Sequans Communications S.A. — FY 2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone Q4 filing. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars. Sequans designs and supplies cellular semiconductor chips and modules for massive and broadband IoT markets.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $33.6 million | $60.6 million | Down 44% |
| Product revenue | $8.1 million | $23.0 million | Down 65% |
| License and services revenue | $25.6 million | $37.6 million | Down 32% |
| Gross profit / gross margin | $24.1 million / 71.8% | $42.9 million / 70.8% | Profit down 44%; margin up 1.0 percentage point |
| Operating expenses | $54.0 million | $46.7 million | Up 16% |
| Operating loss | $(29.8) million | $(3.8) million | Loss widened |
| Net loss | $(41.0) million | $(9.0) million | Loss widened |
| Net cash used in operating activities | $(7.3) million | $(1.8) million | Higher cash use |
Product gross margin fell to 6.2% from 32.7%, reflecting lower sales volumes against relatively fixed costs and higher slow-moving inventory provisions. License and services gross margin was 92.5%, versus 94.1%. Sequans shipped approximately 1.5 million semiconductor units, down from 3.4 million in 2022.
Research and development expense was $26.1 million, nearly flat year over year; the company capitalized $22.3 million of development costs, net of research tax credits. Sales and marketing expense rose 18% to $11.9 million. General and administrative expense rose 59% to $16.0 million, including approximately $3.5 million in Renesas transaction-related legal fees. Net interest expense was $11.2 million; the $3.2 million gain from changes in convertible-debt derivative fair value is a non-cash item that partly offset the loss.
Financial position, debt and liquidity
- Cash and cash equivalents were $5.7 million at year-end, compared with $5.7 million in 2022; there were no short-term deposits at year-end 2023.
- Working capital was negative $71.0 million. Total current liabilities were $107.9 million against current assets of $36.9 million.
- The filing reports approximately $80.7 million of consolidated indebtedness at December 31, 2023. The balance sheet classified $52.3 million of convertible debt, $8.9 million of unsecured related-party loans, and $9.5 million of receivables financing as current liabilities. It also reported $4.3 million of government loans and $2.5 million of research-project financing across current and non-current liabilities.
- Net cash from financing activities was $31.7 million, largely from 2023 equity placements and $9.0 million in Renesas subordinated notes. Investing activities used $24.4 million, including $24.1 million of capitalized development expenditures.
- Inventory, net, was $6.3 million, down from $9.4 million; the reserve for slow-moving or damaged inventory increased to $2.9 million from $1.9 million.
Material changes, outlook and risks
- Revenue contracted as customers delayed product launches and reduced purchases while working down supply-chain inventory. Product revenue was particularly weak; massive IoT represented approximately 97% of product revenue in 2023.
- Management expected revenue growth in the second half of 2024, supported by a ramp-up of the second-generation Cat 1 Calliope 2 product. The filing says significant revenue from the 5G Taurus platform is not expected before late 2025. These are expectations, not guaranteed results.
- Management expected 2024 operating cash expenses to be slightly higher and capital investment to increase, while general and administrative expense could decrease absent a similar strategic transaction. Research and development expense was expected to increase slightly.
- Going concern: The company reported recurring losses, a working-capital deficit and substantial doubt about its ability to continue as a going concern. The auditor issued an unqualified opinion on the financial statements with an explanatory paragraph regarding going concern; the statements do not include adjustments that might result if the company cannot continue operating.
- Renesas transaction and default: Renesas terminated its proposed acquisition in February 2024 after an adverse Japanese tax ruling. Sequans said it could not pay notes due in April 2024 and would not be able to pay notes due in May. Major lenders agreed to an initial standstill through April 26, 2024, with further extension dependent on milestones; the extension request was still in process as described in the filing. The company was pursuing strategic transactions and new financing, but disclosed no assurance of completion or sufficient funding.
- After year-end, Sequans received a $5 million promissory note from 272 Capital, closed April 24, 2024, bearing 12% paid-in-kind interest and a guaranteed 40% return. It also reported a French-government eRedCap project commitment of €10.9 million, including a €2.7 million upfront payment received in April 2024. These developments do not remove the stated funding uncertainty.
- Customer concentration remains high: the top ten customers generated 92% of revenue, and one China-based customer accounted for 56%. Sales are substantially purchase-order based, with no firm long-term purchase commitments.
- The NYSE notified Sequans on April 9, 2024 that it did not meet minimum market capitalization/equity and share-price requirements. The company disclosed deadlines and a cure process, but no assurance it would regain compliance; delisting could reduce trading liquidity and access to capital.
- Other material exposures include reliance on TSMC as the sole wafer foundry, dependence on a single partner for Monarch SiP components and manufacturing, potential dilution from equity and convertible securities, and geopolitical disruption to engineering teams in Israel and Ukraine. The filing reports internal control over financial reporting was effective and the auditor’s opinion on those controls was unqualified.
Investor facts to verify
- Whether lender standstills were extended beyond April 26, 2024, and the current status, maturity and default terms of each debt facility.
- Whether Sequans secured a strategic transaction or enough financing to fund operations, and the resulting impact on existing shareholders and creditors.
- Current cash, operating cash use, working-capital needs and customer receipts relative to management’s forecasts.
- Whether the expected Calliope 2 ramp and second-half 2024 revenue growth occurred, and whether customer inventory levels and concentration changed.
- NYSE cure-plan status, ADS price and market capitalization compliance, and any delisting action.
- The terms, cash availability and conditions attached to the 272 Capital note and eRedCap funding, including the timing of grant milestones and related debt.