Prepared remarks
Welcome to the Third Quarter 2025 Sequans Earnings Conference Call. My name is Jonathan, and I will be your operator for today's call. As a reminder, today's program is being recorded. I would now like to turn the program over to David Hanover, Investor Relations. David, you may begin.
Thank you, Jonathan, and thank you to everyone participating in today's call. Joining me on the call from Sequans Communications are Georges Karam, CEO and Chairman; and Deborah Choate, CFO. Before turning the call over to Georges, I would like to remind our participants of the following important information on behalf of Sequans. First, Sequans issued an earnings press release this morning, and you'll find a copy of the release on the company's website at www.sequans.com under the Newsroom section. Second, this conference 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 contained in this release, including any statements regarding our business strategy, cost optimization, strategic plans, the ability to enter into new strategic agreements, expectations for sales, our ability to convert our pipeline to revenue, and our objectives for future operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1999, 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 risks 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. And now I'd like to hand the call over to Georges Karam. Please go ahead, Georges.
Thank you, David. Good morning, everyone. This morning, we announced that Sequans is taking steps to reduce its debt by 50% through strategic changes in our Bitcoin investments. We are fully committed to our Bitcoin treasury strategy, which we believe will provide significant long-term value for our shareholders. This commitment is reflected in the major financing deal we executed in July, which lays the groundwork for our Bitcoin strategy. That financing included both equity and convertible debt components, introducing about 50% leverage into our treasury structure. Initially, we anticipated that share prices would rise following the deal announcement and that the debt would convert due to this increase. While we do not have any immediate pressure since we’re not paying interest on the debt for the first 12 months, we felt it necessary to take action in light of the current conditions in the digital asset treasury market. With many of our peers trading significantly below a net asset value of one, we found our options limited for advancing our treasury strategy. Consequently, we decided to negotiate with our debt holder to reduce our debt exposure and increase our flexibility moving forward. Today, we announced that we are cutting our convertible debt in half through a tactical sale of some of our Bitcoin holdings. This decision has served several purposes: Firstly, it has lowered our debt-to-net asset value ratio closer to 35%, a more suitable level while still allowing decent leverage on the remaining convertible debt, positioning us better for potential preferred share issuance in the future. Secondly, it alleviates some of our debt covenant restrictions, enhancing our ability to utilize all treasury tools, including buying back shares and executing on the ATM based on market conditions. Regarding our ADS buyback program, we find selling Bitcoin on a tactical basis beneficial in this environment to fund the repurchase of our ADS, which are currently trading at a significant discount to the value of our Bitcoin holdings and net cash. It’s important to note that our current valuation does not account for the value-creating opportunities we see in our IoT business, which I will discuss shortly. Additionally, we have freed up some Bitcoin, allowing us to generate yield with minimal risk, which can be used to purchase more Bitcoin. In summary, this move was made to unlock shareholder value and improve our capacity to pursue our treasury strategy. We will continue to take a disciplined and opportunistic approach to Bitcoin accumulation. We are patient but proactive, with ongoing Bitcoin purchases potentially funded through debt, equity, preferred shares, IoT business monetization, and operating cash flow. We have the necessary options in place to implement this strategy. Our ATM provides us with the flexibility to act when our share price is higher, enabling opportunistic Bitcoin acquisitions. We also have an ADS buyback program approved by the Board, and we will act on this as soon as feasible. Having reduced our debt exposure allows us to consider new instruments like preferred shares in the future. I want to emphasize the significant discrepancy in our shares' valuation; our current net equivalent cash position, including Bitcoin’s net asset value minus debt, exceeds $170 million, which translates to about $12 per outstanding ADS. This starkly illustrates the deep discount at which our shares are trading, not accounting for the value from our IoT business. While companies holding Bitcoin may currently face equity valuation challenges, we remain fully committed to our Bitcoin treasury strategy and are seeking all avenues to enhance shareholder value through both our Bitcoin treasury and IoT operations. Our objective continues to be generating long-term value for our shareholders. As for our IoT business, it's showing positive progress. Our pipeline remains robust, representing about $550 million in potential revenue from our 4G and RF product lines over the next three years. In Q3, we secured six new projects, with approximately $300 million of this