and here we have two types. We have OEM, like Gemalto, like Huawei, but we have as well ODM like Wistron and Foxconn and so on. So really deal by deal, all of them could be -– one of those guys could be better positioned to any deal, and on this basis vary on personal engagement. Now what I try to give the color here little bit, because obviously if we look to the number of module makers and so on, you could argue based on their historical market share, how much market share we are collecting, so this is one way of looking to the problem I would say or to predict this, but obviously, you can make large mistakes here, because it depends on the -- you cannot predict the future with just only mainly the initial ramp, just on the basis of how much market share they used to do those module maker when they were selling 2G, 3G module and to some extent even Cat 1 module. So that's why I gave some colors about N devices. So many of them we have some visibilities, some not that precise visibility I tend to say. But focusing on this, what I mentioned that we have more than half a dozen identified device, where those devices are going beyond our module vendor, whether OEM or ODM. And I mentioned as well that we have recently as well secured 1 new OEM, going on a carrier skew as well. And on this basis, what I said more than half a dozen which are big deals when you don't find them the customer behind. We are able to estimate the number I gave for our Cat M ramp, which is when you look to them, the potential is big, but obviously the challenge is that some of those product we'll be launching in Q2, some we'll be launching in Q3, some will be in Q4. So it's -– we need really to predict the slope product by product and add them up. But anyway I look to it, I feel like assuming a minimum of 4 million unit next year will be if our assumption for our ramp in Cat M today.

Our next question will come from the line of Quinn Bolton of Needham.

Hi, George and Deborah. Deborah, thanks for some of the initial thoughts as you look into 2018. Just wanted to come back to the IoT business, given the ramp of Cat M and sort of a, I guess also the ramp at Cat 1. As you look at your revenue in 2018, can you give us any sense whether you think that Cat M business would be equal to or larger than Cat 1, or do you think Cat 1 is likely the larger of the 2 IoT components?

Well, obviously, if we project this for 2019 and so on, Cat M will be by far much larger than Cat 1. If we look now to 2018, looking to the ramp level, we have had the feeling that's going to be split half by half if you want.

Okay. And just relative size, I assume the IoT business for the full year probably larger than broadband, if the ramps don't slip out in time as you currently forecast them?

Yes, absolutely. Yes.

Okay, great. And then just, there has been a talk recently about some of the NB-IoT tenders in China, and the launch of NB-IoT services. Can you give us any update on how you are positioned for NB-IoT within the China market with the Monarch platform?

Yes, absolutely. I mean, I didn't -– I didn't go through a lot about the technical position and certification and so on. So I take the opportunity to say that I didn't want to give you too much detail on the -– on this on the call, but all is going extremely well. Specifically the NB-IoT, we already doing what we call it interoperability testing with one carrier in Europe, so and with the infrastructure vendor. And we expect to have a software ready for what we call it initial deployment beginning of the next year, kind of January timeframe. So it's moving well. It's just only software, because we have the Monarch platform which is very stable today. People use it for Cat M, but the same platform can be used as well for NB-IoT. Now specifically on China, as you know, NB-IoT by the way you have some carriers in Europe with whom we engaged with. And then there is some other demand coming in the U.S. with T-Mobile, with whom we are discussing as well NB-IoT engagement. And in China, where the carrier base start with NB-IoT, even if today the good news there that they were launching as well Cat M, because in some of the use cases, the latency created by NB-IoT is kind of sourced up or for those use cases, and that's why the carrier are launching Cat M. Now our direct engagement ourselves in China, obviously we are engaged with the carriers which is part of our promoting our technology and preparing for the certification and so on. But we rely for the local Chinese market on partners. And as you know, here we have at least in terms of module maker to announce names, one is Huawei, one is FIBOCOM and those guys will be using Cat M technology of Sequans. On the NB-IoT there, we have little bit maybe different perspectives in -- could happen in with Huawei because they have their own NB-IoT chips. But at least for the Cat M in China which will be big business, Huawei hopefully will be selling our product as well there as Cat M.

