管理層發言
Welcome to the Second Quarter 2026 Sequans Earnings Conference Call. My name is Jonathan, and I will be your operator for today's call. Operator provided instructions on how participants may ask questions. Please note that this conference is being recorded. I would now like to turn the call over to 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, Chief Executive Officer and Chairman; and Norman Brodt, Chief Financial Officer. 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 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 and 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 uncertainty 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. Before discussing our core business, I'd like to begin with an update on our capital structure as we have now substantially concluded our Bitcoin treasury strategy. As we announced on May 28, we completed the full redemption of our remaining convertible debt, funded through the sale of a portion of our Bitcoin holdings. Since then, we have continued to systematically reduce our Bitcoin position in a disciplined and opportunistic manner. The Bitcoin market has been volatile over the past several months, and throughout that period we have remained patient, strategic and deliberate in managing our digital assets. During June, despite a challenging price environment, we made the decision to sell a portion of our holdings to further strengthen our cash position. As a result, we ended the second quarter with approximately $21 million in cash and 314 Bitcoin remaining on our balance sheet.
At current market prices, those remaining Bitcoin represent approximately $20 million of additional value. With our IoT business continuing to perform well and our balance sheet in a strong position, we have the flexibility to monetize these remaining holdings opportunistically and when it's in the best interest of the company to do so. Our priority going forward is squarely on executing our IoT semiconductor strategy, scaling our product business, expanding our presence in the defense and drone markets and advancing our 5G eRedCap roadmap to create long-term shareholder value. As we enter the second half of 2026, we do so with a strong, near debt-free balance sheet and the required financial flexibility to support our operations and invest in future growth. Now turning to our IoT semiconductor business. We continued to build momentum in the second quarter. Revenue for the quarter was approximately $7.5 million, exceeding the guidance we provided last quarter and representing a 23% increase from the first quarter.
The vast majority of that revenue came from product sales, which increased by more than 80% year-over-year, demonstrating the continued acceleration of our core business. We also saw strong order momentum across our customer base with several key accounts scaling meaningfully into the second half of the year and beyond. To date, we have more than 40 design win projects that have reached mass production, several of which we expect will each generate more than $4 million in annualized revenue beginning in 2027. These programs are contributing to a strong and growing backlog that now extends into 2027, providing us with increasing visibility and confidence in our product growth trajectory for both this year and next. More importantly, this reflects the continued conversion of our design win pipeline into projects in production with committed orders to come. Our design win pipeline, measured by potential three-year product revenue, also continues to expand beyond the more than $300 million reported at the end of 2025.
We'll provide an updated figure at year-end. But today, 55% of that figure is in mass production and generating revenue, representing approximately $165 million of design wins in production at quarter's end, a more than 3x increase year-over-year. We expect that percentage to continue increasing as additional customer programs move into production. Across our product portfolio, we continue to see encouraging momentum across each of our key technology families. CAT M remains a core growth driver for the business, led by asset tracking and smart metering applications. Multiple design win projects are now in production and continue to perform ahead of plan, supporting the strong product revenue growth we delivered during the quarter. CAT 1bis is also gaining traction with customer ramps across telematics, security and industrial applications expected to continue building through the second half of the year.
We remain encouraged by the level of customer engagement and the new IoT opportunities we see as existing design win projects move towards production. During the second quarter, we secured 10 new project wins, leveraging our CAT M and CAT 1bis technologies, while transitioning a similar number of projects into mass production. Design activity across our pipeline remains healthy, and we expect to add additional wins throughout the remainder of the year. Our RF transceiver business is also gaining momentum. We continue to see strong demand from existing customers, while interest from new prospects in the defense and drone markets continues to grow. During the quarter, we began shipping our SQN9506 development kit platform to several prospective customers evaluating our RF technology for these applications. I'm also pleased to report that we secured our first drone program with product shipments expected to begin early next year.
