管理層發言
Good day, ladies and gentlemen, and welcome to the First Quarter 2026 Sequans Earnings Conference Call. My name is Howard, and I will be your operator for today's call. Operator instructions were provided to participants. Please note that this conference is being recorded. I will now turn the conference over to Mr. David Hanover, Investor Relations. David, you may begin.
Thank you, operator, 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 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 plans, strategic options, 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 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 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, and good morning, everyone. I'd like to begin with a brief update on our capital allocation strategy, including how we are approaching the management of our digital asset holdings alongside the continued execution of our IoT semiconductor business. Our priority remains clear. We are focused first and foremost on executing our IoT strategy, scaling our product business and advancing our 5G road map in a disciplined way to create long-term shareholder value. In parallel, we have continued to manage our Bitcoin holdings with a pragmatic and opportunistic approach. In light of current market conditions, we made the decision earlier this year to eliminate all debt-related risk by negotiating an early redemption agreement with our debt holders. This allows us to fully redeem the $94.5 million of convertible debt by June 1, 2026, funded through the sale of Bitcoin that had been held as collateral. As of today, we have already redeemed approximately 62% of this debt, and the remaining balance will be redeemed in the coming weeks. By June 1, we expect to have a near debt-free balance sheet with at least 600 Bitcoin held as unencumbered asset. Looking ahead, we do not intend to further pursue our treasury strategy. Instead, our objective will be to monetize these holdings over time in a disciplined manner, balancing market conditions with our broader capital needs. Importantly, we remain focused on maintaining a strong cash position to support operations, invest in our 5G IoT road map and provide stability as we scale the business. Turning now to the operational side of the business. Our IoT semiconductor business continues to demonstrate solid underlying momentum. For the first quarter, we generated $6.1 million revenue. This performance is broadly in line with our expectations and reflects continued strength in product revenue despite supply challenges, partially offset by variability in the timing of services revenue. Looking ahead, we continue to benefit from a strong backlog, which provides good near-term visibility. Our order backlog continues to build with approximately $22 million in revenue, primarily product-related, already secured for the year, along with early indications of orders extending into the first quarter of next year. This provides us with increasing confidence in the trajectory of the business as we move through 2026 and confirms the healthy nature of our design-win pipeline and related KPIs we track. Our full year outlook continues to be supported by an increasing number of design-win projects transitioning to production. We entered the year with more than $300 million in potential 3-year product revenue from design-win projects. Of these, 44% had already reached the production phase and are generating revenue. During the first quarter, 3 additional design-win projects transitioned into production, and we expect additional projects to follow in the second quarter. As a result, we continue to anticipate that more than half of our current design-win pipeline will be in production by the end of June, representing approximately $150 million in potential 3-year revenue. We are also seeing strong momentum with the new customer engagements. In the first quarter, we engaged more than a dozen new customer projects with 6 already confirmed as design wins. These programs are expected to contribute to growth, beginning in 2027 and beyond. Our product pipeline remains primarily driven by our 4G, Cat-M and Cat-1bis technologies. It also includes our RF transceiver product, which supports a wide range of software-defined radio applications, including defense and drone use cases. In addition, we have initiated early engagements around 5G eRedCap, which will be the future successor to 4G and cellular IoT deployments. Smart metering, telematics and asset tracking continue to represent our strongest verticals, followed by security, e-health and medical and other industrial applications. Turning now to product ramps and key drivers. Cat-M continues to be a meaningful growth driver in 2026, led primarily by asset tracking and smart metering deployments. This business is scaling in line with expectation, supported by strong visibility and steady ordering patterns as many Cat-M design-win projects are now in production with key customers' deployment underway. Cat-1bis is positioned for a breakout year, supported by multiple customer ramps across telematics, security and some metering use cases. We are already seeing revenue contribution from several design wins with additional projects expected to enter production in the second half of the year. We're also seeing incremental opportunities driven by current market dynamics, which are creating openings for Sequans to gain share. In our RF transceiver business, we continue to see stable demand from existing customers, supported by committed backlog, and we expect additional contribution in the second half of the year. At the same time, we are engaging with a number of new prospective customers, particularly in defense and drone applications, and we expect to begin securing some of these opportunities in the near term. We are also advancing discussions around licensing and collaboration opportunities, which could further expand the reach of our RF portfolio. More broadly, our product pipeline continues to mature with several design-win programs progressing towards production. We are also seeing new generation product opportunities with existing customers, which provide incremental upside