Welcome to the Sequans Fourth Quarter and Full Year 2018 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 of the following important information in behalf of Sequans. This call contains projections and other forward-looking statements regarding future events, our 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, expectations for IoT and broadband sales, and our objectives for future operations and potential strategic partnerships are forward-looking statements within the meanings 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 the 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, Rick. Good morning, ladies and gentlemen. This is Georges speaking. I am with Deborah Choate, our Chief Financial Officer. Welcome to our fourth quarter and full year 2018 results conference call. I’ll start by saying that we have begun a new year by finalizing a very important strategic investment. Through the pressures of clients to buy Sequans stock, this company is investing approximately $8.4 million to accelerate the development of our 5G product roadmap. It will also allow us to forge an important strategic partnership. As confidentiality is very important to our new investor, we cannot say more about the deal beyond what appears in the press release this morning. This company has done a lot of homework, and we are gratified that they have chosen to invest in us. We believe this investment demonstrates that our technology leadership continues to be recognized for what it is, a very scarce and valuable resource. Turning to our results, 2018 was a good year for the IoT business, with year-over-year growth of about 70%. It wasn’t a great year we had been looking for, because the IoT growth was not sufficient to make up for the weaker than expected broadband business. Our CAT 1 business grew very nicely, especially our CAT 1 chipset revenue which nearly tripled year-over-year. Although the trajectory of our LTM revenue stalled during the second half of the year because of a six months delay in the market, revenue from LTM grew more than 50% year-over-year. Some additional temporary issues with channel inventory concerns and delays in causing a closing a couple of vertical deals during Q4, contributed to a weaker than expected finish to the year, and made Q4 well below the usual revenue run rate generated by our mature shipping products, specifically broadband, vertical…

Hello everyone. I’d like to add some details about Q4 and full year 2018 results and the outlook for 2019. Our revenues for this full year was $40.3 million, IoT revenue increased 70% versus 2017, with CAT 1 revenues doubling, which was more than offset by the 58% decline in broadband revenue, while vertical markets category remained flat. IoT encountered for approximately 50% of total revenue, compared to about 25% in 2017. Gross margin in 2018 declined to 40%, reflecting a greater proportion of modules in the product mix. Operating expenses increased year-over-year to $47.2 million, reflecting higher headcount and other expenses as well as the impact of a stronger euro versus the dollar. Financial expenses were also higher in 2017, reflecting a new debt added during the fourth quarter and the amendment to the existing debt offset slightly by the extinguishment of $1 million principal of convertible debt. You will note in our press release we indicated that our results are preliminary, this is because in the context of preparing our 2018 financial statement we determined that certain deferred tax assets and deferred tax liabilities related to the application of IFRS to debt instruments with equity components had not been recorded. The expected accounting changes do not affect the cash position or the operating results for the current or prior periods. The company has not yet finalized to review that the corrections are expected to lead to a decrease in the 2018 consolidated IFRS net loss and could also lead to a decrease of the 2016 and 2017 IFRS net losses. No change to non-IFRS results is expected. Excluding this impact, our preliminary net loss in 2018 increased to $36.9 million or $0.39 per diluted share in ADS compared to $26.2 million or $0.34 per diluted share in 2017.…

Thanks Deborah. So a few points to conclude and turn out to questions, obviously while 2018 was a challenging year, mainly as we said because of the decline of broadband and I would say the slow ramp of CAT M to compensate this decline. We feel very confident about 2019 and we remain extremely confident about the potential of our IoT business. We saw clearly that CAT 1 chipset revenue nearly tripled year-over-year between from ’17 to ’18, knowing that CAT 1 is just simple, a very small step in comparison to the LTE-M and the IoT potential. So we should expect an exponential growth in CAT M/NB. We just need to be patient until the market will start running. We continue to see growing pipeline of opportunities and we continue to secure new deals. Last year the focus was only on the US market, but we’ve seen our deals everywhere, as the carriers are finishing their network upgrades. Japan, Korea, Europe, Australia, name it, we are playing in all those regions. While waiting on CAT M and DRAM, the interest level from tier 1 partners has increased significantly, and we will expect to see more strategic deal to happen during 2019, and obviously let me conclude by saying that we are extremely pleased with a new strategic investment we have announced. This will help us accelerating our 5G roadmap and forge an important strategical relationship. Thank you. Greg I can turn now the call for questions, if you don’t mind.