While still at an early stage, we believe this represents an important milestone as we continue to expand into this new market. Development of our 5G eRedCap solution also remains on track. Our test chip is now in-house, and we continue to target customer sampling during the second half of 2027. As the IoT market transitions from 4G to 5G, we continue to believe eRedCap will become a key industry standard and an important pillar of our long-term strategy. Beyond the product opportunity itself, we believe our investment in eRedCap further strengthens our technology leadership, enhances the value of our intellectual property portfolio and creates additional opportunities for future licensing and services revenue. Although product revenue from our eRedCap platform is expected to begin in 2028, we believe meaningful services and licensing revenue can be generated well in advance of commercial product launches.
That brings me to our broader licensing and services business. Our licensing and services business continues to represent an important source of high-margin revenue, although the timing of individual engagements can vary from quarter-to-quarter. While it represented a modest contribution to revenue in the second quarter, we expect a meaningful increase in the second half of the year as one or more of the significant license opportunities currently under discussion converts into signed agreements. Today, we have several active licensing and strategic engagements under discussion with global customers and partners across a range of end markets and geographies. The potential revenue contribution from these opportunities ranges from several hundred thousand dollars to well over $10 million, underscoring the significance of this part of our business. Beyond their potential financial contribution, these engagements continue to expand our strategic reach into new markets and applications while providing meaningful upside to revenue and supporting our path towards breakeven.
Because many of these discussions involve confidential commercial relationships and sensitive end markets, we are not in a position to provide customer-specific details at this time. However, we remain encouraged by the level of activity across our licensing pipeline and we'll provide updates as we reach definitive agreements. As our product business continues to scale, maintaining a reliable supply chain remains equally important. We continue to operate in a challenging supply environment. While memory remains the primary constraint, we are increasingly seeing pressure across the broader semiconductor supply chain, including silicon and packaging. Based on what we are seeing today, we expect these supply constraints to persist beyond 2026. To address these challenges, we have continued to strengthen our supply chain strategy. Apart from wafer fabrication at TSMC, we are implementing multiple sourcing options across key components and manufacturing materials.
This reduces our dependence on individual suppliers, improves supply security and better positions us to support our expected growth in the years ahead. We also remain focused on managing cost pressures. Where appropriate, we continue to pass through higher component costs to our customers while working closely with our suppliers to adapt to changing market conditions. This remains particularly important with memory chips, where pricing continues to be volatile and can change significantly even from month to month. Based on our current planning assumptions, we believe supply is secured for our baseline demand through the remainder of 2026. Our focus is now shifting towards securing the capacity we will need to support continued growth in 2027. Our financial priority remains focused on disciplined cost management and reducing cash burn with the continued objective of moving towards a breakeven operating run rate as revenue continues to scale.
We made some progress this quarter and expect to make more in the second half of the year. Overall, the second quarter reflected continued progress across the business. We strengthened our balance sheet, continued to grow our semiconductor business, advanced our product roadmap and further simplified our capital structure, positioning Sequans for continued growth. Regarding our outlook for the third quarter, we currently expect revenue to be in the range of $8.5 million to $10 million, reflecting continued momentum in our core product business with the upper end of the range further supported by the potential contribution from closing one of the significant licensing opportunities currently under discussion. Based on our growing backlog, continued production ramps and the strength of our design win pipeline, we continue to expect the business to build through the second half of the year.
While the timing of licensing revenue can vary from quarter-to-quarter, we remain encouraged by the level of activity across our sales pipeline and continue to believe we are well positioned to deliver sequential growth as we execute our strategy. Looking ahead, we believe the fundamental building blocks of the business continue to strengthen. We have a simplified, near debt-free balance sheet with meaningful liquidity and the financial flexibility to support our long-term strategy. Our IoT semiconductor business continues to demonstrate strong underlying momentum, supported by a growing backlog and a design win pipeline that continues to grow and convert into production revenue. Finally, our differentiated portfolio of 5G and RF technologies remains one of Sequans' most important long-term strategic assets, creating opportunities across both products and licensing revenue. Our priorities remain clear.
