Sequans Communications - Earnings Call - Q2 2025

Transcript

Operator (participant)

Welcome to the second quarter 2025 Sequans Earnings Conference Call. My name is Lisa, and I'll be your operator for today's conference. After the speaker's presentation, there will be a question-and-answer session. If you would like to ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, please press star one one again. Please note this conference is being recorded. I will now turn the call over to David Hanover, Investor Relations. David, you may begin.

David Hanover (Head of Investor Relations)

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 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, and 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 our future events and are based on assumptions and subject to risk and uncertainties and subject to change at any time. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time.

Given these risks and uncertainties, you should not 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.

Georges Karam (CEO and Chairman)

Thank you, David. Good morning to everyone. We are pleased to hold our first earnings conference call since our decision to adopt Bitcoin as our primary treasury reserve asset. We view Bitcoin as a long-term store of value asset and intend to strategically accumulate it over time. Our approach involves actively acquiring and holding Bitcoin using net proceeds from equity and debt issuances, executed from time to time based on market conditions, as well as cash generated from operations and intellectual property monetization. We are committed to this strategy and believe it will unlock significant long-term value for our shareholders. We look to continue to accumulate Bitcoin for our treasury and do not intend to sell. At the end of last week, Sequans successfully completed the deployment of all net proceeds from the $384 million offering closed on July 7, 2025, to launch our Bitcoin treasury strategy.

As of July 25, the company holds 3,072 Bitcoins acquired using the full net proceeds from the offering at a total cost of approximately $358.5 million. This reflects an average purchase price, including fees, of $116,690 per Bitcoin. According to bitcointreasuries.net, this positions Sequans among the top 25 largest public Bitcoin treasury companies globally. Also, we are uniquely positioned as a European Bitcoin treasury in the U.S., which may attract a broader international shareholder base. With the price of Bitcoin today around $118,000, this represents a Bitcoin NAV of around $363 million. We are focused on delivering best-in-class disclosure and transparency practices for our shareholders. We have added a metrics dashboard to our website specifically dedicated to the Bitcoin treasury strategy. These metrics will continue to be enhanced as we work to integrate additional industry-standard Bitcoin treasury KPIs into our dashboard.

Following our initial deployment, our short-term strategy for the second half of 2025 is to continue the momentum we've built and further expand our Bitcoin reserves. We intend to pursue this through three primary channels. First, deploying a portion of the available cash on our balance sheet. Second, utilizing net proceeds expected from the exercise of common warrants issued in the offering successfully closed on July 7. And third, allocating additional capital anticipated from the public equity market. Collectively, these initiatives are designed to establish a strong foundation for the continued evolution of our treasury strategy. Beyond this year, we are developing a plan to expand this strategy. We expect this to include the issuance of equity, debt, and fixed-income instruments, along with other highly accurate options such as the monetization of our operational business and intellectual property.

Our goal is to continue increasing the Bitcoin per share and to generate Bitcoin yield to our shareholders. To ensure flawless execution, we have partnered with Swan Bitcoin, a premier platform for Bitcoin wealth management and institutional services. Through a strategic Bitcoin treasury management agreement, Swan will support us with its world-class team and deep expertise. This partnership positions us strongly to lead in this era of Bitcoin treasury strategy and to drive long-term value for our shareholders. Now turning to our IoT business, this business continues to improve and move in the right direction. We strongly believe that we are well-positioned to leverage the operating business to help accelerate our Bitcoin treasury strategy. Our second quarter IoT revenue was $8.14 million, in line with our guidance, with a product revenue of $3.85 million, up 10% quarter-to-quarter and 59% year-over-year.

Product revenue growth was mainly driven by Monarch II shipment. We continue to expect product revenue to ramp in the second half of 2025 and in 2026, driven mainly by the move of design-win projects from the development phase to mass production and shipment. Business momentum continues to be focused around our 4G IoT products offering, with the main two modem categories, LTE-M and Cat 1bis, supported by our Monarch and Calliope families, respectively. We are adding new opportunities every week, specifically with Cat 1bis Calliope 2 platform, which is needed to address security and fleet management applications. Our total three-year revenue pipeline now exceeds $485 million, with $250 million already at the design-win stage. All design-win projects are progressing well, and we remain confident that by the end of 2025, approximately half of them will have reached mass production and shipment.