pipeline associated with design win projects, reflecting a 20% increase from our last report. Some design win projects have entered mass production, generating revenue, while others are in development and expected to yield revenue in 2026 and beyond. Our efforts focus on expanding the design win pipeline and assisting customers in transitioning their products from development to revenue-generating status. In Q3, three design win projects moved to production, and we anticipate adding five more in Q4, which will position us to end 2026 with over 45% of our design win projects in production and generating revenue. This aligns with our target set for early 2025 and represents more than a twofold improvement in this key metric. We expect this positive trend to carry into the first half of 2026, supporting our revenue growth in the latter part of that year. Our design win projects span various sectors, with tracking, fleet management, and smart metering being our strongest verticals, along with solid presences in security and e-health. Specifically in smart metering, we are currently shipping products for three projects with Honeywell and two with Itron, and we expect to onboard two new metering customers by early 2026. In fleet management, Geotab is ramping up, and we aim to start with another customer in early 2026. Our collaboration with AsiaTEL remains strong as they address auto tracking and other applications. Now, I will briefly discuss our Q3 performance and outlook for Q4. Q3 marked the first quarter without any remaining revenue from the Qualcomm deal, impacting our licensing and services revenue component, though it didn't affect cash flow. Q3 product revenue faced minor delays as customer project timelines shifted to Q4. Although this postponed our anticipated growth for Q3, we are confident in a Q4 ramp-up. Additionally, we encountered some late-stage production issues with our OSAT partner, leading to a revenue shortfall of about $1 million due to substrate availability problems spurred by increased industry demand from AI firms. We addressed this by coordinating with suppliers and anticipating orders, but our timing bordered on quarter-end, resulting in delays of a couple of weeks. However, this situation is now resolved for Q4 shipments. Based on our Q4 visibility, we currently project product revenue will exceed $6 million, plus approximately $1 million from services and IP licensing, aiming for total Q4 revenue over $7 million. On the product development side, we've launched our worldwide 4G Cat1 bis SKU module and made excellent progress on our 5G IoT project. I'm pleased to report that our 5G eRedCap test chip has been successfully taped out as planned, marking a critical milestone in our 5G IoT initiative. This program will allow us to sample our third generation of IoT chips supporting 5G eRedCap by late 2026, an advancement with substantial expected value. Overall, our 4G IoT business is poised for growth with projected positive cash flow in 2026, potentially becoming profitable and expanding by 50% year-over-year in 2027. This segment supports our ongoing investments in 5G R&D, which could yield product revenue in 2027 and licensing revenue in 2026. We expect the intellectual property generated from this 5G investment to open opportunities for strategic deals with significant near-term value, similar to our previous successes with 4G. More generally, we are launching new IP initiatives and announcing an IP portfolio available for licensing. Although we've engaged in a few licensing deals before, we're shifting towards a proactive go-to-market strategy to maximize our customer outreach and speed up monetization of our IP portfolio without additional investment. We have several discussions underway regarding potential opportunities, and we hope to finalize a few in the upcoming quarters. We believe that services and IP licensing will contribute high-margin revenue in 2026. Looking long-term, we anticipate robust product revenue based on our current design wins and order backlog of 4G chips and radio transceivers. Considering our $300 million product design win pipeline and the expectation to enter 2026 with 45% of those projects generating revenue, we foresee an average annual revenue of $45 million over the next three years. This estimate excludes the increasing number of projects likely to enter production in 2026, new initiatives we are pursuing, and contributions from IP licensing and services. Regarding operating expenses, our goal for 2026 is to minimize cash burn so that we can achieve breakeven by Q4. To facilitate this, we're implementing a 20% cost reduction across all areas while ensuring we maintain core innovation capabilities. This strategy offers downside protection while preserving flexibility to scale operations if revenue increases materialize. I also want to touch on the IoT-related strategic options we're currently assessing. Since initiating our Bitcoin treasury, we have been carefully evaluating how to best position our IoT business to maximize shareholder value. Our Board is exploring various strategic alternatives, and among the several options we are considering, we are engaged in meaningful discussions regarding a few partnerships for our IoT business. The goal is to expedite the path to breakeven, enhance overall business value, and improve cash flow generation. Now, I will hand the call over to Deborah, who will provide a more detailed review of our preliminary financial results for Q3 2025. Deborah?