We continue scaling our IoT semiconductor business, advancing our 5G eRedCap roadmap, expanding our licensing opportunities and executing against the initiatives we believe will unlock the full long-term value of Sequans. Before handing the call over to Norman, I'd like to take a moment to recognize an important leadership transition that took place at the end of June. After 19 years with Sequans, Deborah Choate retired as our Chief Financial Officer. Deborah has been part of Sequans through many of the company's most important milestones. She played a significant role in strengthening our financial foundation and supporting the strategic initiatives that have positioned the company for where it is today. On behalf of our Board of Directors and everyone at Sequans, I would like to sincerely thank Deborah for her many contributions over the years and wish her all the best in her retirement.
I'm also pleased to welcome Norman Brodt as our new Chief Financial Officer. Norman joined Sequans as Vice President of Finance in January 2025 and has been deeply involved in our financial planning, capital allocation strategy, and operational initiatives over the past 1.5 years. Many of the decisions and initiatives we have discussed on today's call have benefited from his leadership and involvement, making this a natural transition for the company. I'm confident that Norman's experience, financial discipline and knowledge of our business will serve Sequans well as we continue executing our strategy. With that, I will now turn the call over to Norman to review our second quarter financial results in greater detail. Norman?
Thank you, Georges, and good morning, everyone. Before reviewing our financial results, I'd like to say a few words. I assumed the role of Chief Financial Officer at the beginning of July following Deborah's retirement after 19 years with Sequans. I want to thank Deborah for the strong foundation she built and for ensuring a smooth transition. I'm pleased to have the opportunity to speak with you today for the first time as CFO. Now let me turn to our second quarter financial results. Total revenue for the second quarter was $7.5 million, an increase of 23.2% compared to the first quarter of 2026. Compared to the second quarter of 2025, revenue declined 8.4%, primarily because the prior year quarter included a significant contribution from license and services revenue associated with the 2024 Qualcomm transaction. Excluding this impact, our revenue grew 84.2% year-over-year. Revenue in the quarter was primarily product related with product sales up 39% sequentially and almost doubling year-over-year, reflecting the continued growth of our IoT business.
That reflects sustained conversion of our design win pipeline into production revenue and with more than 40 projects now in mass production and the backlog extending far into 2027, we have strong visibility into continued growth. Gross margin was 32.9% compared to 37.7% in the first quarter and 64.4% in the second quarter of 2025. The sequential and year-over-year decline primarily reflects the higher mix of product revenue relative to license and services revenue, which naturally carries a different margin profile. As a reminder, the second quarter of last year includes meaningful license and services revenue associated with the Qualcomm transaction, making the year-over-year comparison less meaningful. Operating expenses, consisting of research and development, selling, general and administrative expenses were approximately $11.9 million compared with $11.8 million in the first quarter.
We continue to execute on our cost reduction initiatives and remain on track to achieve lower operating expense levels in the second half of the year. During the quarter, we recorded a noncash impairment on our Bitcoin holdings of $3 million, now down significantly from $29.3 million in the first quarter, along with a realized net gain of $5.3 million on Bitcoin sales compared to a realized net loss of $11.7 million in the prior quarter. Operating loss was $7.2 million compared to losses of $50.5 million in the first quarter of 2026 and $8.5 million in the second quarter of 2025. Net loss for the quarter was $9.6 million or $0.65 per diluted ADS compared to net losses of $76.2 million or $5.23 per diluted ADS in the first quarter and $9 million or $3.53 per diluted ADS in the second quarter of 2025. Please note that we adjusted Q1 2026 financial income and expenses to reflect the revaluation of the convertible debt upon the amendment in February to permit the full redemption of the debt, which resulted in an increase of the financial expenses of $21.9 million.
