Welcome to the Sequans Third 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, the 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, or 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 expected revenue for the fourth quarter of 2020, future results of operations and financial positions, business strategy and plans, expectations for Massive IoT and Broadband Critical IoT sales, the ability to continue to operate remotely as required at high levels of productivity, increasing backlog of orders, the impact of the coronavirus on our manufacturing operations, 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 rely on or place undue reliance on these forward-looking statements. Actual events or results may differ materially from those contained in the projections or forward-looking statements. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission. Thank you. Please, go ahead, sir.

Thank you, Madam. Good morning, ladies and gentlemen. This is Georges speaking. I am with Deborah Choate, our Chief Financial Officer. Welcome to our third quarter results conference call. We hope everyone is staying safe and remaining healthy as all of us continue to deal with this – with the pandemic. Our global organization continues to take the necessary steps to ensure the safety of all our people and we have been functioning quite well. I’d like to take this opportunity to acknowledge our entire worldwide team for their determination, their flexibility and for generally living our values during this challenging time. As you have seen by our press release, we exceeded our target revenue in Q3, and we are expecting another sequential increase in Q4 putting us on track to grow over 60% for the year, compared to our previously announced target of 50% year-over-year growth. At the high level, the positive revenue impact of the Coronavirus on our Broadband IoT business is offsetting the shorter drag it’s having in other areas. So we are on track to achieve a stretch revenue target, but with a different mix of business than we were expecting as we began the year. I'm pleased to say we are executing very well and the momentum in all segments of our business is building up. Our key accomplishment fall into three areas, design wins, product development, and go-to-market strategy. I'm proud of what we have achieved already in each of these areas and we expect to accomplish even more before the year is over. Let me now take you through some of the detail of each of our business segment. And I'll start to the Broadband and Critical IoT. We exceeded our revenue targets for Q3 in our Broadband IoT business because we managed…

Thank you, Georges. Good morning everyone. I'd like to add some details about our third quarter results and other developments. Our third quarter revenue was $14.1 million, a sequential increase of 15.5% from the second quarter, primarily driven by a 32% increase in product revenue. Revenue in Q3 increased 116.6% compared to the same quarter a year ago. We continue to expect further sequential growth in the fourth quarter, putting us on track for greater than 60% top line growth for 2020. We again had three greater than 10% customers in the quarter, one is an OEM and two are ODMs. Gross Margin in Q3 was 42% compared to 48.3% in the second quarter, and compared to 30.3% in the third quarter of 2019. The Q3 2020 gross margin reflects a much greater proportion of modules in the product mix than in Q2, and a lower proportion of service revenue. We expect a more favorable mix in Q4, which will enable us to improve our gross margin. Operating expenses were $11.8 million in Q3, up slightly from $11.5 million in Q2, primarily due to an unfavorable euro dollar exchange rate compared to Q2. Non-IFRS. operating expenses were $11.3 million, up from $10.8 million in Q2. Our third quarter operating loss was $5.9 million, compared to an operating loss of $5.6 million in the second quarter, and an operating loss of $8.6 million in the third quarter of 2019. Our net loss in Q3 was $9 million or $0.30 per diluted ADS and included a non-cash gain of $1.5 million from the revaluation of the embedded derivative arising from the March 2020 amendments to the convertible debt agreements. This compares to a net loss of $19 million or $0.70 per diluted ADS in the second quarter, which included a non-cash loss…

Thank you, Deborah. So to conclude, just only a couple of points to wrap it up. We are very happy with the ramp of our revenue obviously this year and with the progress we are doing on all fronts; products, customers, but also strategic partnerships. We have all the foundation to keep growing the three business segments we have, whether on the Broadband IoT business, the Massive IoT business, as well as our Vertical markets business. We are very excited about our partnerships we are doing and we have done with the top tier MCU Park players, and we are looking really to become the provider of the cellular core technology in this space. Finally, we are very excited and we continue to be excited about our 5G position. This is really attracting a lot of strategic partners to us so far, and I believe we will have more that we will be securing in the near future that will help us finance and complement the investments we are doing in this space. Thank you very much for listening, and I will turn now the call for questions. Operator?

