Sequans Communications Announces Third Quarter 2011 Financial Results

Sequans Communications S.A. (NYSE: SQNS), a 4G chipmaker supplying LTE and WiMAX chips to equipment manufacturers for mobile operators worldwide, today announced financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Highlights:

Revenues are in line with guidance; gross margin and non-IFRS earnings per share are better than guidance.

Revenue: Revenue of $26.2 million decreased 14% sequentially from the second quarter of 2011 and increased 39% compared to the third quarter of 2010.

Gross margin: Gross margin of 53.6% was higher than the gross margin in the second quarter of 2011, which was 46.6%, due mainly to the effect of product cost reduction during the quarter, combined with the impact of customer mix.

Operating income: Operating income of $1.9 million was the same as the second quarter of 2011, and increased 35% compared to the third quarter of 2010. Operating margin in the third quarter was 7.1%, compared to 6.2% in the second quarter of 2011 and 7.3% in the third quarter of 2010.

Net Profit: Net profit was $3.2 million, or $0.09 per diluted share/ADS, compared to a net profit of $0.1 million, or $0.00 per share/ADS in the second quarter of 2011 and a net profit of $0.8 million, or $0.03 per share/ADS in the third quarter of 2010.

Non-IFRS Net Profit: Excluding stock-based compensation and the change in the fair value of the option component of convertible notes, non-IFRS net profit was $2.8 million ($0.08 per diluted share/ADS), compared to a non-IFRS net profit of $2.8 million ($0.08 per diluted share/ADS) in the second quarter of 2011, and a non-IFRS net profit of $1.1 million ($0.04 per diluted share/ADS) in the third quarter of 2010.
In millions of $US except percentages, shares and per share amounts     Key Metrics
      Q3 2011     %*     Q2 2011     %*     Q3 2010     %*
Revenues $26.2         $30.6         $18.9    
Gross profit 14.0 53.6% 14.3 46.6% 8.9 47.4%
Operating income 1.9 7.1% 1.9 6.2% 1.4 7.3%
Net profit 3.2 12.3% 0.1 0.2% 0.8 4.4%
Diluted EPS $0.09 $0.00 $0.03
Number of diluted shares/ADS 35,089,236 35,209,641 26,426,760
 
Cash flow from (used in) operations 5.9 (0.4) (4.8)
Cash and cash equivalents 65.5 61.9 8.0
 
Additional information:
Stock-based compensation included in operating result
1.3 1.1 0.3

Change in the fair value of convertible notes option component included in financial result
(1.7) 1.7 -
Non-IFRS diluted EPS (excludes stock-based compensation and change in fair value of the option component) $0.08 $0.08 $0.04
                                     
* Percentage of revenues

“We achieved several important milestones during Q3, particularly in LTE,” said Georges Karam, Sequans CEO. “Although the recent developments in the US WiMAX market will continue to affect us in the near term, we believe that they will have no impact on our long-term prospects. With our new LTE chips sampling in the fourth quarter, we expect LTE design wins to accelerate beginning in Q1 2012, for both the FDD and TDD markets, with the related revenues expected to begin ramping in the second half of 2012.

“In addition to the agreement we announced with Gemtek for the LTE market in India, during Q3, we announced an LTE win with Netcomm in Australia. We were one of the first chip companies to receive MIIT certification in China, which is required in order to participate in China Mobile’s large scale trials. We also announced that we had begun our first large scale trial with Huawei in Shenzhen. This success is attributable to our early decision to place our initial focus on Asia with operators planning to deploy with unpaired (TDD) spectrum.

“A few days ago, we announced that our two new LTE platforms will be available in Q4. Both the LTE platform optimized for smartphones and the one designed for USB dongles and similar devices are based on an ultra-efficient modem design enabling superior performance, very low power consumption and an extremely small footprint. The three new baseband chips and a companion RF chip, plus seamless integration with Fujitsu’s RF solution ensures that we can provide a complete global solution for all LTE frequency bands in both the TDD and FDD markets. Several OEMs and ODMs are preparing to ship products in 2012 using our new chips to serve operators in the U.S., Asia, Europe, Latin America and the Middle East.

“We will continue to focus on leveraging our time-to-market advantage by maintaining our LTE development efforts at the same pace and continuing to actively invest in our business. We remain confident of our strong position as a best-of-breed 4G chip supplier in a very dynamic and exciting market with abundant opportunities ahead.”

Outlook

The following statements are based on management’s current assumptions and expectations. These statements are forward-looking and actual results may differ materially. Sequans undertakes no obligation to update these statements.

