Sequans Communications S.A. — 2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone 2022 Q4 report; the filing does not provide clear standalone Q4 financial results. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars.
Business context
Sequans is a fabless designer and supplier of cellular semiconductor chips and modules for massive and broadband Internet of Things applications. Its products primarily support 4G LTE; the company is also developing a 5G broadband platform. It relies on third parties for manufacturing, including sole-source wafer foundry TSMC.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $60.6 million | $50.9 million | Up 19% |
| Product revenue | $23.0 million | $30.4 million | Down 24% |
| License and services revenue | $37.6 million | $20.5 million | Up 84% |
| Gross profit / margin | $42.9 million / 70.8% | $27.2 million / 53.4% | Margin up 17.4 percentage points |
| Operating loss | $3.8 million | $18.3 million | Loss narrowed |
| Net loss | $9.0 million | $20.3 million | Loss narrowed |
| Net cash used in operating activities | $1.8 million | $8.5 million | Cash use decreased |
| Cash, cash equivalents and short-term deposits | $10.7 million | $4.8 million | Up $5.8 million |
| Shares outstanding at year-end | 193.4 million ordinary shares | 151.4 million | Increased during 2022 |
Operating expenses were $46.7 million, up 3%. Net loss per ADS was $0.20, compared with $0.55 in 2021. The company reported positive working capital of $3.6 million at year-end. It disclosed approximately $59.7 million of consolidated indebtedness; separately, the balance sheet reports $43.5 million of convertible debt, $3.2 million of convertible-debt embedded derivatives, $7.7 million of receivables financing, and government and research-project funding liabilities. These categories should not be treated as directly interchangeable.
Material changes and unusual items
- Revenue growth was driven by license and services revenue, including large 5G licensing arrangements; product revenue declined. The revenue mix shifted to 62% license and services and 38% product revenue, from 40% and 60%, respectively, in 2021.
- Massive IoT product revenue declined 12% to $22.0 million, while broadband product revenue fell 82% to $1.0 million. Management attributed declines to customer launch delays, supply challenges, the end of a Verizon portable-router product, and lower-than-expected CBRS activity. Cat M revenue increased about 26%.
- The company recognized $20.0 million of license revenue under an August 2022 5G agreement valued at up to $60 million over three years. The agreement covers manufacturing and sale of a 5G chipset in China and certain derivative products. The filing reports $2.5 million of remaining contract liability at year-end.
- Gross margin improved as license revenue, which carries higher margins, made up a larger share of total revenue; product gross margin also improved to 32.7% from 27.7% as the mix shifted toward higher-margin chipsets.
- 2022 net loss included $2.75 million of income tax expense, including $2.25 million of unrecoverable withholding tax on a China license fee. Gains from changes in the fair value of convertible-debt derivatives and a debt amendment also affected reported financial results.
- Sequans raised approximately $30.1 million net from its March 2022 public offering and approximately $9.3 million gross from a January 2022 private placement with Renesas. Share issuance increased year-end ordinary shares to 193.4 million.
Liquidity, outlook and risks
Management says additional financing is required to fund operations until product revenues ramp. The auditor issued an unqualified opinion on the financial statements but included an explanatory paragraph on going concern; management and the auditor state that substantial doubt exists about the company’s ability to continue as a going concern. The company’s plans rely on possible licensing deals, partnerships, government funding, or debt and equity financing, none of which is assured.
- Management outlook: Sequans expected 2023 revenue growth, supported by a strong ramp-up in Cat M products and launch of Calliope 2. It expected slightly higher cash operating expenses, continued 5G development, and investment spending comparable to or somewhat below 2022. Management said allocated TSMC capacity was expected to meet planned 2023 needs, but demand above expectations could constrain shipments.
- Strategic review and proposed financing: In February 2023, the board formed a special committee to explore strategic options and engaged an investment bank. After year-end, management said it expected to seek a $10–20 million private placement from certain existing institutional shareholders. Discussions and financing plans were not completed or assured.
- Customer and supply concentration: The top ten customers generated 95% of 2022 revenue; one customer represented 33%. Sequans relies on TSMC as its sole wafer foundry, has no long-term foundry agreement, and has faced component allocations and shortages. It also reported $7.7 million of non-cancelable supplier purchase commitments, principally for 2023.
- Debt and dilution: The $40 million Lynrock convertible note is due in April 2024 and carries change-of-control cash repayment or conversion provisions. The Nokomis note was extended to August 2023 with its rate increased to 9.5%. Further financing or conversion of outstanding securities could dilute shareholders.
- Legal and tax matters: Bell Semiconductor filed three patent-infringement lawsuits in 2022. Motions to dismiss were pending; the design-tool supplier agreed to indemnify defense and settlement costs, and no provision was recorded. A French tax review remained ongoing after a 2019 employment-tax adjustment was reduced to €38,000 and expensed in 2022.
- Other risks: 5G commercialization and design-win conversion remain uncertain; product sales may be affected by customer order changes, competition, pricing pressure, geopolitical conditions, and supply-chain disruption. The filing also cites potential interruption to software work performed by a team in Kyiv, Ukraine.
Important facts for investors to verify
- Whether the proposed $10–20 million private placement closed, on what terms, and whether it materially extended liquidity.
- Cash runway, near-term funding needs, and progress toward licensing, partnership, or strategic-transaction alternatives.
- Revenue quality and sustainability: the proportion attributable to the large 5G licenses, remaining deliverables, and the timing and terms of future license receipts.
- Whether Cat M and Calliope 2 shipments, customer launches, and 5G product commercialization meet management’s expectations.
- Customer concentration, receivable collection, TSMC wafer allocations, component availability, and the effect of the $7.7 million purchase commitments on cash and inventory.
- Convertible-note repayment, conversion, and change-of-control obligations, along with potential dilution from notes, options, warrants, and restricted shares.
- Updates on the Bell Semiconductor cases, the French tax review, and any related costs or indemnification outcomes.