Thank you Mr. Karam. [Operator Instructions] And we'll now move to our first question today, which comes from Michael Walkley of Canaccord Genuity.

Great. Congratulations on the revenue momentum and strong results. Question from me is, on CBRS a lot of commentary on the script on CBRS. Sounds like it's going even better than planned from last – can you maybe help us size the market opportunity in 2021 for your CBRS momentum.

Hi, Mark. Mike, sorry. Hi. So Mike, I mean, that is the point. You know, that is one of the challenge we have it, if you look to all the study around CBRS, there's really to size it’s potential, because if you see, it can go to many, many application and when you start dealing with the private networks, and so on, that's a little bit complicated. But when I look to the number of customers, we have, and the interest we are seeing in the pipe, we said in the past that we believe that we'll be doing, maybe next year, as a target for us. Some are like, between $3 million to $5 million next year, this is this is my target in this segment. Obviously, we are doing this on the basis like of analysis of bottom up, with the ideas we have in hand and estimating each customer how much you will be doing with us. However, I still believe that the potential can be much more than this. It’s just only a question of having enough time to estimate all those projects, how big they can be each one of them.

Great. Thanks. And just a follow up Broadband strong again with the maybe the Cares Act and the surge in demand, can you just talk about supply demand dynamics into Q4, and how you see the surge continue?

The -- in terms of supply chain, in general, all the semi industry these days is under stretch somehow in terms of capacity, including if you go even to TSMC, even our regular products, we're seeing I will say longer lead time than usual. But we are managing this. I believe all what I could say the issues we have seen in Q1 and Q2 are behind us in terms of because we get really a lot of problems when this demand happened. And we were not able almost to serve, 20% of the orders we have received. And now in Q3 we start seeing, we saw that we managed to get this mainly starting in August timeframe. And for Q4, we see -- we don't expect major problem. I mean, we see we see the company capable of serving the order we haven't had.

Great. Thanks. And last question. I'll pass on the line. You Deborah, can you help us with any other 10% customers during the quarter?

So clearly the demand for JetPack was a big contributor. But we also have our traditional and the IoT space, our Massive IoT space partners that we work with there and one was a for service revenues.

Great. I hope everybody stays well and thanks for taking my questions.

Thank you, Mike.

We’ll now move to our next question which comes from Scott Searle of ROTH Capital. Please go ahead sir.

Hey, good morning, good afternoon. Thanks for taking my questions. Georges, Deborah really nice job in a difficult operating environment. Just to clarify quickly in Broadband in the quarter, there were still some supply constraints. Did you quantify the impact, what you guys could have potentially shipped if you were not constrained? And looking into the fourth quarter, sequential 10% growth? I just want to confirm you're expecting Broadband to grow sequentially and I had a couple of follow ups.

Scott you know in Q3, we start having, we had a problem in July and the last month we recovered a little bit. So I don't know. I mean, I could. I mean, we could do a little bit more obviously, if we didn't have the problem of July in terms of capacity. But I could say maybe an order of magnitude maybe off 10%, that I consider has slipped between Q3 to Q4. I'm talking about the just only the order of JetPack. But, but this supply constraints by the way, it puts some stress as well on other modules we manufacturer for the Massive IoT, they kept one modules in general. And what was the other question, I missed it.

It was sequential outlook Georges into fourth quarter for Broadband…

The outlook on Broadband, as I said the demand for we expect to do almost the same level in Q4 in terms of portable router versus Q3. So we are assuming not too much growth and a Broadband, at least, the major driver of the program. We could have a little bit of growth coming from some CBRS order that we are serving, those will have some. And we have a couple of new order from the emerging that they could be as well bringing some growth. But if I look to the JetPack business, I considered it flat between Q3, Q4.

