Welcome to the Sequans First Quarter 2020 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 on 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 preliminary results over the first quarter – for the first quarter of 2020, expected revenue for the second quarter of 2020, the timing and availability of expected debt financing and tax credits, future results of operations and financial positions, business strategy and plans, expectations for Massive IoT and Broadband and Critical IoT sales, the ability to continue to operate remotely at high levels of productivity, increasing backlog of orders, the impact of the coronavirus on our manufacturing operations, ability to operate remotely, and on customer demand, 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 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. Financial results described in this call should be considered preliminary. And are subject to change to reflect the completion of our valuation of the convertible debt amendments made in March 2020 and posting of related accounting entries. Thank you. Please, go ahead.

Thank you, sir. Good morning, ladies and gentlemen. This is Georges. I am with Deborah Choate, our Chief Financial Officer. Welcome to our first quarter results conference call. As you have seen in our press release, our Q1 top-line results are in line with the updated view we gave on March 31st, with final revenue of $8.8 million and better gross margin from a more favorable mix - revenue mix, as well as a smaller loss per ADS than we indicated at that time. Since we explained Q1 business conditions at length on our call three weeks ago, I will not repeat the same discussion, except to summarize quickly for anyone who did not hear the call, the following. During Q1, the coronavirus had some impact on our ability to produce and ship modules from our contract manufacturers located in the Shanghai area. Both are now operating normally, after their employees were able to gradually return to work during the latter part of Q1, as stay-at-home restrictions were removed by the Chinese government. Our chips are produced in other Asian countries that experienced much less direct impact from the virus during Q1. So overall, we were fortunate to be much less-affected in Q1 than many other semiconductor companies, and both Broadband IoT and Massive IoT businesses increased sequentially compared to Q4. On the other front, the Vertical and Strategic business was lower in Q1 than Q4, but this was expected as it reflects the impact of the revenue recognition rules of the large strategic deals we signed in fourth quarter. Now, I will turn to the main topic of this call, our current situation and how we see the future. On balance, the impact of the coronavirus on customer demand has been more positive than negative for us. The surge…

Hello, everyone. I’d like to add some details about our Q1 results and recent financing activities. Our Q1 revenue was $8.8 million, a decrease sequentially of 4.3% from the fourth quarter, primarily due to the impact on our shipments from COVID-19. Revenue in Q1increased 35.6% compared to the same quarter a year ago. We had three greater than 10% customers in the first quarter, one OEM and two ODMs. Gross margin in Q1was51.3% compared to 47% in the fourth quarter of 2019, and compared to 35.9% in the first quarter of 2019. The substantially higher gross margin was primarily due to a more favorable proportion of chips versus modules in the revenue mix. There can be significant fluctuation in gross margin between quarters based on this mix. However, our assumption is that non-IFRS gross margin will average around 45% in the next several quarters. Operating expenses were $12.3 million in Q1, higher than the $9.9 million in Q4, primarily due to higher R&D expense related to bringing on the new 5G development team in Israel, as well as a one-time non-cash expense recorded in general and administrative expenses also related to bringing on the new team. Q1 sales and marketing expenses tend to be higher than other quarters due to two major trade shows during the first quarter. Given these quarterly fluctuations, we are expecting non-IFRS operating expenses to average around $10.5 million per quarter for the next several quarters. Our first quarter operating loss was $7.8 million, compared to an operating loss of $5.6 million in the fourth quarter of 2019, and an $8 million loss in the first quarter of 2019. Our net loss in Q1was $10.6 million, or $0.44 per diluted ADS, compared to a net loss of $9.2 million, or $0.38 per diluted ADS in the…

. : All what we have planned is moving and it has zero impact for the time being, at least the way we see it on COVID because by definition it's not sensitive to the situation of the COVID-19. And we see more opportunity by the way and progressing very well. If I look to the Massive IoT business, the business is doing well, moving as expected, both on Cat 1 and Cat M. As I explained really here we are seeing even more traction by the COVID for different situation as we talk about you know, the push for health application there, the only risk we see it, which is as we are speaking which is very hard to quantify are for those projects that were planned to launch in Q3 and Q4. Obviously, our customer are executing on those projects and for the time being it's too early to say that we're going to take a big delay there. But all the other projects that they have been launched and they are in production, some of them are very big one are moving very well. And more important the opportunity there keep building up. So we're not seeing, I would say any negative there, what we see, okay, people are not looking anymore to design a project and think about the Massive IoT in the future. This is really definitely an area of – I would say, interest of the people which are going to be accelerated after the COVID in my opinion. And last but not least is really a broader IoT. Let me stress that all the components you know, whether we are into emerging, the CBRS and all those application everything is moving according to plan and moving well. And obviously here we have the…

Thank you. [Operator Instructions] And we'll take our first question from Raji Gill of Needham & Company.