with our installed base. At the same time, we are actively preparing for the next major transition in IoT connectivity, which is the migration from 4G to 5G. Market demand for our 5G eRedCap solution continues to strengthen, particularly as mobile network operators look to refarm 4G spectrum and accelerate broader 5G deployment. Importantly, IoT applications represent the final phase of this 4G to 5G transition. And these applications require long device life cycle, often 10 years or more, making a seamless and future-proof migration path essential. Unlike the 4G era, where the market became fragmented across multiple cellular technology categories, we expect the 5G IoT landscape to be more streamlined, centered around eRedCap as the primary standard. This creates a more efficient and scalable ecosystem for both customers and suppliers. Sequans is well positioned in this transition. We already have an established customer base across our 4G portfolio, and we expect to leverage these relationships as we introduce our 5G solutions. In many cases, customers will be able to transition using solutions designed to be compatible with existing deployments, enabling a smoother upgrade path. We continue to make strong progress on our 5G eRedCap program. During the quarter, we received our first engineering test chips, which are now in-house and under evaluation. This represents an important milestone as we advance toward customer sampling, which we continue to target for the second half of 2027. Looking ahead, we believe 5G IoT will represent a significant long-term growth opportunity, both in terms of market size and value per device, supporting improved pricing dynamics relative to 4G. Now turning to services and licensing. Our services and licensing business continues to represent an important source of high-margin revenue, although timing of revenue recognition can vary from quarter-to-quarter. On this front, we have several ongoing discussions that could contribute to revenue over the course of 2026. These include engagements with large global partners, licensing and collaboration opportunities, leveraging our RF and 5G IP portfolio as well as a range of smaller service agreements. These opportunities provide potential upside to our product-driven revenue base while also expanding our reach into new markets and applications. We remain focused on converting these discussions into revenue while managing expectation around time. On the supply chain side, we continue to operate in a dynamic cost and supply environment. We are seeing significant increases in memory pricing, which are impacting the cost of both our chips and modules. We are actively working to address these cost pressures while ensuring we can meet customer demand. At the same time, we have taken proactive steps to secure supply, including multi-sourcing across key components such as memory and packaging. Based on our current plan, we believe supply for our 2027 baseline demand is secure, although we continue to monitor potential upside scenarios. Overall, while cost pressures and supply challenges are real, they are manageable and consistent with the broader industry trends. As we move through 2026, we remain focused on disciplined cost management and reducing cash burn. Our objective continues to be reaching a breakeven run rate by the end of the year as revenue scales. We implemented the cost reduction plan at the end of last year. And while the full benefits will not be realized until midyear, we are confident in achieving our expense targets in the second half. Working capital dynamics will continue to evolve alongside growth, particularly as we support production ramps and manage supply chain requirements. These dynamics may create short-term variability, but they are aligned with long-term revenue growth. Overall, our performance underscores the progress we are making in strengthening our core IoT business, improving financial discipline and maintaining flexibility in our capital strategy. Regarding our outlook for the second quarter, we currently expect revenue to be in the range of $6.8 million to $7.4 million, driven predominantly by product revenue, with potential upside if new licensing deals are closed. Based on our backlog and continued momentum across our design-win pipeline, we expect revenue to build sequentially throughout the remainder of the year. We also remain focused on reducing cash burn and continue to believe we can approach cash flow breakeven by the end of the year as the business scales. Looking ahead, we continue to evaluate strategic alternatives that could accelerate profitability and unlock additional value for shareholders. What's clear to us is that we are operating from a position of strength. We have a solid balance sheet, a growing and increasingly productive IoT business and a differentiated 5G and RF IP portfolio that we believe will be a key driver of long-term value. As we discussed earlier, the transition from 4G to 5G in IoT represents a fundamental shift in the market. With eRedCap expected to become the primary standard, we believe this will create a larger, more unified and more scalable market than what we saw in the 4G cycle. Sequans is uniquely positioned to benefit from this evolution. We expect to leverage our existing 4G customer base as a natural entry point into 5G, enabling a more efficient transition for our customers while accelerating our own time to market. Combined with the expected premium pricing and expanded market opportunity, we believe this positions us to drive meaningful long-term growth and improved profitability. In parallel, we will complete the redemption of our debt by June 1 and continue to manage our capital allocation with discipline, maintaining a strong cash position while preserving flexibility to act opportunistically as conditions evolve. Overall, we remain focused on scaling our IoT business, advancing our 5G road map, developing our new RF transceiver business and executing against the key drivers that we believe will unlock the full value of Sequans over time. With that, I will now turn the call over to Deborah to review our financial results in greater detail. Deborah?