Thank you, Georges, and good morning, everyone. I'll cover our third quarter financial results and then speak more about our Bitcoin holdings. Total revenues in Q3 2025 were $4.3 million, a decrease of 47.3% compared to the second quarter of 2025 as the last license revenues from Qualcomm finished in Q2 2025. Gross margin was 40.9% compared to 64.4% in Q2, again, reflecting much lower high-margin license revenue in the mix in Q3. Operating expenses in Q3 2025, excluding the unrealized loss on the marked-to-market of the Bitcoin treasury asset were $14 million, stable compared with Q2 2025. Both quarters included a number of nonrecurring expenses related to various legal and advisory fees related to our strategic transactions. Operating expenses in Q3 included nearly $800,000 in noncash stock compensation expense and $1.6 million in amortization and depreciation expense. As Georges mentioned, we are putting in place cost reduction measures to reduce cash operating expenses, meaning excluding stock compensation and depreciation expense to be below $10 million per quarter in 2026. Operating loss was $20.4 million in Q3 compared to an operating loss of $8.7 million in the second quarter of 2025. The operating loss in the third quarter of 2025 included an $8.2 million unrealized loss on impairment of the value of our Bitcoin asset, which was marked-to-market. For the third quarter of 2025, our net loss was $6.7 million or $0.48 per diluted ADS compared to a net loss of $9.1 million or a loss of $3.59 per diluted ADS in Q2 2025. Net loss in the third quarter of 2025 included a noncash $20.6 million gain on the change in value of the embedded derivative related to the convertible debt issued in July and included net interest expense of $6.9 million that was also primarily noncash and related to the IFRS accounting for the convertible debt issued in July. Our non-IFRS loss in Q3 2025 was $11 million compared to a non-IFRS net loss of $8.1 million in Q2 2025. Cash and cash equivalents at September 30, 2025, totaled $13.4 million compared to $41.6 million at June 30, 2025. The September 30 balance does not include the $10 million final payment from the 2024 Qualcomm transaction that was released from escrow in October 2025, giving us a pro forma ending cash of $23.4 million. At September 30, 2025, the company held 3,234 Bitcoin with a market value of $365.6 million, all of which was pledged as security for the $189 million of convertible debt issued in July. Following the recently announced amendment of the debt agreement, 1,617 Bitcoin are being released from the pledge, and the company has sold 970 Bitcoin in order to reimburse half of the debt. The remaining 647 unpledged Bitcoin remain in our treasury but are that are available for the previously announced ADS repurchase program if needed. I'd also like to refer you to our Bitcoin dashboard on our website at sequans.com/bitcoin-treasury, where investors can find our Bitcoin-related statistics in one location. We now have many tools in place to pursue our Bitcoin treasury strategy and strategic options for our IoT business. We will use these to maximize shareholder value based on our own specific circumstances. And now I'll turn the call back to Georges before we begin Q&A.
Thank you, Deborah. So to conclude this call before the Q&A, I would like to stress the 2 points. On the Bitcoin, we continue to be committed to the Bitcoin treasury strategy we've launched. Given the current digital asset treasury market condition, we decided to adjust our treasury structure and redeem half of the debt in order to be in a better shape to execute on our Bitcoin treasury strategy. With this move, we have now a more appropriate debt-to-NAV ratio while still maintaining decent leverage, also put ourselves in a stronger position to execute on the ADS buyback program as well as other financial instruments. On the IoT business, our design win pipeline is growing well, and we remain on track to have by end of this year more than 45% of the customer projects moving to mass production and generating revenue. In parallel, we are taking all actions needed to control our OpEx and limit cash burn with the target to reach breakeven in Q4 2026. And finally, we are seriously considering a few strategic alternatives to ensure shareholders benefit from the full value potential of our IoT business. With that, let's now begin the Q&A session.
Questions and answers
Our first question comes from Scott Searle from ROTH.
Deborah, maybe just to dive in quickly. In the third quarter, were there any licensing or service revenues a part of the $4.3 million, trying to understand if there was a sequential uptick in the product revenues. Also, I just want to clarify the timing on the OpEx going below $10 million. And Georges, from a high level, kind of looking at where the net asset value of the company is relative to the current stock price. How aggressive will you be on the buyback? If you got another 600 Bitcoin available to pursue that strategy, given the stock is trading at $7 versus net asset value around $12, it would seem like it's a pretty good arbitrage move to do that. So how quickly and how aggressively do you plan to tackle that?
Yes. I mean, Scott, first of all, just to take your last point, as aggressive as needed and as the rationale makes sense. Our Bitcoin value, the Bitcoin got acquired with the share at $14. So technically, if the share is at $7, you will be making a 50% gain by selling a Bitcoin that you purchased at $14 and you recover the price you paid for it at $7, right? I mean, which is your share. So we have all in place. Board resolution is there. We were not able to execute on it in this period because, as you know, we were on the window. I mean, we were restricted and we could not act on this. But I don't know any 1 or 2 days, we will be free and we'll be moving on this. And obviously, depending on where the stock is, it makes full sense for shareholders today to buy back the shares of the company if it's trading low. And for the people staying with the company, they'll get the value of the NAV we have there. So we are completely committed to being aggressive on this if needed.