During the past quarter, debt-related net interest expense was $2.4 million, down from $4.9 million in the first quarter, reflecting the wind down of our convertible debt. On a non-IFRS basis, excluding noncash impairments, stock-based compensation and noncash items associated with the convertible debt and its embedded derivative, non-IFRS net loss was $4 million or $0.27 per diluted ADS. This compares to a non-IFRS net loss of $20.6 million or $1.41 per diluted ADS in the first quarter and a non-IFRS net loss of $8 million or $3.14 per diluted ADS in the second quarter of 2025. Turning to the balance sheet. Cash and cash equivalents at June 30 totaled $21 million, up from $10.6 million at March 31. For the first six months of the year, cash used in operating activities was $23 million. Investing activities provided $127.7 million, driven primarily by the proceeds from Bitcoin sales, while financing activities used $97 million, reflecting the full repayment of the convertible debt associated with our Bitcoin treasury strategy.
As of June 30, we held 314 Bitcoin valued at approximately $18.4 million, all of which is unrestricted and available for sale. This compares to 1,514 Bitcoin at March 31 valued at $103.2 million at the end of March, of which 1,217 Bitcoin was pledged as collateral for the convertible debt. With the redemption of our convertible debt completed and the repayment of our COVID-related loan during the quarter, Sequans now has a clean unencumbered balance sheet. Together with our $21 million cash position and 314 unrestricted Bitcoin, we believe the company is well positioned to support its operating and strategic priorities going forward. Before I hand the call back to Georges, I want to briefly echo his comments on our licensing pipeline. We have several discussions that are well advanced, and we believe a number of these have the potential to contribute meaningfully to revenue in the second half of the year. As Georges noted, the timing of licensing revenue recognition can be difficult to predict, and that variability is reflected in our Q3 guidance range. With that, I'll turn the call back to Georges.
Thank you, Norman. So as we close, our priorities remain clear. We are focused on executing and scaling our IoT semiconductor business while expanding our presence in software-defined radio applications, including drones and defense. We continue to see encouraging momentum across the business, supported by a growing backlog, a growing design win pipeline, an increasing number of design win projects transitioning into production and a maturing pipeline of licensing and services opportunities. Together with continued strength across our CAT M, CAT 1bis and RF product families and the progress we are making with 5G eRedCap, we believe Sequans is well positioned to deliver continued growth while moving steadily towards cash flow breakeven. At the same time, we have taken important steps to strengthen our financial foundation. With the redemption of our convertible debt and the successful transition away from our Bitcoin treasury strategy, we have significantly improved our financial flexibility and sharpened our focus on our core semiconductor business.
Going forward, we'll continue to manage our remaining Bitcoin holdings in a disciplined and opportunistic manner while maintaining the liquidity needed to support operations, invest in innovation and execute our long-term growth strategy. Overall, we believe Sequans is entering an important new chapter. We have a stronger balance sheet, improving visibility into future product revenue, a differentiated technology portfolio and multiple avenues for growth. We remain focused on disciplined execution and believe we are well positioned to create long-term value for our shareholders. Thank you for listening, and we can now open the call for questions.
分析師問答
And our first question for today comes from the line of Scott Searle from ROTH.
Georges, congrats on the product momentum kind of going in the right direction. And Norm, congrats on the new role. Maybe to start, Georges, in terms of 55% of the design win pipeline now ramping into production and it continues to grow beyond that $300 million mark implies $13 million, $14 million plus at full production. I think you've been targeting the first half of next year is when you'll be getting to operating breakeven. Is that still the plan? And given how things are rolling into production, are you on track for that mark?
Yes, Scott. When you compare to last year, we have about a 3x improvement in projects in production. They are solid, and we have visibility, as we mentioned many times, even towards the first half of next year 2027 from all those projects in production. This is becoming much more predictable as projects move and order, so we can predict more easily. We expect sequential growth and that product growth to continue. To support breakeven it takes two other elements: first, continuing to control our cost structure, which we are committed to and will continue doing in the second half; and second, services revenue, which can impact margins. With those points, our target is to be next year in a position very close to breakeven, if not breakeven on a yearly basis overall.