Thank you, Georges. Hello, everyone. I'll begin by reviewing our first quarter financial results and then provide an update on our balance sheet and digital asset holdings. During the first quarter, our financial results continued to reflect the underlying momentum in the IoT business, along with the impact of actions taken earlier this year to strengthen our balance sheet and simplify our capital structure. For Q1 2026, total revenue was $6.1 million compared to $6.9 million in the fourth quarter. As Georges mentioned, revenue in the quarter was primarily driven by product sales with ongoing variability in licensing and service revenue timing. Gross margin for the quarter was 37.7% compared to 41.4% in the fourth quarter and reflects the ongoing impact of supply chain dynamics and especially revenue and product mix. Operating expenses in the quarter, including R&D and SG&A expenses, were $11.8 million compared to $12.3 million in the fourth quarter. We continue to make progress on our cost reduction plan and remain on track to achieve lower operating expense levels in the second half of the year. During the quarter, we recorded $29.3 million of noncash charges related to the mark-to-market valuation of our Bitcoin holdings compared to a loss of $56.3 million in the fourth quarter. As a reminder, these charges are driven by market price movements and do not reflect underlying operating performance. We also recorded $11.7 million of realized losses on the sale of Bitcoin during the quarter compared to $6.1 million of losses in the fourth quarter, primarily associated with the ongoing redemption of our convertible debt. As discussed previously, the convertible debt and associated embedded derivatives continue to be remeasured each reporting period, resulting in noncash impacts to the P&L. In addition, IFRS accounting requires us to recognize noncash interest expense associated with the 0% coupon instrument. Reflecting these factors, we reported an IFRS net loss of $54.3 million for the quarter compared to an IFRS net loss of $76.4 million in the fourth quarter. On a non-IFRS basis, excluding significant noncash items, we reported a net loss of $20.7 million or $1.42 per ADS compared with a non-IFRS net loss of $16.2 million or $1.04 per ADS in Q4. The comparative numbers for Q4 and Q1 2025 have been adjusted from the unaudited figures published in February 2026 and May 2025. In finalizing the 2025 audit, we made adjustments related to the timing and amount of revenue recognized, the accounting for the compound financial instruments issued in July 2025 and related embedded derivatives, finalization of the ACP purchase accounting and other adjustments attributable to normal year-end closing procedures, audit adjustments and the completion of management review. We are currently still finalizing with our auditors the documentation and disclosure of the impairment test for ACP, goodwill and other acquired intangibles on the balance sheet. The ongoing discussions regarding determination of the cash-generating units to be evaluated and the most appropriate valuation models resulted in delays in issuance of the audit report, and therefore, we filed a statement indicating we would need to extend our filing deadline. We expect to file our Form 20-F this week. Turning to cash flow. Normalized cash burn for the quarter was just under $10 million compared to approximately $7.7 million in the fourth quarter, including working capital movements. As Georges mentioned, working capital can fluctuate as we support production ramp and secure supply. During the quarter, we continued to execute on our balance sheet strategy. As of March 31, 2026, we had redeemed $28.3 million of the $94.5 million face value debt that was outstanding on December 31, 2025. As of April 30, we had redeemed approximately 62% of this convertible debt, funded through the sale of 800 Bitcoin, leaving a balance of approximately $35.9 million due, which we expect to redeem in full by June 1, 2026. At the end of Q1, we held cash and cash equivalents of approximately $10.6 million compared to $13.4 million at the end of 2025. As of the end of Q1, we held 1,514 Bitcoin compared to 2,139 Bitcoin at year-end 2025. And as of April 30, we held 1,114 Bitcoin and expect that we will hold at least 600 Bitcoin after full redemption of the debt, all of which will be fully available for sale. Following completion of the debt redemption, we expect to have a near debt-free balance sheet with a simplified capital structure and increased financial flexibility. Overall, our financial results for the quarter reflect continued progress in scaling the IoT business, improving cost discipline and strengthening the balance sheet. Before turning the call back to Georges to conclude, I'd like to cover a few housekeeping matters. We expect to conclude the final audit procedures with our auditors this week and be in a position to file our annual report on Form 20-F. Since