Great, perfect. And, and moving on to Massive IoT so much going on in that front for you guys with the Renesas relationship just announced. I was wondering if you could provide a little bit of color in terms of how some of the MCU relationships should ramp up as we go into 2021? Also Monarch 2, a key new product it sounds like you're starting to enter carrier [ph] certification. Just want to clarify the timeline on that, and Itron as well it's nice to see you being able to announce that customer, how big can that be, when does that start to ramp up?

And starting with the -- obviously with the MCU partnership. Again, you if you look to the partners that each one has his own strategy, how to go to market and where to go with us. If you want the baseline is obviously for which is common for all of them is to integrate the solution and get the software fully integrated and use them as a channel to market so this is you can guess that like this is almost similar. Obviously, when you look as well to the position of NXP versus Renesas versus Microchip You know, you're talking bit on MCU between 8 bits to 32 bits, the various segments each one has some strengths and some of the segments less than others. And this is really good for us because they complement each other the way we're seeing and it's accelerate our go-to-market in general and otherwise to bring more design. They also can look some kind of, they could be also help us winning big deals, when Sequans is challenged as a small company, because obviously having those big company backing us help us I will say closing the deals and avoid any issue that can be considered like from financial strength, I will say if this is the KPI for the customers. With Renesas, what I want to say which is a little bit at least at the -- at the time being different from the other guys, what the Renesas wanted to move much faster than the go-to-market strategy and offer directly under their brands modules integrating Sequans technology. And the partnership is really starting from this point, not only integrating the software, but they want to integrate the hardware and have their own modules, branded Renesas, where Sequans chip is inside and…

Perfect. And lastly, just on 5G. It sounds like you're on or ahead of schedule, in terms of your product development. Just wanted to confirm that timeline of when you would expect to sample. And I think you said several engagements in terms of customers that you're actively engaged with on the 5G front, just want to confirm that. Thanks so much. Nice job.

Thanks, Scott. I mean, obviously our 5G plan we're expecting to start sampling end of next year or beginning of 2022. I mean, we'll be making tape out next year. And depending on the definition of sampling, but we'll have silicon in hand if you want end of the next year. And regarding the interest on the – the interest is really large. And but honestly, it's to a level, from regular customer, what I call them really pushing us to give them this solution. Because as you can imagine the ecosystem is putting us in a unique position here. And but also the strategic angle where the one we have engaged, we made progress, atleast with one of them and we are quite confident that this will conclude. But also we have couple of other engagement moving very, very well. And I consider them very likely to happen…

Thank you, sir. We’ll now move to our next question, which comes from Craig Ellis of B. Riley Securities. Please go ahead, sir.

Yes, thanks for taking the question. And good morning. Good afternoon, everybody. And congrats on the nice results. Georges it was helpful to get the quantification around your view on CBRS potential for next year. I'm wondering if you could do the same thing with what you're seeing with the pipeline in emerging market Broadband. Can you give us a sense for how big that could be in calendar 2021?

The pipeline in the American market, my estimation was, that this is will go to similar order of magnitude. It's somewhere between $4 million to $5 million, this our target, I will say next year. But honestly there is some dynamic in the emerging market happening with the pressure that Huawei is getting, on getting access to silicon. And as you know, this is a space that the Huawei dominate in general. And obviously, there is I'm seeing more and more opening to our existing customer and the new customer we have added in this space, where I see them competing on new deals and being able to win larger chunk of business because of the challenges there. So we are not maybe hopefully we could have, some nice surprises there, where we can get more Broadband in emerging next year. But our target is really like $4 million or $5 million.

That's helpful. And then the next question really goes to the MCU of partnerships that you've established. So you've got four partners. Now, I think about 40% of all MCUs get deployed to the industrial end market. So a lot go to auto. There's, there's a significant portion that goes to industrial. I'm wondering if you can give us a sense for what the application exposure might be with some of your MCU partners, where do they expect to deploy the capability that you have with the MCUs that they have been and will be selling?

