sequans investor presentation
TRANSCRIPT
Sequans Investor Presentation
May 2020 Dr. Georges Karam, CEO
MKT-FM-015-R05
©2020 Sequans Communications
Safe Harbor
©2020 Sequans Communications 2
This presentation 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 presentation, including any statements regarding our preliminary results for the first quarter of 2020, expected revenue growth, the timing and availability of expected debt financing and tax credits, future results of operations and financial positions, business strategy and plans, expectations for Massive IoT and Broadband and Critical IoT sales, the ability to continue to operate remotely at high levels of productivity, increasing backlog of orders, the impact of the coronavirus on our manufacturing operations, ability to operate remotely, and on customer demand, and our objectives for future operations, are forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). These statements are only predictions and reflect our current beliefs and expectations with respect to future events and are based on assumptions and subject to risk and uncertainties and subject to change at any time. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Actual events or results may differ materially from those contained in the projections or forward-looking statements. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation: (i) the contraction or lack of growth of markets in which we compete and in which our products are sold, (ii) unexpected increases in our expenses, including manufacturing expenses, (iii) our inability to adjust spending quickly enough to offset any unexpected revenue shortfall, (iv) delays or cancellations in spending by our customers, (v) unexpected average selling price reductions, (vi) the significant fluctuation to which our quarterly revenue and operating results are subject due to cyclicality in the wireless communications industry and transitions to new process technologies, (vii) our inability to anticipate the future market demands and future needs of our customers, (viii) our inability to achieve new design wins or for design wins to result in shipments of our products at levels and in the timeframes we currently expect, (ix) our inability to enter into and execute on strategic alliances, (x) our ability to meet performance milestones under strategic license agreements, (xi) the impact of natural disasters on our sourcing operations and supply chain, (xii) our ability to remediate material weaknesses in our internal controls relating to the impact of accounting changes relating to deferred tax assets and deferred tax liabilities related to the application of IFRS to deferred taxes on debt instruments with equity components, (xiii) the impact of the coronavirus on the ability to operate our business and research, production of our products, or demand for our products by customers whose supply chain is impacted or whose operations have been impacted by government shelter-in-place or similar orders, (xiv) the impact of the coronavirus on capital markets and our ability to raise debt and equity financing, and (xv) other factors detailed in documents we file from time to time with the Securities and Exchange Commission. The Q1 2020 financial results described in this presentation should be considered preliminary, and are subject to change to reflect the completion of our valuation of the convertible debt amendments made in March 2020 and posting of related accounting entries. This presentation also contains estimates and other statistical data obtained from independent third parties related to market size and growth. You are cautioned not to give undue weight to such estimates and data.
Sequans Overview
Copyright © 2020 Sequans Communications Proprietary and Confidential 3
Sequans (NYSE: SQNS) is the only company offering a complete range of cellular IoT solutions fully-optimized for non-smartphone applications
We focus on cellular connectivity for the Internet of Things (IoT) :
• Massive IoT
• Broadband & Critical IoT
Enterprise Router
Gateway Indoor / Outdoor CPE
Vertical Applications
Health & Wellness
Smart Homes
Smart Cities
Smart Mobility & Logistics