we filed an extension notification last week, as long as we file by May 15, we will still be considered a timely filer. We are currently preparing for our Annual Shareholders Meeting on June 30, 2026. You should expect to see voting materials by early June. Most of the resolutions will be our normal recurring resolutions that you see each year. One of these resolutions is to ask for authorization for a capital increase. This year, we will ask for authorization to issue up to 7.5 million ADS, including up to $15 million in the form of convertible debt. We would like to clarify that we are asking for this authorization only to provide flexibility in the event that we have a strategic opportunity that would require issuance of convertible debt or equity. We currently have no plans to do any equity raise to finance operations. In fact, the shelf registration statement and ATM program that we filed in August 2025 were filed when we had the market cap to be an accelerated filer and were automatically effective. Upon the filing of the 2025 annual report on Form 20-F, we will no longer satisfy the requirements for using an automatic shelf, and therefore, we can no longer issue equity under that August shelf registration or the ATM program. With that, I'll turn the call back to Georges.
As we close, I want to reiterate that our primary focus remains on executing and scaling our IoT business and expanding to software-defined markets such as drones and defense. We are seeing solid momentum across the portfolio, supported by a growing backlog, a maturing design-win pipeline, an increasing number of projects transitioning into production and several advanced licensing and services deals. With continued strength across Cat-M, Cat-1bis and RF transceivers, and with early engagement around 5G eRedCap, we believe the business is well positioned to drive sequential growth while maintaining a clear path towards cash flow breakeven. At the same time, we have taken decisive steps to simplify and strengthen our balance sheet. By eliminating our convertible debt and transitioning away from the treasury strategy, we are increasing financial flexibility and sharpening our focus on the core business. Going forward, our priority is to monetize our remaining Bitcoin holding in a disciplined way while ensuring we maintain the liquidity needed to support operations and invest in our 5G road map. Overall, we believe we are entering an important phase for the company with a stronger financial foundation, improving operational visibility and a clear path to long-term value creation. Thank you for listening. We can move now, operator, to the questions, if you don't mind.
分析師問答
Operator instructions were provided to explain the question-and-answer process. Our first question or comment comes from the line of Luke Horton from Northland.
This is Luke on for Mike Grondahl. Just wanted to touch kind of on the 5G road map and pipeline you have there. And I guess, specifically with eRedCap, how large do you expect this opportunity to be relative to the existing Cat-M, Cat-1 business?
Yes. Luke, I mean, just not to be confused, you said RedCap, I'm talking about eRedCap. eRedCap is really the standard that's going to replace literally Cat-M and Cat-1bis. When you look to 4G IoT, we had like four technologies used in 4G: NB-IoT, mainly in China, but you have some in Europe and even in Australia and other places; Cat-M, mainly U.S., Japan and half of Europe, I would say; Cat-1bis and Cat-1, which is the fourth one. And as you see, this is really because cellular for IoT was entering the market and for the good and the bad, they ended up having almost competing technologies, not 100% competing, covering some application, but there is also a piece of it competing. And this fragmented the market. Obviously, now the carriers, starting in the U.S., and obviously, this will be followed by other regions of the world, the carriers, they would like to finish their deployment of 5G. In other words, they need to refarm the 4G spectrum to use it on 5G and one day switch off 4G. To do this, you can do it today for all applications on the phone, but you cannot do it for IoT because all the IoT runs on 4G. That's why there is a push to come with 5G IoT, and this is the eRedCap. So eRedCap, by definition, will come and replace all those Cat-M, NB, Cat-1 and Cat-1bis. You will have supporting low speed and medium speed. The same technology is able to do this. And because it supports 5G, it will have a little bit higher ASP. And because it supports the low speed and the higher speed, it will really benefit from the continuation of the IoT business in cellular and it will expand over time, increasing in price and increasing the size. So definitely, the opportunity will be, let's say, at least the sum of the four opportunities of Cat-1, Cat-1bis, Cat-M and NB-IoT today, plus some premium, let's say, 10% to 15% related to ASP increase because of the 5G.