Craig I mean, in general it’s really matching. It's really industrial in general. I know that a big name, the definition of industrial, but also what we're seeing is essentially smart home and smart cities. This is one key application around the security related to the home and so on. Obviously all the metering, you can put it under this, this brand as well, like the smart home application. We're seeing a lot of demand as well in the health and wellbeing devices and last but not least is really all the tracking, in general, whether tracking of, of good of assets, of food all of this system is really a lot of demand there. So it's not different from the application we were showing if you want, but obviously going with the MCU partner give us access to the, to the thousands and 10s of thousands of customers doing this, because they have that existing channel, that existing distribution network, and their relationship. And the customer is used really to deal with their MCU software environment. So that helps us to get access to this totally.

And if we were to look ahead to next year, Georges, would you expect a greater contribution for Massive IoT to come from these new MCU partners? Or from the distribution partners that you've developed this year, Avnet and Richardson RFPD?

Well, I mean it’s just complicated because some of them they will deal as well with Avnet and RFPD. So even themselves, they go through distributor. So and as I said, Avnet for example, it’s a key distributor for most of all of them. But no, I believe the distributor can bring to us some of the -- they are actually what I will call it, because Avnet for example, you saw that they are coming with some combination of solution. They are trying to make it more than just only an MCU an environment that could be helpful. RFPD for example, we use them to sell the SiP with the Skyworks. And they have some channel, which I believe that will be a privilege to them, that will be different from the others. But we were hoping that the contribution of the MCU will be bigger in general, if I have to qualify it like this.

Got it. And then lastly, any further color on this strategic partner that you mentioned, potentially getting something signed with moderate revenue this year? And then if we got that done, would you expect the larger revenue contribution to be in the first quarter of next year? Or is there a chance that it would come later than that, say in the second quarter? Thanks.

No, I don't want to give a challenge when I give timing and I know that all the market will be waiting for me to make the press release on time. And if I don't do it, everybody's unhappy, and the stock will go down. So I don't want to jump to this. But very honestly, the short term stuff is happening, so there is no risk on this. And we're expecting really, to close those deals. They are very advanced, all what I'm talking about, should happen in the first half of the year and not the second half. So they are really, very hot deals. Now, they could happen beginning of Q1, end of Q1 I don't have to go with timing on this. But for me, they are early beginning, early next year.

Got it. Thank you.

Thank you. We’ll now move to my next question from Denis Pyatchanin of Needham & Company. Please go ahead.

Thanks for taking my question. So I'm asking this on behalf of Raj Gill. Could you please talk about how we’re going to think about how the 5G impact on adoption of Cat M and kind of the Narrowband IoT as the under 2021, and the next phase of 5G deployment.

Hi, Denis. I mean the, it's very important to keep in mind because, this branding of 5G, it's really brand. Behind it you have releases of 3G and so on. And Cat M and B are part of the 5G. They are not like, okay, this is the old thing, and the 5G is the new thing. The 5G by definition has two umbrella if you want at least not to say 3. But to make it simple, it has 2 umbrella. One really oriented for Massive IoT. And this means Cat M and B, as we use it today in the 4G, with some software evolution to the future, where your ship needs to be capable of evolving this. And this is what we said because our platform whether Calliope 2 or Monarch 2, they are 5G ready and they are able to continue supporting this. And you have the other umbrella of 5G which is really the high speed low latency. This is really about more speed. And here we talk about what we call the new radio where you have a new wave form and a new radio to enable those kind of capacities. And this is our tourist platform. But when you look from Massive’s [ph] point of view what the operator are doing, are really deploying this high end new radio if you want, but in the same time keeping maintaining the Massive IoT software and evolution that's going to happen. So it's not like, it's not going to be any interruption And it's not going to have a conflict if you want. So between the two.

