Q3 2026 Sequans Earnings Call - SEQUANS COMMUNICATIONS

Explicit Guidance:

• Q4 2026 Revenue: Expected range of $9.5 million to $11 million; excludes significant licensing revenue, though a major licensing deal closed in the quarter could exceed this upper bound.
• 2027 Operating Expenses (OPEX): Target average below $11 million per quarter, with a specific goal of maintaining OPEX close to $10 million on average throughout 2027.
• 2027 Gross Margins: Target to reach approximately 50% globally by 2027, driven by improved product mix (higher chip/module ratio), reduced cost volatility, and the scaling of high-margin RF/Licensing segments; current Q3 margin of 33% is considered an exception due to cost headwinds.
• Pipeline Revenue Run Rate: The $180 million+ mass production pipeline (expected by year-end 2026) represents a three-year revenue potential, averaging a $60 million annual run rate over the three-year period.

Business-Segment Outlook:

• 4G IoT (Monarch CAT-M & Calliope CAT-1 BIS): Monarch CAT-M remains the core growth driver (>80% of Q3 product revenue) with strong momentum; Calliope is expected to see significant revenue growth materializing in 2027 as design wins reach mass production.
• 5G RedCap: End-to-end lab testing of the in-house test chip expected to complete late 2026; customer engagement planned for H2 2027 with revenue generation targeted for 2028. Anticipated to be a key pillar for capturing new design wins and expanding market share as carriers transition from 4G to 5G.
• Defense & Drone (IRIS RF): First drone customer ready for production with shipments expected to begin in Q4 2026; RF pipeline represents >$30 million in three-year revenue potential with high margins; actively scaling go-to-market strategy and partnerships.
• Licensing & Services: Pipeline of active engagements exceeding $75 million total revenue potential; individual deals range from hundreds of thousands to >$10 million; multiple deals expected to close in Q4 2026, with royalty revenue expected to grow in 2027.

Market and Competitive Outlook:

• Market Transition: Anticipates carrier network deployment for 5G (RedCap) ramping significantly in 2027; predicts that by late 2027, all new SKUs will require 5G capabilities, while 4G production continues for legacy maintenance.
• Competitive Landscape: Expects a "much more limited" competitive landscape for 5G compared to 4G, specifically noting a reduction in Chinese competition, offering Sequon a larger potential for market share capture.
• Pricing Strategy: Planning to mitigate volatile memory costs by passing price increases to customers where appropriate and implementing double-sourcing for flash memory starting 2027 to stabilize margins.

Macro / Industry Outlook:

• Supply Chain Constraints: Memory remains the primary constraint with TSMC operating under capacity allocation for all mature nodes in 2027; broader semiconductor supply chain pressures anticipated.
• Cost Volatility: Forecasts continued month-to-month pricing volatility for memory components, creating challenges for margin predictability in the near term (Q4 2026) versus the expected stabilization in 2027.

Strategic Initiatives:

• Bitcoin Exit: Completed exit of Bitcoin treasury (sold 314 BTC for $24.6 million); no future financial exposure to digital asset price fluctuations.
• Balance Sheet Simplification: Fully redeemed convertible debt; focus shifts exclusively to semiconductor strategy.
• Capacity Expansion: Implementing multiple sourcing options for substrates, flash memory, and packaging to strengthen supply position heading into 2027.
• Government Funding: Received $2.5M in ECRIS equivalent from the French government in October 2026 (post-Q3); ongoing government-financed R&D projects to continue supporting operations.

Risks and Headwinds to Outlook:

• Revenue Recognition Timing: Licensing revenue recognition is highly variable; deals signed in Q4 may not generate revenue in the same period depending on delivery and milestone completion.
• Supply Chain Volatility: Silicon supply constraints and memory price fluctuations pose risks to gross margins and production timelines, particularly in Q4 2026 before new sourcing strategies fully materialize.
• Production Ramp Uncertainty: While hardware integration is fast, time-to-production for customers building platforms from scratch may be prolonged and limited by the customer's overall system timelines rather than Sequon's technology.
• Competitive/Market Shifts: Delay in carrier 5G network deployment could slow the anticipated surge in 5G design wins.

Management Tone on the Future:

• Confidence Level: High confidence in the product growth trajectory, citing a backlog extending into H2 2027 and a book-to-bill ratio consistently above 1.
• Strategic Clarity: Tone is focused and decisive, describing the Bitcoin exit as a "chapter closed" and the company as "calculating from a position of strength."
• Path to Profitability: Explicit objective to reach breakeven "as quickly as possible," with OPEX reduction and revenue scaling viewed as the primary levers.
• Cautious on Near-Term Margins: Management remains cautious regarding Q4 gross margins due to memory volatility but expresses confidence in significant margin expansion in 2027.

Miscellaneous:

• Cash Position: Ended Q3 2026 with $39.9 million in cash equivalents and short-term deposits; cash burn in Q3 was $5–$9 million (in line with plan).
• Share Count/Dividends: No specific share count or dividend guidance provided; focus remains on preserving capital for growth and achieving breakeven.