Q3 2026 Sequans Earnings Call - SEQUANS COMMUNICATIONS

Explicit Guidance:

• Q4 2026 Revenue: $9.5 million to $11 million, excluding potential major licensing deals; revenue could exceed this range if a major licensing deal closes in the quarter.
• FY2027 Gross Margin Target: Aiming for ~50% on a global basis, assuming a product mix of chips and modules with licensing services; current year bias noted due to cost volatility.
• FY2027 Operating Expenses (OPEX): Target to average approximately $10 million per quarter, down from the recent ~$11 million rate, driven by reduced 4G investment and mature RF/defense initiatives.
• FY2027 Revenue Run Rate (IoT): Potential average annual run rate of ~$60 million derived from the $180 million design-win pipeline over a three-year period, with ramp-up expected to exceed $50 million in the first year.

Business-Segment Outlook:

• 4G IoT (Monarch CAT-M): Expected to continue growing, accounting for >80% of current Q3 product revenue; driving asset tracking and smart metering.
• Cellular IoT (Calliope CAT-1 BIS): Significant revenue growth expected in 2027 driven by telematics and security design wins moving to mass production.
• 5G RedCap: Roadmap to commercialize by 2027; test chip lab testing completion expected "late this year" (late 2026); customer engagement planned for H2 2027 with revenue generation targeted for 2028.
• Mass Production Pipeline: Targeting >$180 million in mass production-ready pipeline value by end of 2026 (up from $165 million in Q2); additional projects moving to mass production expected in Q4.
• Defense, Drone, & Space (IRIS RF): First drone customer shipping in Q4 2026; pipeline represents >$30 million in three-year revenue potential with "very high margins"; targeting 2027 for expanded orders from initial customer and new leads.
• Licensing & IP: Active pipeline of licensing/strategic engagements totaling >$75 million in potential revenue; targeting closure of some deals in Q4 2026; royalty revenue expected to grow in 2027.
• Pipeline Volume: Design win pipeline maintained at $300 million total; added nine design wins and eight advanced engagements in Q3 alone.

Market and Competitive Outlook:

• Market Transition: Anticipates a shift from 4G to 5G network deployment accelerating in 2027; predicts all new SKUs will be 5G-capable by end of 2027.
• Competitive Landscape: Expects reduced Chinese competition in the 5G RedCap space compared to 4G, positioning the company for higher ASPs and increased market share.
• Product Positioning: High demand for IRIS RF platform; development kits sold out, requiring ramp-up to meet customer leads (20+ Tier 1 customers engaged).
• Supply Chain Strategy: Implementing double-sourcing for flash memory and substrates to mitigate constraints; new models and customer software adjustments expected to fully materialize in 2027.

Macro / Industry Outlook:

• Supply Constraints: TSMC capacity allocation on mature nodes expected to continue through 2027; memory price volatility remains a month-by-month challenge.
• Cost Management: Ability to pass through component cost increases to customers is being utilized but remains a challenge to predict; cost pressures expected to ease in 2027 with new sourcing strategies.
• Cash Flow: Targeting reduced cash burn and achievement of breakeven as revenue grows; current cash position ~$40 million supports operations and growth investments.
• Government Funding: Received $2.5 million from French government (recognized in October 2026); future government R&D funding remains a minor, non-dilutive funding source.

Strategic Initiatives:

• Bitcoin Treasury Exit: Completed sale of all remaining 314 Bitcoin (avg price ~$78,500) for $24.6 million; company now holds zero digital assets.
• Debt Reduction: Convertible debt fully redeemed; only outstanding debt is tied to government-financed R&D.
• Go-to-Market Expansion: Building dedicated strategy and strategic partnerships for defense/drone segment; currently discussing several partnerships under discussion.
• R&D Focus: Reducing 4G-related investment; shifting full R&D resources to 5G RedCap, IRIS RF, and maintenance of existing IoT platforms.

Risks and Headwinds to Outlook:

• Supply Chain Volatility: Memory price fluctuations and TSMC mature node capacity constraints could impact gross margins and production timelines in Q4.
• Gross Margin Uncertainty: Q4 gross margins expected to remain similar to Q3 (volatile) due to memory pricing challenges; full benefit of double-sourcing not realized until 2027.
• Revenue Recognition Timing: Licensing deals signed in Q4 may not result in immediate revenue recognition; timing depends on delivery milestones.
• Product Ramp Variability: Time to production for new customers varies significantly (6 months for radio swaps vs. years for full system builds from scratch).
• Macro Economic Factors: Not explicitly detailed, but general supply chain cost pressures remain a headwind.

Management Tone on the Future:

• Confidence Level: High confidence in IoT momentum and backlog visibility ("solid visibility," "overwhelming traction").
• Strategic Clarity: Clear pivot to pure-play semiconductor/IoT with simplified balance sheet; explicit statement that "Bitcoin treasury's chapter is closed."
• Forward-Looking Hedges: Management maintains caution on Q4 gross margins due to input costs but expresses optimism for 2027 margin expansion (~50%) and OPEX reduction.
• Growth Expectations: Emphasis on "sustained growth," "scaling," and "unlocking full value," with a focus on reaching breakeven.

Miscellaneous:

• Balance Sheet Strength: Ended Q3 2026 with $39.9 million in cash equivalents and short-term deposits; no digital assets; simplified capital structure.
• Financial Results: Q3 revenue $9.1M (+21.9% seq, +183% YoY); Net loss narrowed to $1.5M ($0.10 diluted); Operating expenses reduced to $10.3M (-14% seq).
• Realized Gains: Recorded $6.2 million net gain from Bitcoin sales in Q3; future results decoupled from crypto price fluctuations.
• Product Mix Shift: Current revenue mix weighted toward lower-margin modules (approx. 2/3 modules, 1/3 chips) causing temporary margin bias; expected to normalize in 2027.