In the second quarter, three additional design-win projects advanced to this stage and are expected to contribute to our future revenue growth. In terms of new design wins, we secured five new IoT projects in the second quarter. I'm pleased to announce that we have secured a major design win with Iris, our new family of RF transceivers product that we have just launched to market, addressing many radio applications outside the usual IoT market, like defense, drones, and V2X automotive. These six design wins represent, in total, close to $30 million of three-year revenue. We'll move them to the design-win stage as soon as the customers have reached the sampling phase of their products integrating our technology. Finally, regarding our 5G IoT roadmap strategy, development of the eRedCap 5G platform is progressing well.

We are on track to deliver best-in-class technology, building on the success of our 4G IoT solutions. Customer interest remains strong, driven by our unique value proposition that enables a seamless transition from 4G to 5G while ensuring long-term application viability. Turning to licensing and services, we have a strong track record of successfully monetizing our intellectual property through strategic licensing agreements. Notable examples include our $60 million 5G Taurus license with a Chinese partner and the $200 million sale of our 4G IP to Qualcomm, which included a backward license. Looking ahead, we believe our eRedCap and RF technologies will further strengthen this trajectory. Additionally, our Chinese Taurus licensing partner is progressing towards production, with royalty revenues expected to begin in 2026.

In summary, we are reaffirming our outlook that, given the current business momentum, our IoT operations are on track to become cash flow positive in the second half of 2026. Our objective is to leverage the value generated by this business to support further investment in our Bitcoin treasury. This will complement the capital already raised for that purpose, with the goal of increasing our Bitcoin holdings and enhancing long-term shareholder value. I will now turn the call over to Deborah to review the second quarter 2025 financial results in greater detail. Deborah.

Deborah Choate (CFO)

Thank you, Georges, and good morning, everyone. I'll cover our second quarter financial results and then speak more about our Bitcoin holdings. Total revenues in Q2 2025 were $8.1 million, up 1.1% compared to the first quarter of 2025. Gross margin remained strong at 64.4%. Comparisons to the first quarter of 2024, or I'm sorry, to the second quarter of 2024, are included in the press release, but I will not comment on them here as they are not very relevant. The company was in a very different position prior to the Qualcomm transaction that took place in the second half of 2024. Operating expenses in Q2 2025 were $14 million vs $12 million in Q1 of 2025, reflecting a number of non-recurring expenses in the second quarter related to some restructuring and various advisory fees related to our strategic transactions.

We continue to target to reduce cash operating expense, meaning expenses excluding depreciation expense, to be around $10 million per quarter by the end of 2025. The loss from operations was $8.7 million compared to a loss from operations of $6.8 million in the prior-quarter, and for the second quarter of 2025, our net loss was $9.1 million, or $0.36 per diluted ADS, compared to a net loss of $7.3 million, or $0.29 per diluted ADS in the first quarter. Our non-IFRS loss in Q2 2025 was $8.1 million compared to a non-IFRS net loss of $6.1 million in Q1 2025. Cash, cash equivalents, and short-term deposits at June 30 were $41.6 million compared to $45.9 million at the end of March, representing a significant reduction in cash burn compared with the first quarter of 2025, in part due to receiving some government R&D funding earlier than expected.

We continue to have strong support from E.U., French, and Swiss governments with various R&D funding programs, and we expect to collect the remaining $10 million from Qualcomm held in Escrow on September 30, 2025. On the Bitcoin treasury strategy front, as announced earlier this month, we completed the sale of $139.4 million American Depositary Shares and pre-funded warrants for total gross proceeds of $195 million and the issuance of $189 million in principal amount of secured convertible debentures due July 7, 2028, at original issue discount of 4%. Common warrants to purchase up to 41.2 million ADSs, exercisable within 90 days of the closing of the offering, were also issued. Total proceeds before payment of deal fees were approximately $368.5 million. The secured convertible debentures are convertible at a conversion price of $2.10 per ADS, and the common warrants have an exercise price of $1.40 per ADS.

We have used all the net proceeds from these deals to purchase 3,072 Bitcoins, as announced earlier this week. Now we are beginning to execute the next phase of the treasury implementation, as mentioned by Georges earlier. Under international accounting standards, our Bitcoin assets on the balance sheet will be remeasured at fair value at each balance sheet date. Any loss from historical cost and any gain to bring the value back to historical cost will be recognized in net income. However, IFRS does not allow us to recognize unrealized gains above historical cost in the income statement, but rather directly in an equity reserve account. While this market may introduce volatility into our reported results, it does not impact our cash. We also launched a Bitcoin dashboard today on our website, sequans.com/bitcoin-treasury, where investors will be able to find our Bitcoin-related statistics in one location.