Okay. Got it. I appreciate the color there. And then I guess on the kind of $300 million pipeline that you called out with about 50% of that expected in the next 3 years. And then also just kind of given the sequential growth acceleration, kind of quarterly cadence throughout this year, where does that confidence come from? And could you provide any other color around those?
Yes. Sure. Luke, the $300 million is what we had, as of January this year, as design wins in hand, and we said around 44% of them were in production, which means generating revenue. We expect to be, by June, 50% of them in production, which will be $150 million. In other words, if you take $150 million on average over 3 years, this is $50 million yearly revenue on average. Obviously, there will be a ramp depending on the project—year 1, year 2, year 3. And the confidence continues to build. When you look at our backlog, at the beginning of the year in Q1, we have backlog securing close to $22 million for the year in product revenue. And we have even portioned, like $2 million, $3 million already in hand for Q1 next year. This backlog is coming from existing design wins in production. This means our analysis on the design-win pipeline is reflected in the ramp of our customers. That's why we have strong confidence on this. Now obviously, we need to continue the conversions from design win to full mass production. That will happen in the second half of the year, I would say, in June and beyond for the second half. And to some extent, if you look at the Cat-M business, Cat-M today is really, versus our target, almost secured. I won't say 100%, but maybe 90% of our plan is already in hand. Why? Because a big portion of Cat-M is design win in production. Cat-1bis we have design wins, not all of them in production, and this is the piece where we're still working to ensure the ramp will continue in the second half of the year in terms of product revenue.
Okay. Great. And then just lastly for me on the digital asset strategy after the June 1 redemption, how do you think about Bitcoin holdings on the balance sheet and kind of capital allocation strategy, specifically in different crypto market situations, like if there were to be another bull run in crypto versus digital asset pricing pulling back again?
Yes. I mean, Luke, we went into digital assets thinking seriously that we could develop this business and potentially trade above NAV and then maybe separate the two businesses, the core IoT from digital assets because they cannot live together forever. My plan was if the digital asset strategy worked in addition to IoT, knowing IoT would be working, we'd at some time separate them. Unfortunately, for many reasons, the digital asset approach didn't work in the sense that we were not able to benefit from the leverage of the debt and get our NAV higher, allowing us to keep scaling. Any digital asset strategy needs to have the ability to scale the number of Bitcoin. Because we realized the pressure on Bitcoin put us almost at risk, and many were nervous at the beginning of the year if this could hurt the IoT business, we decided to remove the risk by redeeming the debt. By doing so, we will have a clean balance sheet, no debt, and some Bitcoin after June 1. From there, the question becomes, are we going to buy Bitcoin? I don't believe so today. We will have a holding—more than 600 Bitcoin. Are we going to sell them on June 2? I don't believe we'll do this on June 2, but we will take our time to monetize those Bitcoin over the coming couple of quarters, knowing that the purchase price of these Bitcoin is higher and the trend we are seeing today is moving in the right direction. So we would like to benefit from that if possible. But in any case, we will not sacrifice IoT. We will secure enough cash on the balance sheet to make sure the company can operate independent of Bitcoin volatility.
Our next question or comment comes from the line of Scott Searle from ROTH Capital Partners.