Yeah, thanks for the information and congrats on the momentum. Just a question on the Verizon Jetpack, has Verizon given you - given you a sense in terms of how much volume they're expecting and any kind of thoughts in terms of the growth of that product ramp as they progressed throughout the year?

. Well, you know, obviously - hi, Raji. I mean, obviously you know, what we saw is the first wave, this is really, really you know but obviously the first wave is a huge event you know, so you cannot take this as the new trend. But in the same time, we're seeing demand for longer run and the discussion that obviously we are getting today that does feel like maybe this can go to - to a factor of two you know, down the road. It's still too early to confirm it, but my feeling is that we could be going to a 2x demand you know, in Q4 and next year on this kind of business.

And just on the gross margin you know, the upside in the quarter, based on the favorable mix shift, but then kind of - you said tracking at 45% for the rest of the quarter, rest of the year. Any thoughts on kind of why it will be down 45%?

It's primarily due to the mix in that, we're not expecting the services and other revenue that tends to be higher margin to - we're expecting that to be fairly stable across the year and the growth will come more from product revenues.

Okay. Got it. And lastly, you know, the partnerships with the microcontroller companies, Microchip and NXP, you talked about you might see some revenue end of 2020. Can you elaborate further in terms of what their roadmaps are and how your technology corresponds with that? Thank you.

Yeah, I mean, absolutely. In terms of go-to-market with the MCU partners, there's obviously what we did is really and today the three solution are available. You can get an integrated solution with whether you have Microchip Sequans or NXP Sequans or SD Sequans. And this creates obviously you know, facility for our customers to build that IoT system very quickly and in easy way. What we are doing as well with those partners as we are preparing maybe another version of those products, like more integrated facilitate it further. And you know obviously it's the channel itself because for Sequans is really a big plus to play with those big players because it gives us access to some of the Tier 1 customer that could be maybe complicated for us to address them if we were alone. So all those angles are contributing to us. Obviously, you know, when you have a design win in terms of revenue, the earlier revenue will be coming because people are buying reference designs and so on. Even if you could have maybe many of them and this create maybe some you know, some number, the major revenue is going to come when you have full project lunch with millions of unit. And obviously this is more you know, needs some time from design win to production. And typically you know it can take 12 months. So that's why we are saying we could see some revenue maybe in the second half, but in my opinion, they will be more related to some reference design early product. And then in the end for next year we could have more of our CAT M product accelerated I’ll say by those kind of partners.

Thank you.

Thank you. We'll take our next question from Mike Walkey of Canaccord. Please go ahead. Your line is open.

Thank you. Yeah just on the surge of demand for Q2, is that mainly just broadband or is IoT still growing. And then as you kind of look at sequential growth for the rest of the year, can you kind of just give us some color. Does broadband continue to grow in the back half the year after the Q2 surge or is it more IoT driven? Just trying to get a feel for the different lines of business and the growth trajectory you're seeing in the pipeline?

I mean, definitely as I said, IoT, Massive IoT’s are growing you know, to grow from Q4 to Q1, it's growing from Q1 to Q2 and the number I'm giving, I would say the $12 million minimum we are targeting this year and we expect to keep going. You know, so there is - definitely the business of the company on the on the IoT is moving well. Obviously, in terms of you know, the second half of the year for the new project, I'm talking about really the second phase of the growth, on the Cat M/NB, here we have a little bit you know, maybe some risks, today is very hard to identify, but this doesn't mean this will not grow, just on a little bit of delay or a couple of months on some project could reduce a little bit the slope of the curve. But from all what we have launched so far, we are in a nice shape you know, in terms of growth. And obviously, as you go to the broadband, very honestly today we have - you know we could as I said do much more than the $12 million if we serve all the orders we have in hand in the broadband. So some of them maybe that will shift to beginning of Q3 because the demand - we have a lot of demand, we didn't accept at all in Q2, we position some of it in Q3, so we have a little bit of upside as well in broadband in Q3 already related to the Jetpack. Beyond this you know, passing I tend to say August, September, too early to talk about it. It comes back to what I said previously to Raji by saying, the signs we are getting today that is going to set on a new plateau which was - which is higher than what it was in the past, because it's is becoming more you know, people are going to stay working from home longer than well - than what anyone is thinking today. And we believe maybe we'll have continuous upside, maybe not at the same level we got in Q2 and beginning of Q3 of the broadband in the Q4 as well. But for the time being you know, we are staying cautious on this because obviously all this is really their actions and more than specific guidance because we need to see how this will - things will shape after I will say July timeframe, June, July timeframe.