We encourage investors to check back often, as it will track additional Bitcoins as we announce them and provide a real-time snapshot of our market and Bitcoin metrics, and now I'll turn the call back to Georges before we begin Q&A.

Georges Karam (CEO and Chairman)

Thank you, Deborah. So to conclude this call, we are very excited about the Bitcoin treasury strategy we've just launched. Following the successful deployment of the initial phase, we've established a short-term execution plan, and we are actively preparing for further expansion beyond this year. In summary, we are fully committed to flawless execution, aiming to become a best-in-class Bitcoin treasury and deliver long-term value to our shareholders. With that, let's begin the Q&A session. Operator.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment for the first question, and our first question will be coming from the line of Scott Searle of Roth Capital Markets. Your line is open.

Scott Searle (Managing Director and Senior Research Analyst)

Hey, Georges and Deborah. Good morning. Good afternoon. Thanks for taking the questions.

Georges, just to dive in on the bitcoin treasury initiative, I know it's early going in the days, and you just launched the dashboard, so we'll see more details on that going forward. But I'm wondering if there is a Bitcoin yield number or target that you're looking for? I think in the early going here, I know it's been three weeks in, but it looks like your annualized yield is well over 15%. I'm wondering if you have any early thoughts on that and kind of what the capital structure or target is as you look forward over the next 18 to 24 months? I know it's premature, but I'm wondering if you have some high-level thoughts on that front?

Deborah, just I was wondering if you could detail the non-recurring expenses in the quarter, just the magnitude of it, and then I had a couple of follow-ups on the IoT front.

Georges Karam (CEO and Chairman)

Yeah, thank you, Scott. I mean, obviously, in terms of yield, we have a target. I mean, depending on the tools, I will say for 2025, as I mentioned, we have three steps that we are doing. One, which is really a piece of the available cash on our balance sheet, because we have still strong balance sheet. You know that we have another $10 million coming from Qualcomm at the end of the quarter. We are reserving for the operation some piece, but some of it can be used for Bitcoin, and this will be executed. And obviously, there is the warrants where it depends on the exercise.

I mean, I'm giving a high level of predictability. I believe this will exercise, but we need to wait two months to see them exercising. All this, obviously, will give us a level of yield, and then from there, our ability, I will say, to go back to market and raise some equity as well in the fourth quarter that we put in the plan. Depending on those three, if the three are executed, I believe there is a target, maybe for sure we'll exceed 10% yield from today. I don't know which the reference, because the real problem of the yield to give it is to take the reference, so if I take the reference, which is last week, closing the transaction, from there, I believe we can be above 10%, and if we are lucky, maybe we can be at 15% towards the end of the year.

Now, in terms about structure for next year, I mean, again, we are working, as you can imagine, on this strategy nonstop since three months, and obviously, the first phase was more about executing, and I believe we executed well by closing the deal and deploy. I will say the, and buy Bitcoin and reach the level where we are today in number of Bitcoin that we hold. Immediately, we put in place and concluded what I will say, the next step, just to keep the momentum in the coming four months, and this is in place, and from there, I'm working really on a bigger plan to go beyond even 2026, not only to cover 2026, but even beyond, where essentially using the equity, debt and preferred, whatever, fixed income tools, all smart ideas there.

And I'm on the table, and we are discussing them to work on them and be able to raise capital and continue the momentum buying Bitcoin and increasing the yield. But obviously, also, there is, and this is really what I consider important in Sequans and different Sequans. I mean, there is a valuable piece of business that we have in hand that can be monetized in one way or another. And this can be an easy it can deliver nice yield for the shareholder, mainly considering the value or the NAV that we have today, right? I mean, if you compare the NAV versus the Sequans business today, we still have significant cash to extract from this business. And obviously, we are working on all the plans here to do. So this is really at the high level. Deborah, for the.

Deborah Choate (CFO)

Yeah, on the non-recurring expenses, we had about $600,000 falling in R&D expense that was related to some restructuring costs following the acquisition of ACP and some salary adjustment catch-up that was booked in the quarter, part of the integration process. And then on the G&A line, we had just a number of fees that were related to the ACP acquisition integration, finalization of sort of the tax review related to the Qualcomm transaction and the favorable tax treatment we were filing for, and then a number of things related to preparation for the various Bitcoin strategies. So it's probably another $600,000-$700,000 related to those various fees.