Okay, great. And just wanted to come back to the financing question. It sounds like in order of preference, your preference should be first to source any financial requirement through strategic collaboration agreements, second through the convertible debt instruments and then lastly probably coming back to the equity markets. And Deborah, you had mentioned that you don't have any current plans to access the capital markets. I wasn't sure whether that was meant to include your comments around the convertible notes and some of the interest deferred expressed from current shareholders about new convertible note instruments or whether that that comment was specifically just to address an equity only financing?

It was more specific to an equity only financing, and I agree with the way you privatized our expectations in terms of the additional financing that may be needed during the year. So definitely privatized strategic agreements followed by a convert and last case would be going back to the equity markets.

Our next question will come from the line of Tom Sepenzis of Northland.

Deborah, I was just wondering if you could help us understand what are the differences in the terms for the 2019 notes in order to get the extension?

Sure. The notes that were maturing in April of 2018, we've extended for 1 year still at 7% PIK interest, no change in the convert price. The notes that are due -- that were due in April of 2019 have been extended by 1 year and the conversion price also at 7% PIK, and the conversion price was reduced from 271 to 225.

Great. Thank you. And then Georges, you just mentioned that while we may actually sell your Cat M products in China which I think is new, so when will you know if that's actually going to take place? Is that something considering with them right now or?

No, I mean while we have been deselected only Sequans for the whatever call it the Cat M or dual mode platform because obviously Monarch is able to serve Cat M and NB1 if you have the product supporting the two technology, and Cat M1 when there is a carrier requiring only Cat M. It's well known that the Huawei, they have their own ship serving the NB-IoT, so when they need NB-IoT only. I'm expecting them to use their chips, so it will not be a surprise for me if otherwise. And from there obviously they launch the first product we were talking about that has been launched and now in the last phases and has been announced by Huawei, which was publicly was really addressing the U.S. market, the carriers in the U.S. with Cat M. But they own this, they already started already the discussion to kick off projects to address a new carrier, outside the U.S. carriers including China. So this is really any I would say -- I mean there is no decision to be taken. It's more engaging the development in terms of priority and so on, and I don't want to comment more on this. But what we feel very good about that Huawei will remain our -- will remain good part of the Huawei on all Cat M business were light, whether China, U.S. or Europe.

Our next question will come from the line of Craig Ellis of B. Riley.

George, on the fair comments when you were talking about the module business, there was quite a bit of commentary around U.S. activity. As we look ahead at 2018, can you frame the growth in the module business U.S. versus O.U.S. through the year? At what point do we start to see the more meaningful part of the O.U.S growth kick in?

I don't think I got the question. Is your question regarding our margin business?

Right. Yes.

I didn't see the link to the U.S. Why you were referring to U.S.?

I thought you had said that when you were talking about new customers early in your prepared commentary following a discussion of Gemalto and some others that there was quite a bit of color that you had provide a grant U.S. activity.

Yes.

And that's why I was looking for just [indiscernible] geographic breakdown of the module at once?

Yes. It's the module -- let me -- and when you look to that you see obviously there are 2 main segments, one which is the Cat 1 business which is they call it now -- it's becoming a legacy business working on so far and the Cat M/NB1 which is a new. On the Cat 1, very frankly the market is really mainly U.S. and Japan, whether it's module or chip, because not many, for example Europe and many other carriers they didn't launch Cat 1, that was because it was limited more to the U.S. and Japan. Now for our business, Gemalto is addressing U.S. and Japan and this is chip business. Of the module business, all the customer we have they are really shipping in the U.S., U.S. carriers at least for now with this Cat 1 technologies. So all our module Cat 1 business is really addressing the U.S. which are the three carriers, Verizon, T-Mobile and AT&T.

Got it. Thank you. And then just moving on to operating expense, Deborah, clear guidance for the fourth quarter. Should we expect that level of operating expense to persist through next year?