Great. Thank you. Just a follow up on the broadband, you talked about some new customers coming in with the work from home, probably more of a global thing than just the U.S. side are you seeing maybe upside in order some new customers or any previous customers maybe coming back. Is there's more and more places around the world that might have this more permit work from home phenomenon?

I mean, absolutely. But by the way you know, just to mention that the Jetpack is not only sold under Verizon brand, it's sold as well as for a couple of family [ph] you know, in the US. So we see there similar demand they are coming there. And as I mentioned in the broadband, we're seeing very good traction with the new deals. We are currently in advanced stage with the big guy who was testing - has the product in test in the US and in Europe for a new version of this. So definitely the demand is there and in the emerging, as well as moving well. So I believe that the broadband is going to be you know, it's going to continue to grow and obviously the trend from 4G to 5G is going to continue. Just on what I mean, I could not predict, is really you know, this spike we saw now for the order of Q2, what it's going to land in Q4 which is a little bit complicated to be precise on this, even if I see it's setting up, maybe two times the level where we are today.

Okay, thanks. Last question and then I'll pass it on. Just on CBRS. Can you just update us? I know there's just a month delay, but kind of how you seen that market development. What could be kind of a, call it a calendar ‘21 type opportunity for your business? Thank you.

I mean, definitely, CBRS is – it keeps developing, we have a lot of customers as you know already, not all of them announced, but you have many of customers that they have product ready. We did some revenue with this. We continue to see traction on the CBRS. The delay of - I’ll say announcing you know, the auction by one months, I don't believe it's going to impact you know, globally the market. Obviously there's a bit of delay here. We planned for this year maybe - we stayed modest for this year. We planned kind of about $1 million CBRS this year, more coming in the second half. We are still targeting the same level today. But we see this really accelerating next year with more and more application because it's all about private LTE connectivity. And you have a lot of application there, even some of them are consumer related you know, application where people in a private environment you could have connectivity instead of using the carrier network, you can have some local networks to connect on it. So this is definitely an area of growth for the company next year.

Thanks for taking my questions. I hope you and Sequans [indiscernible]

Thank you.

Thank you. We can take our next question from Scott Searle of Roth Capital. Please go ahead. Your line is open.

Good afternoon, good morning. Thanks for taking my question. George and Deborah, really appreciate the color and commentary you provide on the call. I hope you, your families and your teams are doing well, as you know given the current environment. Just to jump in on the balance sheet, I want to clarify from the end of the quarter it looks like you've secured $10 million in incremental sources from tax credits, BPI loan, as well as COVID-19 loan, is that correct. And then in terms of the innovation loan, can you remind us how big that could be. And I think you've got some other sources as well in terms of potential upfront, repayments that you've been talking about, as well as the strategic opportunities I think more related on the 5G front. So all in, could you give us an idea of what that total cash inflow could look like. I think you know even if it extends beyond the second quarter here you put the innovation loan in some of these other sources we're up over $20 million in incremental cash coming into the balance sheet, is that correct?

So what - yes. So what we've just secured already Scott is between the two French loans and the recovery of the tax credit is above $0 million. And on top of that we have a boost in the quarter for another $1 lion or so of deferral of certain payroll taxes and others that - but that's more of a timing difference within the year. On top of that, we have talked about the innovation funding which is - which is totally unrelated to the COVID-19 situation. This is typically what's available in France, in Europe for major R&D projects. We had certainly - we do a number of these every year usually on a smaller scale. But what we're looking at is potentially €7 million or $8 million funding for the 5G project. So this is something where we're hoping to finalize this in the quarter. As George mentioned, this is one of the things where it's taken a bit of a backseat to all of the other COVID measures put in place by the French government. But we're moving forward on that…

And there is exclusion…

And in addition to that, then of course we have, sorry, yes.