Got it. Thank you. And then I had just one follow up question. Could you talk a little bit about the kind of the satellite customer push out that has happened before? Now, if you think that's going to come back in the next few quarters or so, I mean, any kind update on that?

Sure. I mean, first of all I mentioned just to clarify it if the script was not clear. We have a new deal, which is smaller deal than the first one, I mean, smaller, I mean, nice for us. I mean, we like it. And this is a new deal that came to us the end of Q2, and we conclude it in, we're concluding this now, it's under signature. So this is one deal move. However, the reference to the satellite project, you're talking, it's really a big satellite project, where I said, this can generate two digit revenue for Sequans. This is progressing very well, as well, because our customer and what they call in the last negotiation of pricing best, how do you call it, last and final negotiation. And this is happening now. So it's not delaying, it’s really as we expected. It gets delayed mid last year a little bit. But now it's still on time to come to conclusion in Q4, where we will get the conclusion if our customer gets selected. And if so, this means we will have the big project to us as well. But in the meantime as I said, this customer asked us to start the work, announce [Indiscernible] this quarter, because he doesn't want to lose the timing. And for this we we enter into a small agreement, just to start the work in Q4. And once he got the big grant, he will award to us the big project that we'll sign maybe end of Q4 or beginning of Q1.

Got it. That was all for me. Thank you.

Thank you, sir. We'll now move to our next question from Krista Haley of Refi [ph] Capital. Please go ahead.

Hi, thank you for taking the question. You're talking about a lot of -- a lot of exciting applications that are in your pipeline. If you look farther out, say three to five years, could you help sort of rank which ones you think will will be the largest? And if there's any applications that you haven't discussed today, that you think will be meaningful in that timeframe that you haven't mentioned so far in this call? Thank you.

I mean, it's very, very complicated question, because to compare between them, what I could say some of them are less risky. In other words, when you look to all those application, all of them makes sense. The challenge we have when you look to some new application, where you don't know the adoption is how much is going to be said to be successful, the timing, and so on. But I could say today for sure that the metering will be big, big segment in this space, because all the metering companies are moving. I'm seeing this everywhere, everywhere, and on a worldwide basis, not only in the U.S., but also U.S. Japan, Europe, and we are engaged with all those metering company, and we have already some good business there. And this will continue. Security system, this will be another big play as well. And the tracking device is still a question mark, in a sense how big it is, everything tend to be -- I mean, I tend to believe this will be maybe the biggest the tracking, if this will happen. This should be the biggest because the number of things that you need to track are we're talking about a hundred of millions of unit for any application. The challenge there is that all this is a new one, are you going to stick a tracker on everything? And is it going to happen or not? We're seeing very good progress there in this space. But this is maybe the one lagging in terms of round in my opinion. So this just to give the three. And obviously, I'm discarding here all consumer application, because obviously going to any of consumer application, this could be big in general, but it can sort of application kind of depends on the brand, depends what you will be launching depending on the technology. But like, on wearable application and so on, but it's a little bit hard to estimate how big it will versus the other.

Okay, thanks. And maybe one more with within the 5G opportunity, could you just characterize what you think your niche or your advantages in certain applications?

Well our 5G, what's clear is that what we are doing is that we have a comprehensive solution for non [Indiscernible]. This is what we are doing. In other words, we're trying to optimize our solution completely for anything outside the phone. When you see today, if you take a an iPhone and you look to the 5G solution inside, how to put the millimeter wave inside and so on, you do it completely different if you are building this for a fixed router or for a portable device or for industrial machine. So all those the difference, the difference if you want from a technology point of view allow us to optimize the solution and make it cheaper to address this. And obviously we should not forget as well that there is this duopoly that we are creating outside of China that you know not too many players are able to offer 5G and have Sequans that creates obviously, we've seen good demand from the market to have Sequans delivering 5G. And this is also give us more chances I would say to win a nice market share.

Thank you very much.

Thank you. And we’ll move to our next question from John Lopez of Faculty [Ph] Group. Please go ahead.

