Sequans Communications S.A. American Depositary Shares (each representing one hundred (100) Ordinary Shares) 2026 Q2 Earnings Call

David, you may begin. 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 Norman Brodt, 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 will 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 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 uncertainty 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. Now I would like to hand the call over to Georges Karam.

Please go ahead, Georges. Thank you, David, and good morning, everyone.

Before discussing our core business, I'd like to begin with an update on our capital structure as we have now substantially concluded our Bitcoin treasury strategy. As we have announced on May 28th, we completed the full redemption of our remaining convertible debt funded through the sale of a portion of our Bitcoin holdings. We have continued to systematically reduce our Bitcoin position in a disciplined and opportunistic manner. The Bitcoin market has been volatile over the past several months, and throughout that period, we have remained patient, strategic and deliberate in managing our digital assets. During June, despite a challenging price environment, we made the decision to sell a portion of our holdings to further strengthen our cash position.

As a result, we ended the second quarter with approximately $21 million in cash and 314 Bitcoin remaining on our balance sheet. At current market prices, those remaining Bitcoin represent approximately $20 million of additional value. With our IoT business continuing to perform well and our balance sheet in a strong position, we have the flexibility to monetize these remaining holdings opportunistically and when it's the best interest of the company to do so. Our priority going forward is squarely on executing our IoT semiconductor strategy, scaling our product business, expanding our presence in the defense and drone markets, and advancing our 5G eRedCap roadmap to create long-term shareholder value. As we enter the second half of 2026, we do so with a strong debt-free balance sheet and the required financial flexibility to support our operations and invest in future growth.

Now turning to our IoT semiconductor business. We continued to build momentum in the second quarter. Revenue for the quarter was approximately $7.5 million, exceeding the guidance we provided last quarter and representing a 23% increase from the first quarter. The vast majority of that revenue came from product sales, which increased by more than 80% year-over-year, demonstrating the continued acceleration of our core business. We also saw strong order momentum across our customer base with several key accounts scaling meaningfully into the second half of the year and beyond. Today, we have more than 40 design win projects that have reached mass production, several of which we expect will each generate more than $4 million in annualized revenue beginning in 2027.

These programs are contributing to a strong and growing backlog that now extends into 2027 providing us with increasing visibility and confidence in our product growth trajectory for both this year and next. More importantly, this reflects the continued conversion of our design win pipeline into projects in production with committed orders to come. Our design win pipeline, measured by potential three-year product revenue, also continues to expand beyond the more than $300 million reported at the end of 2027. We'll provide an update figure at year-end, but today, 55% of that figure is in mass production and generating revenue, representing approximately $165 million of design wins in production at quarter's end, a more than 3x increase year-over-year. We expect that percentage to continue increasing as additional customer programs move into production.

Across our product portfolio, we continue to see encouraging momentum across each of our key technology families. Cat M remains a core growth driver for the business, led by asset tracking and smart metering applications. Multiple design win projects are now in production and continue to perform ahead of plan, supporting the strong product revenue growth we delivered during the quarter. Cat 1bis is also gaining traction with customer ramps across telematics, security, and industrial applications expected to continue building through the second half of the year. We remain encouraged by the level of customer engagement and the new IoT opportunities we see as existing design win projects move toward production. During the second quarter, we secured 10 new project wins leveraging our Cat M and Cat 1bis technologies while transitioning a similar number of projects into mass production.

Design activity across our pipeline remains healthy. We expect to add additional wins throughout the remainder of the year. Our RF transceiver business is also gaining momentum. We continue to see strong demand from existing customers, while interest from new prospects in the defense and drone markets continue to grow. During the quarter, we began shipping our SQN9506 development kit platform to several prospective customers evaluating our RF technology for these applications. I am also pleased to report that we secured our first drone program with product shipments expected to begin early next year. While still at an early stage, we believe this represents an important milestone as we continue to expand into this new market. Development of our 5G eRedCap solution also remains on track. Our test ship is now in-house, and we continue to target customer sampling during the second half of 2027.

As the IoT market transitions from 4G to 5G, we continue to believe eRedCap will become a key industry standard and an important pillar of our long-term strategy. Beyond the product opportunity itself, we believe our investment in eRedCap further strengthens our technology leadership, enhances the value of our intellectual property portfolio, and creates additional opportunities for future licensing and services revenue. Although product revenue from our eRedCap platform is expected to begin in 2028, we believe meaningful services and licensing revenue can be generated well in advance of commercial product launches. That brings me to our broader licensing and services business. Our licensing and services business continues to represent an important source of high-margin revenue, although the timing of individual engagements can vary from quarter to quarter.

While it represented a modest contribution to revenue in the second quarter, we expect a meaningful increase in the second half of the year as one or more of the significant license opportunities currently under discussion convert into signed agreements. Today, we have several active licensing and strategic engagements under discussion with global customers and partners across a range of end markets and geographies. The potential revenue contribution from these opportunities ranges from several hundred thousand dollars to well over $10 million, underscoring the significance of this part of our business. Beyond their potential financial contribution, these engagements continue to expand our strategic reach into new markets and application, while providing meaningful upside to revenue and supporting our path toward breakeven. Because many of these discussions involve confidential commercial relationships and sensitive end markets, we are not in a position to provide customer-specific details at this time.