Scott Searle (Managing Director and Senior Research Analyst)

Gotcha. Very helpful. Thank you. And Georges, then maybe on the cash front within the business, it sounds like you'll deploy some of that $40-plus million that is on the balance sheet around the IoT operating business. You also have $10 million coming in from Qualcomm. And it sounds like you continue to still target cash flow break-even in the second half of 2026. Is that all correct in terms of additional cash opportunities? And I guess you can throw on top of that some incremental licensing opportunities.

Georges Karam (CEO and Chairman)

Absolutely. I mean, whether on the front of licensing or the business itself, and obviously, any strategic angle for all this business opportunity that we are exploring will be a cash-generating event for the company that can be used for the Bitcoin. And as I said, the business, as you said, as I'm reiterating, business is going very well. I mean, the convergence of design-win, we have more and more customers turning their product to mass production as predicted this second half of the year, and they are preparing forecasts for next year. So this reinforces our position in the business. And the revenue on the other side, obviously, we're extremely disciplined in our target for cash spending, I would say, per quarter, and we'll keep watching this to reduce it.

The two together put us still on track for our target next year to be break-even, as announced.

Scott Searle (Managing Director and Senior Research Analyst)

Great, and Georges, on the licensing front, I know in the past, I think you've talked about some ongoing potential engagements or discussions. Can you give us an update on that front? It sounds also like your Chinese partnership started transition into a royalty-generating mode in 2026 as well, which can be redeployed with the Bitcoin strategy.

Georges Karam (CEO and Chairman)

Absolutely. I mean, you know, and Sequans, I mean, this also could be a turning point in our strategy where maybe versus the past, we will be more reinforcing the licensing and all those, this angle of the business because this is really, it could be a recurring business, recurring revenue with 100% margin with very little effort behind it, I would say. The Chinese partner, yeah, it's moving well. They are, they got their product in something ready to go for mass production next year. And we believe this will start paying revenue, paying royalty next year. And I was working on, I'm still working on a couple of opportunities that are progressing well. We should have some kind of decisions in the Q4 around them. And that could be also an injection of cash coming from those licenses.

Scott Searle (Managing Director and Senior Research Analyst)

Great. Very helpful. And then lastly, if I could, a couple of questions on the IoT business, and I'll get back in the queue. But just want to clarify, it sounds like you continue to expect product revenue ramp up in the second half of this year and exiting the year, about 50% of those $250 million worth of design wins should be going into production by the end of this year. Is that correct?

Georges Karam (CEO and Chairman)

Absolutely. Yeah. Absolutely. Yeah.

Scott Searle (Managing Director and Senior Research Analyst)

Okay. And lastly, just ACP, it seems like it's been this stealth home run. I'm wondering if you could extrapolate a little bit on that opportunity. Very high gross margin business, a very unique business in terms of you're going after defense, drone, UAV, and I guess some vehicle-to-X markets. Just how big is that opportunity as we think about 2026 and beyond? That'd be helpful. Thank you.

Georges Karam (CEO and Chairman)

I mean, Scott, it's important, like, and this was really a nice piece of the acquisition when we acquired ACP. We acquired them really for the IP of RF to include it into our 5G roadmap, which we did, and it's working very well and accelerate our time to market and save investment for the company, a lot of investment. However, at the same time, we discover a portfolio of product that is very, very advanced, ready. There is no R&D investment. So we're not investing any penny on this. It's just only the product were there. We just only push it into our marketing machine and sales machine to sell it to market. And as I announced, we won already a big deal, really very big deal that should turn to revenue Q1 next year. So there is upside there.

The number, very honestly, if I have to put the targets for next year, we should be able to do on those maybe $6million-$7 million very easily on the backlog, above $5 million in any case. And depending on some timing and on how things will go, maybe we can reach the $10 million and with very high margin, exceeding 70% margin in this business. And it has as well licensing opportunity related to this as well.

Scott Searle (Managing Director and Senior Research Analyst)

Great. All right. Thank you so much. I'll get back in the queue.

Operator (participant)

Thank you, and that does conclude today's Q&A session. I would like to turn the call back over to Georges for closing remarks. Please go ahead.

Georges Karam (CEO and Chairman)

Yeah. So thank you all for listening. And again, continuously stressing that we are fully focused on the Bitcoin, making the transition of the company, a lot of things, a lot of questions. I understand it from many of you and maybe not being patient. But believe me, we're working 24/7, and we are committed to this strategy and will make it completely successful. Stay tuned with us. And I look forward to speaking with you on the next earnings call in a quarter from now, and maybe if we have other opportunity in the meantime. Thank you very much. Operator, we can close the call.

Operator (participant)

Thank you for joining today's conference call. You may.