And if I could follow up then, Georges, on the licensing front, it sounds like there are more opportunities or irons in the fire at this point in time. I think previously, we've been talking about two or three. It sounds like it may have expanded beyond that. Wide range of opportunities. Is that the correct interpretation? And I think you've hinted at it in the past as well, given where the balance sheet is today that some of these licensing opportunities, given how they tend to be front-end cash loaded, that would finance operations until the anticipated breakeven. Is that still the expectation?
Yes, absolutely. The opportunities we have in hand are maturing and are closer as predicted; we estimated at the beginning of the year that this would happen in the second half, so we are on track. What's important is signing the deals. Revenue recognition timing can result in taking revenue in one quarter or another depending on rules. We have a handful of projects very advanced in discussion, and hopefully we can conclude one or more in the second half to meet our target. This is really the main point for the year to be on our plan set at the beginning of the year. In addition, as we talk about breakeven, there is also government grant cash, which is roughly $4 million on a yearly basis; however, this amount is not smoothed each quarter and we have a chunk of $3 million plus that should happen in the second half when the cash completes.
And lastly, if I could, just on the RF front, very exciting opportunity now that's starting to ramp up. I'm wondering if you could frame the size of the opportunity, maybe in terms of revenue expectations in '26 and '27. And a quick one for you, Norm. Just in terms of the OpEx running over $11 million this quarter. I'm wondering if you could remind us where the target is. I think it was below $10 million, but just are you comfortable to get to that bogey in the second half of this year?
On RF, we have a very solid RF portfolio, and the acquisition of ACP last year boosted our position. We already had this technology at the company, but the acquisition put us in a stronger position. We have a couple of customers with whom we do a couple of million dollars, roughly $3 million on a predictable basis each year. We took this product further to address a larger software-defined market focused on drones and defense. Today, the pipeline has more than 20 opportunities that we are dealing with. I won't give exact numbers, but we have many interested parties and the feedback has been very positive. We already signed one deal and will start shipping at the beginning of next year. I believe that customer's product is quite advanced. We have many others in evaluation process to whom we are shipping development kits and the technology they need to conclude their designs and move forward. I expect in the second half of the year to secure more of these designs. The potential is significant: this business can scale to $10 million to $20 million per year with margins closer to 90% plus on certain revenue, so it is high margin and strategically important. Where we will be next year, I hope to approach more than $5 million from RF and scale to $10 million and more in following years.
Scott, on OpEx, as you have seen we've made progress. Last year at the same time we were about $13 million, and we are down to $11.9 million this quarter. There is progress on reduction. We are still targeting around $10 million per quarter on a recurrent level, and we have plans and are working toward that target.
And our next question comes from the line of Owen Rickert from Northland Capital Markets.
Just quickly on the Bitcoin holdings. What's the intended end state for that? Is full liquidation the goal? And how are you thinking about timing given the current market conditions?
Thanks for the question. We are out of the Bitcoin treasury strategy. The intention of the company is not to build a strategy around this asset. It's an asset in hand and the most logical way is to turn it to cash as soon as possible. At the same time, we don't need the cash immediately, and we have potential licensing deals that could provide additional cash and government grant receipts coming in, so we do not feel the immediate pressure to liquidate at current prices. We will however remain opportunistic and disciplined, and at some time we intend to clean this from the balance sheet and not have dependence on Bitcoin. Timing is not definitive; we will look for the best opportunities in the interest of the company.
Got it. Super helpful. And then secondly for me, can you just give us a quick sense of how much of the organic growth was volume-driven versus pricing-driven? And how sustainable that growth rate is into the second half of the year?