Yes. That's our target as to try to keep the OpEx flat at least in the first half of next year.

Our next question will come from the line of a private investor Mr. Gary Milani [ph].

George, you gave an interview at NWCA and that you estimated a timeline for AT&T certification of Monarch as being a few days. Now presumably you have some type of issue come up, how serious is that issue and what is the new estimate for certification?

Yes. I believe there is a little bit of, because when you talk about certification or talk about the chips certification or the modules certification. So first of all, our chip is -- even when I said few days it was there, we finish ADAPT what we call it. The chip is certified on AT&T and people are using it as a certified chip to build module. When you go to the module certification on AT&T very frankly, the preference was as you know because we are pushing to get them to get a real, not our Sequans selling module and stay at the chip level. So we are engaged with more than I tend to say most of our modules and they're all of them are pushing to finish the AT&T certification and I tend to say 3 of them are really in the last mile finishing there. So there is no issue at all. I mean just maybe the confusion on I was talking about chip where people expecting the module. We did make an announcement very frankly because we are more focusing on the final product because saying our chip is certified, everyone knows that AT&T announced for example, WNC as a module used for their IoT program, accelerator IoT program. And this chip is using Sequans. So by definition, our chip is certified on AT&T. The module of obviously WNC, Gemalto, Huawei and all those guys, they are really in the last mile. And I don't want to say when you will hear about them, but there is no issue at all and this is happening on time and they will be ready to be used for production if you want end of this year beginning of the next year depending on the product they would be launching.

Thank you. One last question. If Sequans were approached by a strategic acquirer, would you give a curious consideration or Sequans committed to maintaining an independent sort of foreseeable future?

Well, as you know, I mean our main role as a management team and a CEO, first of all is really to make the best interest for our shareholders. And depending -- and this cover everything. Obviously someone approaching us but as well how we develop ourselves as a company and how we grow it. And the management and the board will take the right decision that makes sense for our shareholder depending on the risk reward and our internal plan versus a strategic offer. So definitely, there is no answer in advance because obviously we need to have the data on the table to make a decision on this, but we are open for any opportunity that can come for the company definitely.

[Operator Instructions]. And we have a question from Bill Tipid [ph] with Independent.

George, you mentioned CBRS. Can you give your view over the current situation with CBRS in the FCC.

Yes. I mean CBRS is the -- this is the 3.5 gigahertz switches, is kind of semi-licensed, I mean to qualify is not the right way to call it. But instead of having an unlicensed band -- completely unlicensed band that anyone can use it or 100% licensed band where only the owner of this band can use it. In the U.S., the 3.5 gigahertz has been put under -- because it's used as for some military application, for space and so on. But however, we have a lot of area in the U.S. where this frequency is free and no one is using it. That's why they came with this new regulation which is you can declare the use of this band and use it for example for utility for local broadband connectivity and so on. And there is a lot of interest there, because this could be a kind of -- obviously the carrier, the traditional carrier can jump on it to use it for extra capacity, but we'd have as well newcomer. Any guy who wants to serve internet in a limited zone could find it very easy way of using this. And Sequans is very good positioned there -- very well positioned there, because the 3.5 gigahertz is a frequency band that we used a lot in the emerging market. So we have products serving there. And we have customer who are -- who is developing product to serve the CBRS. So this is for us a potential growth which could be completely different. It will not be -- it will not look I will say for the regular carriers, like the AT&T and Verizon even if those guys will be interesting, this stuff, it could look like where you have a newcomer, that they want to make vertical projects, vertical deployment I will say in a city, in utilities and so on, where they can launch a network using the CBRS frequency. And Sequans will see this as a potential market of growth for our broadband.

I'd like to turn the conference back over to our panel for any closing remarks. Please go ahead.

Okay. Thanks very much for all the questions and for the time you spent on this call. Looking forward for our next conference call to talk to you again. Thank you.