In line with prior guidance for second half revenues, Sequans expects revenue for the fourth quarter of 2011 to be in the range of $20 to $23 million, with gross margin around 50%. Based on this revenue range and gross margin, non-IFRS net loss per diluted share/ADS is expected to be between ($0.05) and ($0.01) for the fourth quarter of 2011, with approximately 34.6 million weighted average number of diluted shares/ADSs. Non-IFRS EPS guidance excludes the impact of stock based compensation. There will be no impact on Q4 net loss from the fair value of the option component of the convertible notes, and the balance sheet will reflect the $3.3 million repayment.

Conference Call and Webcast

Sequans plans to conduct a teleconference and live webcast to discuss the financial results for the third quarter of 2011 today, October 24, 2011 at 4:30 p.m. EDT / 22:30 CEST. To participate in the live call, analysts and investors should dial 800-230-1059 (or +1 612-288-0329 if outside the U.S.). A live and archived webcast of the call will be available from the Investors section of the Sequans website at www.sequans.com/investors/. A replay of the conference call will be available until November 24, 2011, by dialing toll free 800-475-6701 in the U.S., or +1 320-365-3844 from outside the U.S., using the following access code: 218014.

Forward Looking Statements

This press release may contain projections or other forward-looking statements regarding future events or our future financial performance. All statements other than present and historical facts and conditions contained in this release, including any statements regarding our future results of operations and financial positions, business strategy, plans 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, including WiMAX and LTE markets, (ii) unexpected increases in our expenses, including manufacturing expenses, (iii) 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, and (ix) other factors detailed in documents we file from time to time with the Securities and Exchange Commission. Forward-looking statements in this release are made pursuant to the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995.

Use of Non-IFRS/non-GAAP Financial Measures

To supplement our unaudited consolidated financial statements prepared in accordance with IFRS, we disclose certain non-IFRS, or non-GAAP, financial measures. These measures exclude non-cash charges. We believe that these measures can be useful to facilitate comparisons among different companies. These non-GAAP measures have limitations in that the non-GAAP measures we use may not be directly comparable to those reported by other companies. We seek to compensate for this limitation by providing a detailed reconciliation of the non-GAAP financial measures to the most directly comparable IFRS measures in the table attached to this press release.

About Sequans Communications

Sequans Communications is a 4G chipmaker, supplying LTE and WiMAX chips to equipment manufacturers for mobile operators worldwide. Founded in 2003 to address the WiMAX market, the company expanded in early 2009 to address the LTE market. Sequans chips are inside 4G networks around the world. Sequans is based in Paris, France with additional offices throughout the world, including United States, United Kingdom, Israel, Hong Kong, Singapore, Taiwan, and China. www.sequans.com
           
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   
Three months ended
(in thousands of US$, except share and per share amounts) Sept 30, June 30, Sept 30,
      2011     2011     2010 (*)
 
Revenue :
Product revenue 25,896 30,006 18,238
Other revenue       334         601         626  
Total revenue       26,230         30,607         18,864  
Cost of revenue
Cost of product revenue 12,129 16,287 9,834
Cost of other revenue       54         44         85  
Total cost of revenue       12,183         16,331         9,919  
Gross profit       14,047         14,276         8,945  
Operating expenses :
Research and development 6,514 6,767 3,741
Sales and marketing 3,252 3,488 2,998
General and administrative 2,430 2,126 834
                   
Total operating expenses       12,196         12,381         7,573  
Operating income       1,851         1,895         1,372  
Financial income (expense):
Interest income (expense), net (26 ) (151 ) (329 )
Foreign exchange gain (loss) (172 ) 103 (251 )
Change in the fair value of convertible notes option component       1,651         (1,651 )       36  
Profit before income taxes       3,304         196         828  
Income tax expense 71 138 -
Profit 3,233 58 828
Attributable to :
Shareholders of the parent 3,233 58 828
Minority interests       -         -         -  
Basic earnings per share     $ 0.09       $ 0.00       $ 0.03  
Diluted earnings per share     $ 0.09       $ 0.00       $ 0.03  
Number of shares used for computing:
— Basic 34,561,065 33,435,416 25,664,036
— Diluted       35,089,236         35,209,641         26,426,760  
 

(*) As adjusted to reflect the classification of foreign exchange gains and losses related to hedges of euro based operating expenses from financial result to operating expenses. The effect on the three months ended September 30, 2010 was to reduce operating expenses by $213.
       