[Operator Instructions] Your first question comes from the line of Scott Searle from ROTH Capital. Please go ahead.

George for starters on the 5G strategic partners it sounds like you can’t say a lot, but could you give us some more clarity, are there additional payments, are there some milestones here and is there any exclusivity related to this partner and ODM market that they participate in?

Obviously, I want to avoid repeating myself, but there’s no exclusivity related, so I could say easily. No exclusivity related to this relationship. And this doesn’t preclude us from doing any other strategic partnership in the future. As for the nature of the deal, I could not say more than what’s been in the press release and as announced this morning.

Deborah, I just want to make sure to clarify on the OpEx front, it seems like there were some hidden costs, G&A was bigger in the fourth quarter. But you’re talking about 9.5 million in OpEx average, how quickly do we hit that? And then in terms of the cash burn, getting to a cash neutral situation, you’re still saying by the end of this year. So I want to make sure that – to delve in to that a little bit more detail, so that implies that we’re getting back to the high teens the 20ish kind of exit rate from a revenue standpoint depending on the gross margins and mix of business exiting 2019, but we’re not going to be back in the first quarter to the third quarter, well is that correct? So we’re on a pretty big ramp in to the second half, and those OpEx when do we hit that kind of 9 or some 10 million market OpEx, we can hit in the first quarter?

We should be very close in the first quarter. I think we’ll still be at – we’ll be a bit above the 9.5 average. But we should see the benefits of the cost reduction measures coming quite strongly in the first quarter.

And then just in terms of the ramp, if we’re getting to a cash neutral situation by the end of this year it is a significant ramp. So you’re still feeling good about the visibility of this pipeline monetizing and design wins ramping in to production. It’s really the commercial timeline of when they start to ramp, is that what you’re struggling with right now? Just to be clear.

Yes, that’s exactly right.

And then George, if I could, just in terms of looking at the market place, just some other clarification, the timing, I’m not sure if I heard the timing of Monarch 2, the timing of the NB only solution, when will we have that kind of heading commercially in to the market place and looking for certification. And then just what you’re seeing competitively from a win rate perspective? You’re gradually [lighting] up lots of wins, you had a product that’s been in the market place and certified for many, many quarters at this point in time. What are you seeing on the shortlist in terms of building that pipeline win rate and now I’ll get back in the queue?

Yes, Scott, I didn’t say this, but we will get those samples, Monarch 2 and NB by mid-year. I mean this is the plan, so we’re very close to tell you to start sampling this. And we will have again, and this is very important position. We’ll have a comprehensive offer here because we have the dual mode CAT M/NB. Some people they need this dual mode to get the roaming capability between crossing regions or charging, sometimes carriers they have the two networks available, but depending on the servers they can run it on CAT M or they can run it on NB. And this is what the Monarch 1 and Monarch 2 are able to do. And Monarch N will be really pure NB, where the focus there is on cost of the solution to bring the module cost down below $5 and Sequans will be one, I tend to say maybe the unique vendor that has the two solutions and the portfolio. And you know in terms of design win, I don’t know if I get well your question Scott on the second. So as you said well frankly we have a lot, we continue on the path to building and more than this the conversions from new business opportunities to design win is moving very well. I gave some number of the evolution between Q3 and Q4. But what we’re seeing a larger deal, much bigger deal and with more dollar opportunity behind. We’re as well expansion of the projects, not only beyond the US. So we don’t have only these in the US, Japan is very dynamic, a lot of things happening in Japan, but also Korea and other places like in Europe and Australia as I mentioned there. And we’re still running for the 20 design I mentioned previously that we have some around 20 projects that some of them have been launched already and we’re shipping them and some will be launching in the first half of this year, in other words, between now and June 2019. And this is what will be fueling our initial ramp or initial acceleration of the CAT M/NB quarter-to-quarter in 2019.

Your next question comes from the line of Rajvindra Gill from Needham & Company. Please go ahead.