Investment Highlights
©2020 Sequans Communications 4
Mature, comprehensive 4G LTE product portfolio with a growing
pipeline of opportunities reflecting technology leadership
1
2
3
4
5 Unique cellular connectivity assets and knowhow position Sequans well
in a consolidating industry
Expecting revenue growth in 2020 driven by accelerating Massive IoT
business, augmented by improving Broadband IoT business
Pursuing aggressive 5G product roadmap partially funded by a premier
strategic partner
New go-to-market channels with microcontroller and distribution partners
will have game-changing implications for Sequans over the next several
years
Technology & Product Leadership
Copyright © 2020 Sequans Communications Proprietary and Confidential 5
Mature, comprehensive portfolio for IoT From low-power to high-throughput apps
Exposure to entire value chain: IP/chips/modules Expertise and scarce know-how in all areas
Advanced 5G road map 5G-compatible products sampling now
Cutting-edge technology collaboration SiP is world’s smallest/thinnest LTE solution
Unique next-gen Cat 1 solution For apps requiring higher throughput, voice and audio, plus low power
Optimized solution for new U.S. CBRS market Proven technology for new market opportunity
Rapidly Growing Market – Reaching >$4 Billion by 2024
6 © 2020 Sequans Communications
2019-2024 Unit Shipment = 38% CAGR Total 5G/4G IoT Market (millions of units)
Massive IoT Market
Approximately 50% is captive Chinese market (mainly NB); also includes high-end smartwatches
Growth driven by low-power applications
Average ASP expected to decline as proportion of low-power devices grows
Broadband/Critical IoT Market
Includes long-design cycle applications such as automotive
Growth driven by growing acceptance of single-mode 4G in emerging markets and 5G use cases
Average ASP expected to increase as proportion of high-performance 5G devices grows
Massive IoT Broadband/Critical IoT
130
48
240
650
2019 2024
Source: Ericsson Mobility Report 2019
Technology Leadership Foundation for Key Strategic Partnerships
7 ©2020 Sequans Communications
Strong, in-depth relationships with carriers
High-value strategic relationships
Strong technology collaborations
Strategic investor supporting 5G roadmap
Long-standing, supportive relationship with TSMC
NEW: Signed multi-year non-exclusive agreement with strategic partner: • Fortune Global 500 company • Estimated value exceeds $35M over 3+ years beginning
in Q4 2019, subject to milestone achievements
Carrier Relationships Include Strategic Partnerships in U.S., Japan and Europe
©2020 Sequans Communications Images denote locations of select active evaluations, certification activities, trials or
deployments as of 2Q19. Not an exhaustive listing, subject to change.
Massive IoT Business – Product & End Markets
©2020 Sequans Communications 9
Cat 1
LTE-M/NB-IoT (Cat M1/NB1/NB2)
NB-IoT Optimized
Module Partners
Direct OEM/ODM
Platform Partners
Low Power + Low Cost Go-to-Market* End Markets
Traditional M2M (Replaces 2G/3G)
New and Emerging IoT Applications
Consumer Applications
Security Smart Meters Telematics
Tracker Speaker Watch
Payment
E-Health Asset Trackers Smart Cities Smart Home
* Examples of announced partners and customers
Distribution Partners
Massive IoT Business – Growth Drivers
©2020 Sequans Communications 10
Traditional M2M (Replaces 2G/3G)
New and Emerging IoT Applications
Consumer Applications
ATM Kiosk Fleet Management Tracker
Electricity Meter
Parking Meter Pallet Tracker
Wearable Pet Tracker Battery Charger
Market growth poised to accelerate in 2020 and beyond
New Cat 1 opportunities for wearables and applications requiring voice and audio
Cat M/NB ramp in 2020 after long delay
Multiple design wins close to launch
Strong pipeline of opportunities
Expanding go-to-market through distributors
Massive IoT Revenue End Markets Growth Drivers
Refarming of 2G/3G spectrum and expansion of Cat M1/NB networks in U.S., Japan, then Europe and worldwide
Increasing focus on health and wellness products post COVID-19
Development of new low-power cellular IoT applications
Cat 1 expansion with new markets (Europe) and apps requiring more than Cat M speed, e.g. voice, audio streaming