Sorry. Yeah. Just as well in other sources in terms of strategic options with potential partners out there, I think specifically related to 5G and some other NRE. It sounds like there's some incremental potential cash opportunities additionally?

I mean, we have, I mean, definitely, obviously, the strategic option, as I mentioned, we are moving very well that is at least one quite - I mean, there are a couple of them, but one is really you know, progressing. I do not would be able to close it in that quarter, maybe I believe more beginning of Q3. What I'm setting to myself and it's moving very well. I mean even if the COVID is not impacting, I would say the demand anything is just only making things a little bit more complicated because the priority of management and company is really short term and everything is a little bit longer. It's a put on his side, but this is recovering, and we'll come back. And we believe this could be kind of bring high single digits. I mean, it could be as a close, maybe it $10 million. We have a couple of others as well similar. And I wanted to see another one as well. Yeah. Yes, what I want to say as well that the - from you know, even if you could not quantify it, I mean it has some cash impact. The vertical deals you know, I was talking about big deal that we had to work on since last year. And now I was seeing on the call that we should close it this quarter. I'm more than 90% confident that it should close this quarter. This is really more than two digit number and it has as well as some upside down payment. So the vertical deal as well they can contribute to a couple of $1 million at least upside that will add up to the strategic. If you add all this - of all this you know, what Deborah mentioned more than $10 million already secured. And you add the $7 million to $8 million [ph] of the innovation funding and other strategic, plus some vertical. So definitely we start exceeding the $30 million of source with a strategic close to 30, if you add the strategic will be close to $0 million new money coming to the company.

Great. Thank you. And in George, maybe just a follow up on the 5G timeline, it seems like with the hiring of the team in Israel, the inbound interest as it relates to 5G in general and in particular it sounds like a lot around fixed wireless access. What is the current timeline of when you're expecting to have some initial product at least taping out into the marketplace in revenue, was that at 22 type of opportunity or something that - is that going to pull forward into ’21?

I mean, very honestly we're trying to do something. I mean, all depends how we accelerate things, but ‘21 will be a major, we’ll start seeing some of the technology. I don't believe we'll be shipping anything in ’21, it will be more for ‘22 to start shipping customers. But in ‘21 we could be sampling you know without giving more details for the time being.

Got you…

It's - all the R&D investment is on this. The team in Israel is doing well. Well, now we have there more than close to 40 people and strong focus because you know, the more - the less we are doing on CAP M obviously because we have our new generation is already in hand, the more and more and more people are engaged to the 5G, which is now becoming like the major R&D investment in the company.

Got you. And just two follow ups, and then I'll move on. In terms of broadband could you calibrate us what it was in the first quarter and what you're expecting for the second quarter. I think George in the past you'd said expect somewhere in the ballpark on an annual basis getting back to the $10 million or so range, is that kind of correct and we see some upside to that. And then in the past also you've talked on the Massive IoT market, a lot of activity certainly going on there related to Skyworks, MCU partners and some of the distribution channels that you've dealt with Avnet. Now there's some things like Marco [ph] What is the size of the pipeline, is there some way you could help us understand, I know you've talked a lot qualitatively, but in the past you've given some numbers around the magnitude of that pipeline of opportunities, maybe not explicitly numbers, but can you kind of gauge it from the size, is it 50% larger than its been, is it more than that. I mean, just trying to gauge the level of activity there? Thanks and nice quiet.