Congrats on the strategic partnership, that’s good news. Question on the update in terms of the new designs from Q3 to Q4 and your expectation that those deals will represent 200 million of future revenue versus 160 million to 170 million. You had mentioned that the deal sizes are getting bigger, that the opportunities are getting bigger. I was wondering if you can elaborate on that point. I think that’s an interesting point, and also are you expanding your customer base with these new designs?

We had around 60 projects to mention on Q3, between fully designed, fully one, I would say they are in hand and other very close to work for a design win and we said around $140 million. Obviously estimating the life cycle of a project, there is a little bit of typically most of the project pretend to be three years, but some of them are five years, so these are the assumptions we have, and this is how we come to our dollar estimation there. We’re seeing what they said larger deals because you’re seeing more and more application in the metering and those projects tends to be in millions not in hundreds of thousands if you want. Latest one of what we have in the tracking devices in general, the asset tracking. I’m not talking about the personal or pet tracking, but they remain an interesting opportunity, but they tend to be a little bit smaller. Asset tracking are big and when we talk about the pallet tracking products, the potential is extremely huge, and there even we are very, very extremely conservative in our dollar amount, because we assumed the penetration in terms of converting a pallet to become connected very low. But very frankly nothing prevents you from having all those pallets and all those assets tracked. The solution we show at CES, it doesn’t have even GPS. So you’re talking about a solution where it has practically an LTE-M modem only. That’s what you have, plus the battery, plus couple of sensors, and with this you’re able to buy software to track assets in the 50 meter to 100 meter position which is more than enough for an asset tracking application. So those products are important as well and they can also – and obviously in terms of customer wins, definitely we are adding a number of customers. We have obviously some module partner because there’s two ways of looking to the products from Sequans. We have products where Sequans is securing directly, could be some ODM in the middle, but essentially they are – they tend to be big deals. We’re talking about in general million plus units that Sequans securing directly and we still have funneled from our module partner who themselves are securing dozens of products on their own. Some could be small and medium and couple of them could be big. So we’re adding all this up to come to the number, and definitely we are adding more customers mainly to address regions like Japan, Korea and Europe as well.

You mentioned that you believe that the visibility is improving in Q1 and that the inventory in the channel is starting to get results, and that’s given you confidence about the CAT 1 products, some of the new products as well. Could you elaborate in terms of where we are with the channel inventories, also can you maybe elaborate in terms of when do you expect these customers to start to migrate from CAT M to CAT 1, and how do we think about the impact to CAT 1 business?

In fact many, many questions here Raji, but let me talk about the last one first of all. The impact from CAT 1, you know our business on the CAT 1, we have chip business through our module partner, which is the specifically Gemalto. So obviously they address in general the M2M market, a lot of telematics, a lot of panel even some metering applications and so on. And those products tend to be – once they are secured, people they don’t change the product overnight. So, in some situation they need to get one technology and they will not evolve at all from CAT 1 to CAT M and in some other situation you could say okay, it makes sense to move to CAT M, but obviously they don’t do it on existing product, they do it on a new product that they refresh in the future. I have for example, one customer buying module from us, they are contemplating CAT M, but very frankly they are not in a rush on this, because they want to be sure that the four carriers in the US have CAT M that’s where they’re working before they switch, because they want to play with four carriers and as such some of them are ready with CAT M, the others are not ready yet or they are deploying. So all this creating as well give us more room on the CAT 1 business. So we feel very strong for the CAT 1 business this year. Obviously for next year, we expect some of this that will evolve to CAT M in 2020, but we - at the same we believe this business will stay there because we will have many products where we need voice, we need speed, where people will have…

On the 5G opportunity, 5G the structure is going to accelerate this year. How are you positioned to benefit from 5G, what challenges do you anticipate to move towards 5G and how do you expect to overcome them and along those lines, do you expect to see any revenue from 5G in ’19 or ’20?

