Sequans Communications S.A. (NYSE: SQNS) announced that it expects revenue for the first quarter ended March 31, 2020 to be in the range of $8.7 million to $8.8 million, slightly lower than management’s previous revenue guidance of flat to slightly higher than fourth quarter 2019 revenue of $9.2 million. The company indicated that module shipments during the first quarter were primarily affected by reduced capacity at two contract manufacturers in China. Non-IFRS net loss per diluted ADS is expected to be between ($0.40) and ($0.43), including an estimated $800,000 in one-time non-cash operating expenses related to bringing on board the previously announced 5G development team in Israel.
“We are pleased to report that our contract manufacturers for modules have returned to normal or near-normal capacity levels and our other Asian manufacturing partners, which were even less affected by COVID-19 restrictions, are currently operating normally,” said Georges Karam, CEO of Sequans. “We have implemented work-from-home practices in most of our company locations, and we are pleased to report that we have been able to maintain our productivity at a high level. Our top priority is the safety and well-being of our employees and their families, as well as those of our customers, partners and vendors, and we are working with everyone in the ecosystem on this.
“The large number of people in the United States working from home has resulted in a surge in demand for devices such as portable routers, which is substantially increasing our backlog of orders for modules in our Broadband IoT business. Demand in our Massive IoT business, both Cat 1 and LTE-M/NB-IoT is in line with our expectations, and we are entering the second quarter with significantly better visibility than in recent quarters due to the higher backlog.
“Our near-term cash flow will also benefit from recent measures enacted by the French government to defer collection of certain taxes, make new loans, and take other actions to support businesses in France as they cope with the economic consequences of COVID-19,” continued Karam. “We are adding new types of financing options while also pursuing additional government-backed innovation financing for 5G as well as continuing active discussions with several potential strategic partners regarding projects that could enhance our cash flow via upfront payments.
“In addition, we have been taking steps aimed at carefully managing both business and financial risk. We worked closely with the owner of all our convertible notes, who is also a large shareholder, to amend each of the convertible note agreements to afford us the option, in the future, to extend the term of each of the notes, in whole or in part, in one year increments up to three times until 2024. Having this array of options will enable us to demonstrate to strategic partners and customers greater ability to manage our capital structure regardless of the prevailing macro-economic environment during the next several years.
“We believe that demand for our solutions will be further enhanced by the changes now being required in the way many of us are living and working. The strain on our networks is already apparent and focuses attention on the valuable use cases that will be enabled by 5G technology in categories such as Enhanced Mobile Broadband, Massive IoT, and Ultra-reliable Low-latency Communications. Our 5G development will address all of these with next generation solutions.”
Update Conference Call and Webcast on Tuesday, March 31
Sequans plans to conduct a teleconference and live webcast to discuss the business update today, March 31, at 9:00 a.m. EDT/15:00 CEST. To participate in the live call, analysts and investors should dial 877-485-3103 or +1 201-689-8890 if outside the U.S. When prompted, provide the event title or confirmation code 13701280. A live and archived webcast of the call will be available from the Investors section of the Sequans website at www.sequans.com/investors/. An audio replay of the conference call will be available until April 7 by dialing toll-free 877-660-6853 in the U.S., or +1 201-612-7415 from outside the U.S., using the following access code: 13701280.
Forward Looking Statements
This press release 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 contained in this release, including any statements regarding our expected results for the first quarter of 2020; 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 potential 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 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. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation: (i) the contraction or lack of growth of markets in which we compete and in which our products are sold, (ii) unexpected increases in our expenses, including manufacturing expenses, (iii) our inability to adjust spending quickly enough to offset any unexpected revenue shortfall, (iv) delays or cancellations in spending by our customers, (v) unexpected average selling price reductions, (vi) the significant fluctuation to which our quarterly revenue and operating results are subject due to cyclicality in the wireless communications industry and transitions to new process technologies, (vii) our inability to anticipate the future market demands and future needs of our customers, (viii) our inability to achieve new design wins or for design wins to result in shipments of our products at levels and in the timeframes we currently expect, (ix) our inability to enter into and execute on strategic alliances, (x) (our ability to meet performance milestones under strategic license agreements, (xi) the impact of natural disasters on our sourcing operations and supply chain, (xii) our ability to remediate material weaknesses in our internal controls relating to the impact of accounting changes relating to deferred tax assets and deferred tax liabilities related to the application of IFRS to deferred taxes on debt instruments with equity components, (xiii) the potential impact of the coronavirus on the production of our products or demand for our products by customers whose supply chain is impacted or whose operations have been impacted by government shelter-in-place or similar orders, and (xiv) other factors detailed in documents we file from time to time with the Securities and Exchange Commission. We have not filed our Form 6-K for the quarter ended March 31, 2020. As a result, all projected financial results described in this release should be considered preliminary, and are subject to change to reflect the completion of our quarterly close procedures and any necessary adjustments or changes in accounting estimates that are identified prior to the time we issue our first quarter 2020 results.
Use of Non-IFRS/non-GAAP Financial Measures
We are not able to provide a non-GAAP reconciliation for forwarding-looking IFRS estimates for gross margin and net loss per diluted ADS without unreasonable efforts, because certain adjustments are not known until the quarterly closing is complete. The impact of these adjustments could be significant to our actual IFRS results.
Sequans Communications S.A. (NYSE: SQNS) is a leading developer and provider of 5G and 4G chips and modules for massive, broadband, and critical IoT. For 5G/4G massive IoT applications, Sequans provides a comprehensive product portfolio based on its flagship Monarch LTE-M/NB-IoT and Calliope Cat 1 chip platforms, featuring industry-leading low power consumption, a large set of integrated functionalities, and global deployment capability. For 5G/4G broadband and critical IoT applications, Sequans offers a product portfolio based on its Cassiopeia Cat 4/Cat 6 4G and high-end Taurus 5G chip platforms, optimized for low-cost residential, enterprise, and industrial applications. Founded in 2003, Sequans is based in Paris, France with additional offices in the United States, United Kingdom, Israel, Hong Kong, Singapore, Sweden, Taiwan, South Korea, and China. Visit Sequans online at www.sequans.com.