Good question. There is some pricing impact because of cost, but our price increases in Q2 were not large because it's complicated to implement price changes rapidly with customers amid memory supply issues. So any price increase implemented was below 5% so far. The majority of growth is coming from new projects moving into production. In IoT, customers take time to move from design win to shipping due to certification and readiness, but once products are in production they are sticky and last many years. We have many projects in that situation. The 55% in production equates to about $165 million three-year potential revenue, which averages roughly $55 million per year in product revenue. That will continue to grow as more projects convert in the second half. The growth trend should continue next year at least at a similar level.
And our next question comes from the line of Fedor Shabalin from B. Riley.
Norman, congratulations on the appointment. My question is kind of a follow-up to previous ones. Georges, you cited many design win projects now in mass production, and I have a question about this 55% of the $300 million three-year product pipeline. What would be the expected cadence for the remaining 45% to convert? And does that pipeline figure get revised upward with the new drone defense win? Or was that already embedded in this guidance?
At the beginning of the year we were at about 44% of the $300 million figure, and in six months we moved to 55% — about a 10-point increase. That doesn't mean the future will follow the past exactly; conversion timing depends on the customer and the project. Some customers move fast, some are slower. CAT M customers tend to move quickly; CAT 1bis still has more room to convert. My own target is to add another 10 points toward the end of the year, but we're pushing to convert more than that.
And my follow-up is about the remaining Bitcoin holdings. I know you want to monetize them opportunistically, but can you confirm a year-end target for this? Also, what are the immediate financing needs for your core semiconductor business? Is monetizing Bitcoin holdings urgent or not?
There is no immediate urgency to liquidate by year-end. We'll be opportunistic. One important point is that some suppliers do not treat Bitcoin the same as cash, so converting to cash improves supplier confidence and the company's negotiating position. Many shareholders also prefer not to have exposure to the volatility. We will not keep Bitcoin on the balance sheet forever; at an appropriate time and price we will convert to cash. We attempted to sell more earlier, but some Bitcoin had been pledged as collateral and was not available, so we missed a favorable window. The company's strategy is to convert to cash as soon as reasonably possible while being patient for a better price.
And our next question comes from the line of Jacob Stephan from Lake Street Capital Markets.
I'd like to extend the congratulations to Norman as well. Maybe just first on the margin front, could you give a little more color on product mix versus the memory input cost pressure and what impact they had on margins? And looking forward, how can we expect the gross margin line to trend?
A few points. Licensing revenue, when present, is very high margin and can boost consolidated gross margins above 50% when included. Focusing only on product, our target is to achieve chip-level gross margins above 50% and module-level gross margins above 30%, which are industry norms. Depending on mix, product-only gross margins can vary around 35% to 40% in normal conditions. Today our gross margin also includes a few points related to fixed costs; at current lower revenue levels those fixed costs represent a larger percentage. As product revenue scales to $15 million to $20 million, those fixed-cost headwinds will lessen and margins should improve. Supply cost increases can create quarter-to-quarter variability; sometimes suppliers are impacted immediately while it takes time to pass through cost to customers. Over time, as planning stabilizes, we expect margins to normalize and improve with scale.
Okay. Got it. Very helpful. And then maybe just touching on guidance, $8.5 million to $10 million, you said the high end is more gated on potential licensing agreements. Could you help us think through when a licensing agreement would need to be signed to count for that guidance?
Our licensing opportunities range widely. Many are a few hundred thousand dollars to a couple million dollars and are easier and faster to sign. We also have larger opportunities of $10 million and up, which require more time and strategic discussion. For Q3 guidance, we believe something could happen this quarter. If a deal is signed at the end of September, depending on revenue recognition rules, it may be difficult to recognize significant revenue in that same quarter. Smaller deals can add quicker revenue, and larger deals may have limited Q3 recognition if signed late. The guidance high end assumes some services or licensing revenue in addition to product; without licensing, reaching $10 million this quarter would be difficult, but product revenue growth does provide meaningful upside relative to the low end.
This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Georges for any further remarks.
Many thanks, operator, and thanks to all of you. Looking forward to meeting you in person on another 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.