Scott, on the revenue side, we are about two-thirds product, one-third licensing and services in Q3. And in terms of the OpEx reduction, this is being put in place now. We expect it will be mostly realized in Q1, and we're looking at it fully in place by Q2, but with an overall for the year being below $10 million a quarter. And that includes the new cost of managing the Bitcoin treasury.
Okay. Very helpful. And then, Georges, maybe to follow up in terms of the pipeline building for the IoT business. It's a lot of momentum in one quarter where you're growing about 20% in terms of your design wins. I guess, you'll kind of enter 2026 at almost double-digit revenues, right, somewhere in that $10 million to $11 million, I guess, is the run rate off of that 45% that go into production. I think in the past, you talked about what you might be exiting 2026. Is there a figure that you're thinking about right now because it sounds like that gets you to breakeven, particularly given the OpEx reductions that you have ongoing, so we should see that by the fourth quarter of '26.
Scott, the IoT business consists of many projects, none of which are particularly large. At the start, as we ramp up, progress can be a bit slow and, at times, frustrating. However, once products are being shipped, our customers tend to maintain those shipments for an average of seven years, and sometimes even longer. This gives us strong visibility for the future. I'm pleased that we are approaching our target of 50% as we conclude this year. This trend is likely to continue because, while I don't consider design win projects to be 100% secure, the risks associated with what we currently have are minimal. Based on historical data, over 90% of projects will proceed as expected, barring any issues with small projects or smaller companies. We are primarily working with Tier 1 players who are committed when we initiate a project, even if they take longer than anticipated to reach full production. I expect that by 2026, we will continue to ramp up, and the majority of our current pipeline, which might be around 90% or more, will move into production. Along the way, we will also be introducing new projects. Therefore, by the end of 2026, our pipeline should exceed $300 million. However, the percentage in production will likely be below 90%. This will underpin our growth into 2027, which I forecast to be at least 40% to 50% year-over-year, thanks to these efforts.
Just one point on Q1, we do tend to have a little bit of seasonality in.
In that case, you're correct about the average number. To discuss the digital aspect, I’m referring to the $45 million three-year average. All of this is ramping up. It's important to note that new projects starting today won't generate the full revenue in the first quarter. It typically takes two to three quarters to reach the full revenue potential. Therefore, there will be a ramp-up phase, with each project contributing incrementally.
And a couple of follow-ups, if I could then. Congrats on getting the tape-out on the RedCap front. I know that's a big milestone for the company. I think you've talked about licensing opportunities for RedCap. I wondered if you could elaborate on that in terms of what might be in the pipeline, kind of frame in terms of size and opportunities. And IRIS has been ramping up as well, I think, in terms of the potential opportunities. I'm wondering where that fits into the overall design win pipeline that you've talked about, the magnitude of those opportunities, particularly ramping into 2026.
Yes. I mean, obviously, in IPR licensing, we have some piece of this, which is established even in our revenue next year. We have already in the backlog revenue of royalty that we are collecting from a couple of customers to whom we did licensing with them, and we'll have other words of design win with licensing and now we're collecting a royalty in 2026. We collect even with one a little bit this year as well. But since we launched this IP strategy, we realized we had more than a dozen leads talking with us. It doesn't mean that they need the full RedCap or full eRedCap solution from us. As you know, we have very advanced radio transceiver technology. We have layer 2, layer 3 protocols that no one has it. And obviously, we have a lot of IP in the modem. And as well, we have the full solution. So you could have customers whether looking for a full solution of modem, mainly to adapt to move from cellular to something else, if you want, like satellite or defense applications, or other radio environments. And some others, they want just only a piece of the technology that we have. So we're talking about licensing deals that could be, I would say, $3 million to $5 million license. I'm not talking about royalty like upfront. Up to these, they could be equal to $15 million, $20 million, and all those are under discussion, and we have a really nice number in discussions. And for sure next year, we'll have something converging and helping to feed our IP licensing revenue next year.
Got you. And lastly, if I could, George, just to follow up on the strategic comments. Can you frame that a little bit more? Are you talking about more partnerships? Or are you talking about potential outright sale of the IoT business at the current time?
I appreciate your question, Scott. I want to be cautious in my response. The company has a valuable IoT business, and I believe that to be a significant asset. We also hold valuable Bitcoin, and our goal is to advance in both areas—enhancing our Bitcoin holdings while also expanding our revenue and intellectual property potential in IoT. Currently, both aspects are manageable and not in conflict. However, looking ahead, one could argue that separating the two might provide greater value for shareholders. We are exploring strategic partnerships in this regard, and while I can't share specific details now, discussions are ongoing. Once we move closer to finalizing any agreements, we will make an announcement to the market.