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             
Nine months ended
(in thousands of US$, except share and per share amounts)

Sept 30,

Sept 30,
      2011     2010 (*)
 
Revenue :
Product revenue 80,746 42,792
Other revenue       1,481         2,887  
Total revenue       82,227         45,679  
Cost of revenue
Cost of product revenue 40,716 22,025
Cost of other revenue       183         255  
Total cost of revenue       40,899         22,280  
Gross profit       41,328         23,399  
Operating expenses :
Research and development 19,259 12,515
Sales and marketing 9,869 9,398
General and administrative 6,137 2,529
             
Total operating expenses       35,265         24,442  
Operating income (loss)       6,063         (1,043 )
Financial income (expense):
Interest income (expense), net (363 ) (546 )
Foreign exchange gain (loss) (275 ) 1,482
Change in the fair value of convertible notes option component       -         173  
Profit before income taxes       5,425         66  
Income tax expense 239 -
Profit 5,186 66
Attributable to :
Shareholders of the parent 5,186 66
Minority interests       -         -  
Basic earnings per share     $ 0.16       $ 0.00  
Diluted earnings per share     $ 0.16       $ 0.00  
Number of shares used for computing:
— Basic 31,931,584 24,393,324
— Diluted       32,459,755         25,156,048  
 

(*) As adjusted to reflect the classification of foreign exchange gains and losses related to hedges of euro based operating expenses from financial result to operating expenses. The effect on the nine months ended September 30, 2010 was to reduce operating expenses by $213.
       
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
             
At September 30, At December 31,
(in thousands of US$)     2011     2010
 
ASSETS
Non-current assets
Property, plant and equipment 9,383 5,291
Intangible assets 4,290 3,144
Loan and other receivables 560 1,485
Available for sales assets     705       432  
Total non-current assets     14,938       10,352  
Current assets
Inventories 13,076 8,768
Trade receivables 10,185 14,163
Prepaid expenses and other receivables 2,317 3,333
Recoverable value added tax 1,455 1,361
Research tax credit receivable 1,973 2,001
Cash and cash equivalents     65,476       9,739  
Total current assets     94,482       39,365  
Total assets 109,420 49,717
 
EQUITY AND LIABILITIES
Equity
Issued capital, euro 0.02 nominal value, 34,564,131 shares authorized, issued and outstanding at September 30, 2011 (27,720,013 at December 31, 2010) 909 710
Share premium 129,103 68,972
Other capital reserves 8,043 5,194
Accumulated deficit (49,076 ) (54,262 )
Accumulated other comprehensive income (loss)     (61 )     85  
Total equity     88,918       20,699  
Non-current liabilities
Government grant advances and interest-free loans 121 1,278
Provisions     244       184  
Total non-current liabilities     365       1,462  
Current liabilities
Trade payables 9,807 15,508
Interest-bearing loans and borrowings 3,418 3,564
Government grant advances and interest-free loans 719 1,889
Other current liabilities 5,353 5,270
Deferred revenue 636 893
Provisions     204       432  
Total current liabilities     20,137       27,556  
Total equity and liabilities 109,420 49,717
 
       
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine months ended September 30,
(in thousands of US$)     2011     2010
 
Operating activities
Profit before income taxes 5,425 66
Non-cash adjustment to reconcile income before tax to net cash from (used in) operating activities
Depreciation and impairment of property, plant and equipment 2,854 1,827
Amortization and impairment of intangible assets 1,348 880
Share-based payment expense 2,849 806
Increase (decrease) in provisions 297 (144 )
Change in fair value of convertible notes option component - (173 )
Financial expense 136 295
Foreign exchange loss (gain) (173 ) (1,139 )
Interest free financing benefit 178 (216 )
Working capital adjustments
Decrease (Increase) in trade receivables and other receivables 3,993 (14,077 )
Decrease (Increase) in inventories (4,500 ) (1,361 )
Decrease (Increase) in research tax credit receivable 28 1,184
Increase (Decrease) in trade payables and other liabilities (5,638 ) 6,141
Increase (Decrease) in deferred revenue (257 ) (536 )
Increase (Decrease) in government grant advances (486 ) (2 )
Income tax paid (219 ) -
Net cash flow from (used in) operating activities 5,835 (6,450 )
 
Investing activities
Purchase of intangible assets and property, plant and equipment (9,440 ) (3,765 )
Purchase of financial assets - (1,139 )
Return of factoring deposit and other 652 -
Proceeds from sale of intangible assets and property, plant and equipment - 39
Net cash flow used in investments activities (8,788 ) (4,865 )
 
