Sequans Communications SA Q2 FY2022 earnings call

• New 5G Strategic Partnership: Finalized licensing agreement terms with a new strategic 5G partner. Execution expected within a few weeks. The agreement is expected to generate more than $50 million of licensing revenue in the first three years, funding the balance of the development of the Taurus 5G platform. - Massive IoT: Delivered 12% year-over-year growth and 36% sequential growth. Monarch Cat M platforms are the primary driver, with 8 sequential quarters of growth and anticipated continued ramp through 2023. Added new design wins in smart city, tracking, industrial, etc. - Broadband Category: Impacted by lower contributions in the quarter. CBRS revenue outlook is variable in the second half of 2022. - Taurus 5G Platform: Development is progressing as expected. Received engineering sample of RF chip in May and on track to sample the full solution in 2023. - MCU Partners: Microchip launched a new platform incorporating Monarch 2 GM02S cellular module. Renesas is promoting a cellular IoT roadmap with Sequans' solutions, adding Cat 4/Cat 5 technology and fully engaged with Taurus 5G. - Supply Chain: Ukraine-based R&D team continues to meet deliverables. Chinese COVID lockdowns affected customers' manufacturing in China. Sufficient wafer supply from TSMC for the remainder of 2022, and allocation for 2023 looks good. Anticipate passing TSMC price increase on to customers.

Revenue for the second quarter increased 11% year-over-year. Massive IoT grew 12% year-over-year and 36% sequentially, accounting for approximately 59% of total revenue. Product revenue, which accounted for 54% of total revenue, increased 29.5% sequentially versus Q1, reflecting primarily higher product sales in the Massive IoT category. Broadband IoT decreased 25% from Q1, primarily due to the expected decline in one-time license revenue. For the quarter, there were three customers that each represented 10% or more of revenue.

• The new 5G strategic agreement is expected to generate more than $50 million of licensing revenue in the first three years. - Non-IFRS operating expenses excluding stock compensation expense are expected to average close to $10.5 million per quarter in the coming few quarters. - IFRS interest expense in Q3 2022 is expected to be approximately $2.9 million and non-IFRS interest expense to be around $1.3 million, expecting non-IFRS net loss to have lower interest expense by $1.6 million. - Will update guidance when the pending 5G strategic agreement is announced.

• Chinese COVID lockdowns create a cycle of disruptive shutdowns and reopenings, impacting customers' manufacturing in China and delaying some project ramps. - TSMC wafer price increase of 6% with anticipation to pass on to customers. - Operate in a very competitive and rapidly changing environment with new risks emerging from time to time.

Q: Scott Searle asked about the 5G deal revenue recognition and other strategic opportunities in the pipeline.

A: Georges Karam said the licensing revenue is likely to be recognized rateably over three years with possible lumpiness initially, and there are other active discussions for similar deals.

Q: Craig Ellis asked about the supply chain impact in 2Q and 3Q, and Renesas supply.

A: Georges Karam said the supply chain impact in 2Q was mainly on Broadband, with CBRS delay of approximately $0.5 million, and Renesas has the ability to support with fab preparation and prioritize Sequans' products.

Q: Michael Walkley asked about product revenue in the second half and Cat family product ramps.

A: Georges Karam said the second half should see growth in Massive IoT, with some quarter-to-quarter lumpiness due to supply delays, and the Cat family has broad-based ramps with use cases in smart metering, tracking, eHealth, etc.