And our next question comes from the line of Mike Grondahl from Northland.
Georges, talk a little bit about your confidence in $7 million of revenue in Q4 and this $45 million kind of annual run rate you're striving to?
Yes, Mike, for Q4, while I can't say I'm completely certain, I can share a number that we believe is backed by our backlog and exceptional circumstances, which gives us a lot of confidence. Regarding annual revenue, I want to clarify my calculation: I took 45% of $300 million in production, divided by 3, which results in an average of $45 million over three years. This doesn’t imply that revenue will be consistent each year; rather, it will start lower and increase over three years due to product ramp-up. I feel comfortable with this figure, even considering the longer program duration. When I assess our current design wins, like with Honeywell and smaller, steady customers such as Withings and Coyote, we have historical data on their ramp-up and strong confidence in their future forecasts. While we may reduce projections by about 10% for risk, we're still very confident. For instance, when a Tier 1 customer begins shipping and anticipates producing around 0.5 million units annually, we account for the ramp-up, estimating 200 units in the first year, 350 in the second, and up to 500 in the third. There are risks involved, particularly relating to the customer's previous shipping performance and forecasts. In summary, more than half of our projected revenue is already in production, and I have great confidence in those numbers, while the remaining portion is ramping up now, which presents some measurable risks. This is why we're sharing this information.
Got it. And the cost reduction efforts, have you started those? Or do those start later this year?
We have initiated several initiatives, including cost reduction. For instance, we renegotiated some parts of our operational expenses and made necessary reductions where applicable. While we've made some progress, not all measures have been implemented yet, but plans are in place for Q4 and Q1. Importantly, these steps will not hinder our innovation or our investment in 5G research and development. Our 4G product line is nearing maturity as we've completed ongoing development. This has also led to a reduction in our efforts. Overall, we're focused on managing general and administrative expenses effectively.
Got it. And then have you disclosed what price you got per Bitcoin for the 970 you sold?
We didn't. It will be showing up on our website, but I can give it to you, it will be $108,600. Unfortunately, we didn't have the best period to sell, started selling at $115,000 ended by selling at $106,000.
Our next question comes from the line of Fedor Shabalin from B. Riley Securities.
Georges and Deborah, I completely understand the rationale behind the Bitcoin sale. You mentioned that this transaction enables our company to pursue a wider set of strategic initiatives to develop and grow the treasury. So could you provide more details on what additional initiatives you're considering beyond the ATM program and share buybacks? And any color on your strategic priorities here would be helpful.
Thank you for the question, Fedor. I want to emphasize a key point. The company’s debt structure wasn’t risky, especially since the collateral—our Bitcoin—was fixed. We didn't need to adjust the Bitcoin price because it was all tied up in collateral. This limited our options, as we couldn’t buy or generate yield from those Bitcoins, nor could we aggressively pursue buybacks. We decided to be proactive, recognizing that it makes sense to adjust our debt ratio, allowing us to explore other debt structures. If our debt is around 30%, it becomes easier to have a 10% preferred structure alongside it. By freeing up some of our Bitcoin, we could start generating yield, which could help finance Bitcoin purchases or support our operational expenses and treasury management. The buyback strategy doesn’t require us to sacrifice operations, and if share prices remain low, we believe selling Bitcoin to buy shares would benefit our shareholders. Regarding other topics, while some firms in the market are consolidating, I don’t see an urgent need for that. Currently, I don't have a clear understanding of the treasury strategy issues affecting our peers, as it doesn’t make sense for valuations to be below our NAV. We’re focused on enhancing our position to unlock value, and we’ll monitor developments over the next six months.
That is helpful. And you already partially answered my follow-up question on debt-to-NAV ratio. But I just want to understand what will be different in the treasury approach going forward? I heard you plan to issue preferred, but if you can just throw some timeline on this would be helpful.
Yes. I mean, Fedor, obviously, I mean, the first priority now is really the buyback program. This is what I have on my table, if you want to execute on this and see how things will develop there. And obviously, the second one will be the preferred and the yield on the Bitcoin. These are the three options. No timeline. Honestly, the option is there, but I don't want to give more timelines when we'll do something like this because it depends on negotiation and so on.
This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Georges Karam for any further remarks.
Thank you, Jonathan, for helping us with this. Thank you, everybody, staying on the call and for all your questions and looking forward to seeing you in the next opportunity. Thank you very much.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.