Hi, thanks very much. I just had a couple of clarifications if I could, and then a question. The first one is, if we look at the calendar Q3 product sales trending, is it fair to think that Broadband outpaced that from a growth perspective?

Outpaced what?

Yes, excuse me from a growth perspective. So if product sales were up 32%, quarter-to-quarter, is it fair to say that Broadband outpaced that 32?

Yes.

Yes.

Okay. Okay. Great. And then secondly, I thought in the beginning, or at least in the prepared remarks, there was some commentary about Broadband for calendar, Q1 of 21. Did I hear that correctly? Is there an expectation of say, some moderation just after the very aggressive couple of months of activity as we look into the early part of next year?

Yes. I mean, this is I mean, where honestly, no one knows. So it's not like we have, we're looking into a crystal ball with all what's happening in this pandemic and the demand related to this. But where we're seeing that the source of demand is a little bit at least as we are speaking, we're putting ourself in a position that Q1 will go back to normal from this portable routers, obviously we’ll have the CBRS, we’ll have the emerging. We will have other broadband moving and, and they are not related to the pandemic. But we're putting our position -- our projection if you want in a position that we're not relying on the source of demand, we have seen anything to Q3 and Q4.

Yes. Got you. Terrific. Sorry, just two more quick ones. The first one, just on CBRS, are you guys participating both on the access point side as well as the client side? Or are you more focused and concentrated at one end of the wire?

No, no, we are -- we are on the only on the user side. You know, you could, sometimes you could have an access point where you have a backhaul of wireless then obviously we can play that. But we are not on the access point technology, but always on the user side.

Got you. Okay, so cost around the client side, got you. And then my very last question, if we look in recent weeks, you got a competitor in AsiaPac, that I think historically has not focused on markets like hotspot and CPE, that appears as though they plan to do so with a portion of their 5G portfolio. And so it's my question for you here is, is this something that competitively you think they will address customers that like aren't your focus? Or should we think about this as perhaps opening a competitive vector in places? Like North America, maybe more core to your business?

I don't know if I get your question right. But…

I didn't. It was clear to me…

Was it clear for you, Deborah?

No.

Do are, are you saying…Can you repeat…

I'm sorry? Yes, of course, obviously I didn’t mean to be cryptic. But mid effect, I want to say maybe a month ago or so made a pretty pointed announcement of their intention to target things. Yes, yes. With hotspot CPU, and I guess my question was, are they targeting the same customers in places you don't want to go after? Or is that potentially something that we need to think about in say places like North America sorry for being cryptic?

No, I mean, let's just say it like this. [Indiscernible] and talk about the 5G technology you know in general, to name it outside of China, you have only two MediaTek and Qualcomm. And obviously their main drivers is really to build the technology for the phones. This is really the major business they are showing and they are optimizing their solution. Obviously when you do this, you are able on the corner to serve other businesses. I'm not saying you know, we always compete with Qualcomm even in emerging markets. So there is nothing that prevent those guys from going to this market, but they don't do it the right way with the right focus in general. And this is when Sequans is only focusing on this is able to do more. Now on MediaTek, obviously that will go, that will come in principle they are Taiwanese and in general, they are able to come and sell in Europe and the U.S. But their main focus as a market, their major market is China in general. So, I'm not saying we’ll not see MediaTek and compete with them. But to some extent, if we compete with the MediaTek and Qualcomm so we'll have two instead of one. We’re still with MediaTek, a little bit tuned more towards Asia, then really U.S. and Europe.

Got you. Thanks so much for all the help. I really appreciate it.

No problem. Welcome.

Thank you. As there are no further questions, I'd like to turn the call back to the management team for any additional or closing remarks.

Thank you very much for your questions and listening all the time you spend on the call. Thank you, operator. We’re done.

Thank you, sir. Ladies and gentlemen that concludes today's Sequans third quarter 2020 results call. Thank you for you participation. You may now disconnect.