First of all, when you talk about 5G, we need to always keep in mind that it has many angles, and one of it, which is the IoT, even if this is not one when you read all the excitement with the care you talk about the 5G, they are focusing more about, what we call to enhance mobile broadband, which is the high speed, there will be limited frequency and so on. But on the 5G IoT, this is exactly what we are doing. Monarch 2 what we announced, this is release 15 capable, which is what we call 5G IoT if you want. So this part is fully under control and it’s a continuity of all what you have done under 4G IoT to continue over 5G. So there is, I will say no challenge at all for us and we are leading the market and its happening. On the opportunity which is 5G enhanced mobile broadband, this is for us like the expansion of what we start doing in the broadband on 4G, and very frankly the addition of 5G, the application of 5G is giving us like fixed application with limited frequency band and so on. All those applications are giving us more potential obviously with higher ASP and so on. There is a lot of push in the US obviously in terms of network to be ready and we’ll hear about it this year. We decided from the beginning as a company to work on the technologies that have developed the foundation and to come to market just on time. We don’t want really to – the competitive landscape there is not too much, not too many player can develop this technology, if you count them they will not go to more than three, I would say four and if you start eliminating Chinese not able to sell in the US, you will find that Sequans has a huge opportunity there to be another player because we control all this IT, you have all this technology just only for us to take the technology and make a product and take it to market. My feeling that the market for our application can wait for the 2021, so that’s why our thinking is really working, we’re accelerating, we’ll be moving this year more actively in developing the product to bring something towards the end of next year for revenue in 2021.

Your next question comes from the line of Mike Walkely from Canaccord Genuity. Please go ahead.

Just building on kind of the last question, Georges, as you look at the broadband business, its (inaudible) it’s now with some new channels building, how do you look at your resources in terms of investing for your business between broadband, IoT and the new 5G opportunity with your strategic (inaudible).

If you’re looking obviously now and you look short term, you say, okay, your IoT is not yet flying to the moon, so obviously from [disappointed] point of view you can say it’s crazy, you’re not going to stand on the two front at the same time. And that’s what we did. That’s why we decided a little bit to position the 5G a little bit in time, where really we stay comfortable in terms of market and then to some extent the right decision for the company in the size of Sequans, but at the same time keep in the first stage their resources on IoT to come with the second generation of product. So our strategy today as Monarch 2 is coming out to market mid this year, so the team if you want at least to the chip level will have plenty of resources to accelerate the 5G there. And definitely the relationship and the strategic partnership are all those angles that can help Sequans speed up this road map and even compliment the resources that we need to develop this kind of technology. So this is how we’re thinking about, I mean I could not say more, elaborate more about the detail there for competitive reason obviously. But we believe that we can move at some level of acceleration alone this year. The help of strategic partners help us to go faster and to secure it, and we still have other partners in order who can line up and obviously not to forget that you need to project 5G in 2020. So in 2020 hopefully our IoT will be going to the moon and then we’ll have sufficient resources ourselves maybe to scale further our own resources to expedite the 5G roadmap.

With the 75 customers representing 200 million in revenue and you talked about 2020 could be strong with IoT, can you give us any color just on the timeline on the 200 million revenue and kind of how you think to build between now and 2020?

I talk about 75 products that we have secured or close to be secured and obviously we mentioned that the pipe keeps building. We were talking about on a daily basis we’re getting new business opportunity and as I mentioned we are seeing more and more business opportunity in millions of units. So I am expecting the pipe to continue growing and this will add up. So projecting this to 2020 and beyond, hopefully this maybe should be doubling in terms of potential projects that we have in hand. I am here looking a little bit in the crystal ball, but I don’t see no reason because there is an exponential, the market is moving and then those projects will materialize and will have more deals in hand to feed 2020 and beyond. The other question was more regarding the how we --.

Is it [flavoring] and hot.

How we structure 200 million. Obviously, we are talking about three is life, so with some kind of plan from year one to year two to year three. So obviously for us if you say certify products that are not all yet in launch, we’re talking about 20 of them being in the market before mid this year. So we’re talking about the remaining 40-45 to come between second half and beginning of 2020. So this is how we see it and from there you need to - you can have a little bit of [DRAM] for all those years over the coming periods.

And at this time there are no further questions.

Okay. Thank you very much all for the questions, and obviously for the time you spend listening to us. Looking forward to talk with you and exchange with you on the next conference call in Q1. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.