Maybe just to dive in, Georges, on the RF business, it sounds like there's a lot of momentum building. Could you calibrate us in terms of where that is from a current revenue standpoint, what the backlog and opportunity looks like as you think about '26 and '27? And then as it relates to the eRedCap licensing opportunity, it sounds like there are a number of opportunities in the pipeline. I wonder if you could provide a little bit more color in terms of the magnitude and timeline that you could see some of these deals materializing and how you're thinking about different vertical markets on that licensing front?
Yes. Scott, thanks for the questions. Indeed, one of the nice surprises this year was our acquisition of ACP. By acquiring ACP the original goal was to get RF IP and accelerate our 5G eRedCap road map, and that has executed. As I said, we have already a chip in-house, and the RF and analog components are working well as we speak. But as a bonus, we have an RF product that can be sold standalone to existing customers. When we dug in, we realized that this product is very attractive for the drone and defense markets where you have very high ASPs, very high margins and the market is growing. We secured existing customers and today, around those customers, we could be doing close to maybe $4 million to $5 million this year. That includes royalties we collect with our Chinese RedCap partners as well. Outside of the regular IoT business, we have around $5 million almost secured for the year and potentially a couple more depending on whether backlog confirms versus forecast. Since we announced the Iris family product, we have had a dozen leads worldwide from many countries. We have a few of them advanced to consider them as likely design wins, though I won't qualify them yet. The potential of the RF business could be in the order of $100 million-plus per year for the market, and this is very high margin—very attractive. We believe we can capture a meaningful share and the required incremental investment is modest because the R&D is done; we primarily need marketing and support. On licensing in general, licensing remains important for us, specifically if we want to achieve cash flow breakeven. Even if product revenue is growing nicely—Q1 was 90%-plus product and my guidance for Q2 is similar—we still have several deals under discussion, more than five advanced discussions covering RF, eRedCap modem portions as well as protocol for satellite communication. We hope to close at least one deal this quarter and maybe one or two in the second half. Those deals vary; some are smaller, a few hundred thousand dollars tied to product revenue, while pure service or licensing deals can range from a couple million up to $15 million. These opportunities are binary, but several are quite advanced, so we're optimistic we can secure something this year to add to product growth in the second half.
And then, George, looking to the second half of this year, you're talking about getting cash flow breakeven. That obviously implies that the product revenue ramps considerably in the second half of this year. Could you expand a little bit on your confidence level on that front? Certainly, that $300 million pipeline is helping, but it sounds like new wins are starting to ramp as well. And could you give us an idea about where you expect product to ramp to by the end of this year? The backlog supports some of that current visibility. But just help us out a little bit with some end markets and the competitive landscape as well. Cat-1bis is very, very hot right now. Kind of where you guys stand from a win rate on that front? Deborah, if you could remind us—I know there are cost reduction efforts—what should we be thinking about in terms of where OpEx is in the second half and therefore the breakeven?
The confidence is coming from the maturity of the design wins—those design wins already in production. Everything in production today, where we have a sizable number of projects mainly in metering and tracking, is coming and scaling. Last year we shipped some volume; this year the plan is already secured. The confidence level for everything already in production is very high—more than 90% in terms of shipping. We have backlog and customer forecasts, so we expect no big surprises in the second half. The risk is mainly timing with certain Cat-1bis projects, not losing the customer but timing of moving to production. Cat-1bis design wins came later than Cat-M and not all are in full production. Some are, and they are contributing. We expect more to enter production in the second half. If there are shifts, they are likely minor one- to two-month delays. For RF, we are in good shape; we have a significant portion secured and expect the remainder to happen in the second half based on forecast, not yet firm orders. All this gives us strong confidence. The company now has many customers, many projects, repeating orders and established customers from whom we shipped in the past two years and are now growing. That's why we're very positive on the ramp of product revenue in the coming quarters. On the competitive landscape, there's not a major change. Even with new product announcements from some players, you need to understand that Cat-1bis in the U.S. is effectively closed for new module certification. New Cat-1bis activity will address Europe and other regions, not North America. In North America the market is left between Qualcomm and us. The key transition from 4G to 5G means markets and customers will push to get eRedCap support. Who has 5G technology will matter, and our investments in 5G position us well to lead in eRedCap.
Yes. And on operating expenses, we expect those to keep coming down. We're targeting to have cash operating expenses below $10 million, targeting $9 million by the end of the year.