Agricultural Monitor
Broadband IoT Business – Products & End Markets
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Cat 4 / Cat 6
Cat 18 / 5G NR
Partners
Devices
Speed + Features Worldwide Deployment* End Markets*
Emerging Markets, Tier 2/3 Carriers
Developed Markets, Tier 1 Carriers
Enterprise, Private Networks, CBRS
Millions of CPE, Gateways, and Mobile Routers are Deployed Worldwide
Enterprise Router Gateway Indoor / Outdoor CPE
* Examples of announced partners and carriers
Broadband IoT Business – Growth Drivers
©2020 Sequans Communications 12
Long-lived 4G portable router in U.S. with strong demand being driven by reaction to COVID-19 mandates
4G in emerging markets resuming growth with new customers
Strong position in CBRS with many design wins; engaged with Tier1 carriers
Strategic customer engagement on 5G broadband IoT
5G use cases driving long-term broadband IoT revenue growth potential
Broadband IoT Revenue End Markets* Growth Drivers
Customer diversification in emerging markets
Improving 4G single-mode demand in developed markets due to network coverage improvement and switch-off of 3G
Increasing focus on working, studying and operating remotely post COVID-19
Enterprise, CBRS applications
Cellular fallback for wired home gateways
5G fixed wireless and industrial IoT (IIoT) low latency apps
Emerging Markets, Tier 2/3 Carriers
Developed Markets, Tier 1 Carriers
Enterprise, Private Networks, CBRS
* Examples of announced partners and carriers
Vertical Market Business
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Adaptation of Technology
Adaptation of Cellular Technology to Meet Requirements of Vertical Market Applications
Satellite
Avionics
Public Safety, Military
Primarily high-margin service revenue
Series of projects with existing and new customers
Vertical Revenue End Markets
Revenue Trends – Reacceleration of Annual Growth Expected in 2020
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$6.0
$6.5
$7.0
$7.5
$8.0
$8.5
$9.0
$9.5
$10.0
$10.5
$11.0
$11.5
$12.0
$12.5
Q2:19 Q3:19 Q4:19 Q1:20 Q2:20G
Quarterly Revenues ($MM) Annual Revenues ($MM)
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2015 2016 2017 2018 2019
IoT Vertical Broadband
(1)
(unaudited)
$32.5
$45.6 $48.3
$40.3
$30.9
(2)
(1) 4G broadband decline reflects decision to focus resources on Massive IoT (2) Massive IoT decline reflects delay in Cat M market ramp/temporary Cat 1 inventory issue (3) Q1:20 results are preliminary and unaudited (4) Q2:20 guidance of at least $12 million of revenue
(3) (4)
Key Financial Metrics and Long-term Model (non-IFRS)
©2020 Sequans Communications 15
At End of Period ($millions) 2016 2017 2018 2019
Cash & Equivalents, Short-term Deposits $20.5 $3.3 $12.1 $14.1
Short-term and Long-term Debt Obligations(3) $28.4 $30.7 $48.9 $54.7(3)
% of Revenue 2016 2017 2018 2019 At Scale
Gross Margin 44% 44% 39%(1) 40%(1) 50%(2)
Research & Development 56.7 % 51.3% 68.0% 75.5% 15-20%
SG&A 28.0% 29.6% 45.3% 49.4% 10-15%
Operating Income (Loss) Margin (40.9%) (37.1%) (73.8%) (84.8%) >20%
(1) Reflects higher proportion of modules in product revenue mix (2) Assumes >80% of product revenue from chips (3) Includes $30.7M of convertible debt issued in 2015, 2018, and 2019 (due in 2021), and 2016 (due in 2020) which was
extended to mature in 2021 subsequent to the balance sheet date; $12.2M of venture debt issued in 2018 (payable over 3.5 years); $4.1M of short-term financing of accounts receivable and $7.6M in government advances and loans, and excludes IFRS 16 “lease liabilities”
Summary
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Technology and market leader in 5G/4G for massive, broadband & critical IoT
Most mature, comprehensive product portfolio; valuable IP and scarce know-how
Strong design win momentum; broadband market recovering as IoT is accelerating
Long-standing relationships with carriers and top-tier enterprises
Attractive as a strategic and/or technology partner to capitalize on high-growth market
Increasing demand for Massive and Broadband IoT coupled with decreasing dependence on China
Unique company well-positioned during significant industry consolidation
©2020 Sequans Communications