Financing activities
Proceeds from issue of shares and warrants, net of transaction costs 406 8,510
Proceeds from borrowings - 3,243
Repayment of borrowings (36 ) -
IPO proceeds, net of costs 59,924 -
Interest paid (278 ) (106 )
Proceeds from interest-free loan - 789
Repayment of interest-free loans (1,321 ) (913 )
Net cash flows from financing activities 58,695 11,523
 
Net increase in cash and cash equivalents 55,742 208
Net foreign exchange difference (5 ) (1 )
Cash and cash equivalent at January 1 9,739 7,792
Cash and cash equivalents at year end 65,476 7,999
 
                   
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
                               
Three months ended
(in thousands of US$, except share and per share amounts) September 30, 2011 June 30, Sept 30,
                    2011     2010
      IFRS (as reported)     Adjustments (*)     Non-IFRS     Non-IFRS     Non-IFRS
 
Revenue :
Product revenue 25,896 25,896 30,006 18,238
Other revenue       334               334     601         626  
Total revenue       26,230       -         26,230     30,607         18,864  
Cost of revenue
Cost of product revenue 12,129 66 12,063 16,227 9,831
Cost of other revenue       54               54     44         85  
Total cost of revenue       12,183       66         12,117     16,271         9,916  
Gross profit       14,047       (66 )       14,113     14,336         8,948  
Operating expenses :
Research and development 6,514 328 6,186 6,480 3,653
Sales and marketing 3,252 248 3,004 3,244 2,856
General and administrative 2,430 611 1,819 1,583 808
                           
Total operating expenses       12,196       1,187         11,009     11,307         7,317  
Operating income (loss)       1,851       (1,253 )       3,104     3,029         1,631  
Financial income (expense):
Interest income (expense), net (26 ) (26 ) (151 ) (329 )
Foreign exchange gain (loss) (172 ) (172 ) 103 (251 )
Change in the fair value of convertible notes option component       1,651       1,651         -     -         -  
Profit before income taxes       3,304       398         2,906     2,981         1,051  
Income tax expense 71 71 138 -
Profit 3,233 398 2,835 2,843 1,051
Attributable to :
Shareholders of the parent 3,233 2,835 2,843 1,051
Minority interests       -                       -  
Basic earnings per share     $ 0.09             $ 0.08   $ 0.09       $ 0.04  
Diluted earnings per share     $ 0.09             $ 0.08   $ 0.08       $ 0.04  
Number of shares used for computing:
— Basic 34,561,065 34,561,065 33,435,416 25,664,036
— Diluted       35,089,236               35,089,236     35,209,641         26,426,760  
 

(*) Adjustments related to stock based compensation expenses according to IFRS 2 and to the change in the fair value of option component according to IAS 39
               
SEQUANS COMMUNICATIONS S.A.
 
UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL RESULTS
                         
Nine months ended
(in thousands of US$, except share and per share amounts) September 30, 2011 Sept 30,
                    2010
      IFRS (as reported)     Adjustments (*)     Non-IFRS     Non-IFRS
 
Revenue :
Product revenue 80,746 80,746 42,792
Other revenue       1,481               1,481     2,887  
Total revenue       82,227       -         82,227     45,679  
Cost of revenue
Cost of product revenue 40,716 139 40,577 22,013
Cost of other revenue       183               183     255  
Total cost of revenue       40,899       139         40,760     22,268  
Gross profit       41,328       (139 )       41,467     23,411  
Operating expenses :
Research and development 19,259 750 18,509 12,203
Sales and marketing 9,869 673 9,196 8,988
General and administrative 6,137 1,288 4,849 2,458
                     
Total operating expenses       35,265       2,711         32,554     23,649  
Operating income (loss)       6,063       (2,850 )       8,913     (238 )
Financial income (expense):
Interest income (expense), net (363 ) (363 ) (546 )
Foreign exchange gain (loss) (275 ) (275 ) 1,482
Change in the fair value of convertible notes option component       -               -     -  
Profit (Loss) before income taxes       5,425       (2,850 )       8,275     698  
Income tax expense (benefit) 239 239 -
Profit (Loss) 5,186 (2,850 ) 8,036 698
Attributable to :
Shareholders of the parent 5,186 8,036 698
Minority interests       -                 -  
Basic earnings (loss) per share     $ 0.16             $ 0.25   $ 0.03  
Diluted earnings (loss) per share     $ 0.16             $ 0.25   $ 0.03  
Number of shares used for computing:
— Basic 31,931,584 31,931,584 24,393,324
— Diluted       32,459,755               32,459,755     25,156,048  
 

(*) Adjustments related to stock based compensation expenses according to IFRS 2 and to the change in the fair value of option component according to IAS 39

Copyright Business Wire 2010

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