Our next question or comment comes from the line of Jacob Stephan from Lake Street Capital Markets.
Maybe first, I want to touch on the balance sheet post-June 1. Obviously, $10.6 million in cash. Just help walk us through that a little bit. I know you're going to have roughly 600 Bitcoin, but the collateralized number of 817 that you guys cited in the press release, when you kind of subtract the current holdings from that number, you get about 300. So can you walk us through that?
Yes. Jacob, it's a bit tricky because we have some Bitcoin already free—around 300 Bitcoin that are free and not part of the collateral. The 800 referenced relates to the portion used as collateral. Under the agreement with our debt holders, we kept all the Bitcoin in collateral until we redeem the debt. Once we redeem the debt, we get what's left. So when we complete redemption, we'll have more than 600 Bitcoin. If Bitcoin price holds or increases, the number could be higher. In simple terms, on June 1 we'll pay off the debt, have more than 600 Bitcoin, and be an almost debt-free company, perhaps with only a small remaining government or short-term R&D funding liabilities.
The only remaining debt after that will be related to government R&D funding, which is zero or low interest, essentially short-term debt.
Got it. So the actual collateral, the $62 million or so, is really just security for the $36 million of debt. But once you pay the $36 million of principal off, that's the remaining. I got you. Second, I want to touch on the supply chain. I know you mentioned memory costs increasing, but what's your confidence level you can procure any additional supply should any upside opportunities present themselves?
Yes, Jacob. For our baseline demand for 2027 we're comfortable we are secure. For upside, depending on size, we may be short. There is capacity we can access, but it may come at higher cost, impacting margins. We have the ability to increase supply but it may reduce margin if we must source at spot higher pricing. Memory supply is an industry-wide problem driven by AI demand. Prices are rising significantly—some parts even 2x or 3x. We have strong supplier relationships and are multi-sourcing where possible. We have a second source for a key memory which is already shipping to some customers and over time this helps secure supply and apply pricing pressure. So we are not missing capacity today for baseline; we can cover some upside but potentially at higher cost.
Our next question or comment comes from the line of Fedor Shabalin from B. Riley.
Georges, once the convertible debt is fully redeemed, how should we think about the preferred use of the proceeds from the sale of remaining Bitcoin? How would you rate funding operational expenses versus maybe share buybacks?
Fedor, good question. We still have the share buyback authorization and we executed some buybacks in Q1. We don't need all this money on the balance sheet for operations given our planned reduced burn, and that puts us in a strong position. Opportunistic buybacks are on the table depending on business evolution in the second half and potential licensing deals. If we secure a significant licensing deal with upfront payments, we could have more cash and, if the stock is underperforming, the Board could support opportunistic buybacks. So buybacks remain an option but will be considered opportunistically depending on cash generation, business performance and market conditions.
That's helpful. My follow-up is about the OpEx. You mentioned you're targeting roughly $9 million by the end of 2026. Where do most of the savings come from on the OpEx side?
Fedor, the company is in a more efficient mode now. Last year had many one-time items tied to deals and acquisitions and the digital asset strategy. We cleaned many of those items in Q4 and some benefits show up in Q1 and more will be effective by Q2. On R&D, our 4G product is maturing, so spending there is mainly support. We shifted R&D investment to 5G in alignment with time to market. We are balancing speed to market versus spending—no need to be a year ahead. This creates a controllable variable to manage spend. Additionally, we have reduced headcount and are not replacing some leavers, and we are cutting contractor usage as projects finish. G&A costs, rent and general overhead have been reduced across the board.
Yes. There's not one particular item; it's across the board. We've had planned headcount reductions where people have left and we're not replacing them. We work with contractors and can scale that down as projects complete. We've also reviewed and reduced G&A expenses, rents and other overhead. These actions contribute to the targeted reduction in cash operating expenses toward $9 million by year-end.
I'm showing no additional questions or comments in the queue at this time. I'd like to turn the conference back over to Mr. Georges Karam for any closing remarks.
So thank you all for joining the call and for all your questions. Looking forward to see you in the near future. Bye-bye.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.