Sequans Communications (NYSE: SQNS) reported Q4 EPS of ($0.10), $0.02 worse than the analyst estimate of ($0.08). Revenue for the quarter came in at $6.1 million versus the consensus estimate of $10.39 million.

• Revenue: Revenue was $6.1 million, a decrease of 41.0% compared to the third quarter of 2018, and a decrease of 46.3% compared to the fourth quarter of 2017, reflecting the need to work down channel inventory resulting from a weaker-than-expected broadband business and customer project delays. Revenue from IoT grew 70% in 2018, including CAT 1 chipset revenues which nearly tripled compared to 2017. The growth in IoT was not sufficient to offset the decline in the broadband business, and full-year revenue decreased 16.6% to $40.3 million in 2018 from $48.3 million in 2017.
• Gross margin: Gross margin was 46.9% compared to 35.0% in the third quarter of 2018 and compared to 41.7% in the fourth quarter of 2017, primarily due to a shift in product mix toward a higher proportion of chipset sales versus modules. Full-year gross margin decreased from 43.8% in 2017 to 40.0% in 2018.
• Operating loss: Operating loss was $8.9 million compared to an operating loss of $7.9 million in the third quarter of 2018 and an operating loss of $5.6 million in the fourth quarter of 2017. Full year operating loss for 2018 was $31.0 million compared to an operating loss of $19.5 million for 2017.
• Net loss: Preliminary net loss was $10.2 million, or ($0.11) per diluted share/ADS, compared to a net loss of $9.9 million, or ($0.10) per diluted share/ADS, in the third quarter of 2018 and a net loss of $7.6 million, or ($0.10) per diluted share/ADS, in the fourth quarter of 2017. Preliminary full year net loss for 2018 was $36.9 million, or ($0.39) per diluted share/ADS, compared to a net loss of $26.2 million, or ($0.34) per diluted share/ADS, for 2017.
• Non-IFRS Net loss: Excluding the non-cash items of stock-based compensation, the non-cash impact of convertible debt amendments and effective interest adjustments related to the convertible debt and other financings, non-IFRS net loss was $9.4 million, or ($0.10) per diluted share/ADS, compared to a non-IFRS net loss of $8.0 million, or ($0.08) per diluted share/ADS in the third quarter of 2018, and a non-IFRS net loss of $5.9 million, or ($0.07) per diluted share/ADS, in the fourth quarter of 2017. Full year non-IFRS net loss for 2018 was $31.8 million, or ($0.34) per diluted share/ADS, compared to a full year non-IFRS net loss of $21.4 million, or ($0.28) per diluted share/ADS in 2017.
• Cash: Cash, cash equivalents and short-term deposits at December 31, 2018 totaled $12.1 million compared to $5.2 million at September 30, 2018, reflecting the issuance in the fourth quarter of $4.5 million of additional convertible debt due in April 2021 and a €12 million ($13.6 million) financing facility, partially offset by the early extinguishment of $1 million principal convertible notes due in April 2020.
• Strategic investment: On February 18, a new strategic investor (“Investor”) agreed to invest approximately $8.4 million in support of accelerating Sequans’ existing 5G product roadmap. Upon the closing of this transaction, the Company will issue to the Investor a total of 9,392,986 warrants. The warrants are exercisable upon 61 days’ notice to Sequans at an exercise price of €0.02 per share/ADS into 9,392,986 of our ordinary shares/ADS. The warrants expire 15 years from the issuance date. The Company has agreed to grant the new strategic investor customary registration rights upon exercise of the warrants. The net proceeds from the transaction, which will be reflected in Sequans’ first quarter financial statements, will strengthen Sequans’ balance sheet and will be used to fund development of Sequans’ first 5G chipset.

“We are proud that this company has chosen Sequans in which to invest for 5G technology development,” said Georges Karam, Sequans CEO. “The investment will support the availability of solutions for important 5G use cases and accelerate the development of the market, and allow us to forge an important strategic relationship.”

“IoT revenue showed good growth in 2018, increasing 70% from the prior year, driven by our success in CAT 1,” continued Dr. Karam. “Meanwhile, lower revenue from the broadband business, mainly from emerging markets, combined with the ongoing effects of IoT customer project delays, caused our 2018 results to be below expectations, particularly in the fourth quarter. We already see signs of improvement, and we expect a significant rebound in the first quarter, followed by accelerating growth throughout the remainder of 2019, driven mainly by LTE-M revenue.”

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