Thank you. Well you know, I mean, just to talk about the broadband, obviously, I don't want to - because the broadband as you know, we have the emerging and we have Verizon and upside is coming from Verizon. Verizon typically of the Jetpack we do you know, around $1.5 million to $2 million, depending on the quarter, this is the level what I would call it nominal level. Obviously, the demand is you know, we've got - if we were able to supply five times of this, [indiscernible] will take it I mean, in Q2. So definitely we have a lot of demand. We didn't accept all the demand because obviously we need to be serious and knowing because we have limitation as well of what we could build in very, very short time and possible to do. We took more than you know, we accepted order more than what we can supply at risk if you want, and we are working hard to see how to serve this between Q2 and Q3 because some of this demand can shift to Q3. And I'm hoping that you know beyond this that this - only this product line maybe we'll go to a new high, maybe too close to $3 million per quarter instead of staying at $1.5 [ph]. So this is on the broadband side. You spoke about you know the IoT, I mean if I compare the projection if you want, we are talking about quarter to quarter these days even with the Q2, even when we counted some of our growth of Q2 is coming from the broadband, still relying on above 30% of growth into IoT and also today it is a growing every quarter. And if it continues like this, obviously, the CAT 1 is…

Great, thank you. Nice quarter.

Thanks, Scott.

Thank you. We now take our next question from Tristan Gerra of Baird. Please go ahead.

[Technical Difficulty] you mention how the supply disruptions out of China were pretty much behind, anything else that you see in terms of disruptions outside of China, whether it's for you or your suppliers. And also if you could talk about the type of components where you're seeing shortages?

Hi, Tristan. You know, obviously, you know the demand shortage we had was in China. I tend to seem to defend, you know what they spoke in Q1 it was really - we didn't have a challenge or funding component or anything because we had everything ready anticipating our production for Q1. We didn't have any lead time because the units were there and so on. The challenge was really the production capacity got stopped because people went home and they were not able to. So this is behind us. The Chinese are working our office and in China you know, all of them are working from the office. Obviously they have all the measures, they use masks and so on, but things started moving was very close to normal. I don't want to say normal, but very close to normal in China that we see it. However, the challenge you know going into the future and this is what you see is for example, we didn't hearing to on anything about any disruption in Singapore, and as you are hearing recently in Singapore started getting some problems. Thanks God that they maintain what they call essential services open. And for us Singapore is very important that this is our hub. This is where we have our logistics, our manufacturing team. And you know we have a lot of packaging or set company doing for us there. So this was a little bit of concern, but honestly in the last couple of weeks, but so far so good. I mean they are getting even yesterday the Prime Minister of Singapore was giving a new update and everything is moving well there. We had social - we have as well you know, with TSMC there is a demand out there. So…

Okay. That’s great color. So it sounds that on a quarterly basis you know you could see $1 million or $2 million upside in revenue you know from that Jetpack business. And now you've talked about you know some CAT M and you know delays in the second half. What will have been the type of revenue contribution in the second half that you would have expected from that business without any push out?

You know, I mean, let me let me say it another words. But first of all we don't have any push out. I don't want really to say you know, because it's too early, because when the customer you know for example they get their PCB under the past, and they didn't receive it because of the COVID on time, they get it later on two, three weeks. Are they going to catch up or not? So it's very hard you know to come to conclusion because obviously the customer they would like us all to get their product out and to have order, they have customer first of all. I'm thinking about one guy in mind who has customers and order waiting for him and his challenge was that he was supposed to get ready with the best production you know, get some good position in Q1 and in Q1 he was not able to receive support because the COVID situations obviously now is working in Q2 to catch up. So we'll see. But you know if you think about – our CAT 1 business is not impacted. We're talking here mainly about the CAT 1 [ph] new projects, because here where we have the new projects and you could say like our business was kind of the growth in the second half, half of it was coming from your new project. So let me talk about - we're talking about like you know, one maybe, $2 million but in Q4 relying on new projects. So this is an order of magnitude of risk versus my target if you out at the beginning of year. So obviously if those $2 million will get impacted then I would do one of them. One is that - the two would be short by one, hopefully if the broadband is giving me the one back I will be in the same situation and I would be still making my number. And maybe with a little bit the pop side if things come you know well with the supply and not too much risk, not too much impact on the CAT 1. That's how I see it.

Great. Well, thanks a lot for the color. Very useful.

Thanks, Tristan.

Thank you. There are no further questions in the telephone queue, so I'll hand the call back for any additional or closing remarks.

Okay. So thank you for all of you for all the question and staying on the call. Looking forward obviously to seeing you in the near future or at least talk with you hopefully - hopefully seeing you just seeing you again. It's coming faster than everyone is dreaming about, thinking about but who knows. We need to get used to this virtual reality where we where we meet and talk without touching each other. Okay, take care guys. Thank you very much. Thanks, operator.

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