Earnings call transcript: Sequans Communications Q1 2025 earnings miss triggers stock slide

Sequans Communications reported disappointing financial results for Q1 2025, with earnings per share (EPS) of -$3.6, drastically missing the forecast of -$0.06. Revenue also fell short, coming in at $8.14 million against an expected $15.4 million, marking a 47.14% revenue surprise. The stock reacted negatively, dropping 7.41% post-earnings and continuing its decline to a current price of $0.99, down 4.8% from the last close. According to InvestingPro analysis, the stock is currently trading near its 52-week low of $0.98, with particularly concerning metrics showing the company is quickly burning through cash.

Key Takeaways

• Significant EPS and revenue misses in Q1 2025.
• Stock price declined sharply following earnings release.
• Strong YoY revenue growth of 34% despite quarterly challenges.
• Continued innovation with Monarch Two and upcoming products.
• Market sentiment remains negative amid financial underperformance.

Company Performance

Sequans Communications experienced a challenging first quarter in 2025, missing both earnings and revenue forecasts. Despite a year-over-year revenue increase of 34%, the company faced significant financial hurdles, impacting investor confidence and stock performance.

Financial Highlights

• Revenue: $8.1 million, up 34% YoY.
• Product Revenue: $3.5 million, up 42% YoY.
• Licensing/Services Revenue: $4.5 million, up 28% YoY.
• Gross Margin: 64.5%.
• Net Loss: $7.3 million ($0.29 per diluted ADS).

Earnings vs. Forecast

Sequans Communications reported an EPS of -$3.6, significantly missing the forecast of -$0.06, resulting in a 5900% negative surprise. Revenue was also below expectations, totaling $8.14 million compared to the forecasted $15.4 million, a 47.14% miss.

Market Reaction

The stock dropped 7.41% following the earnings release, reflecting investor disappointment. It continued to decline, with a current price of $1.03, marking a 3.47% decrease from the last close. The stock remains near its 52-week low of $0.98, indicating bearish sentiment.

Outlook & Guidance

Looking forward, Sequans Communications expects Q2 2025 revenue between $8 million and $9 million. The company plans to launch new products, including Monarch Three and CalliP3, by the end of 2026, and aims to achieve operating income breakeven in 2026.

Executive Commentary

CEO Georges Karam expressed confidence in reaching breakeven by 2026, emphasizing the potential $480 million revenue pipeline. He highlighted the company’s expertise in radio technology and the demand for their RF transceiver chips.

Risks and Challenges

• Continued financial underperformance and net losses.
• Cash burn and operational expense management.
• Geopolitical tensions affecting market opportunities.
• Dependence on new product launches for future growth.

Q&A

Analysts questioned the company about its pipeline growth and revenue conversion speed in fleet and security markets. The potential $10 million annual market for RF transceiver chips was also discussed, alongside expected government grants and Qualcomm payments.

Full transcript - Sequans Communications SA (SQNS) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the Sequans Communications First Quarter twenty twenty five Financial Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, 05/06/2025. I would now like to turn the conference over to Kim Rogers.

Please go ahead, ma’am.

Kim Rogers, Investor Relations, Sequans Communications: Thank you, operator, and thank you to everyone participating in today’s call. Joining me on the call from Sequans Communications are George Carham, CEO and Chairman and Deborah Choate, CFO. Before turning the call over to George, 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’ll 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 risks and uncertainties 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. And now I’d like to hand the call over to Georges Karam. Please go ahead, Georges.

Georges Karam, CEO and Chairman, Sequans Communications: Thank you, Kim. Good morning to everyone. We are pleased to report that we delivered first quarter revenue of $8,100,000 slightly above the high end of our guidance range, reflecting steady execution of our plan. Drilling into the details, product revenue was $3,500,000 in line with our target. This represents an increase of 42% compared to first quarter twenty twenty four, mainly driven by the continued rollout of our Monarch two projects.

Also license and services revenue grew 28% year over year, largely due to the timing of revenue recognition from the five gs Taurus license to Qualcomm. As explained on our previous earning call, the sequential decline was due to the timing of various deliveries under the Qualcomm license and variability of product shipments with some design win projects still moving through pre launch phases. On the product and technology front, we are making substantial progress. Monarch two remains a key driver of our revenue growth with many design win projects in the pipeline. In the first quarter, we saw new momentum with several metering projects entering the pilot rollout phase.

Also the Monarch two pipeline continues to expand with new projects in tracking, metering, eHealth and other industrial segments. We began shipping to our first design win customers, preparing for product launches in the second half of twenty twenty five. We expect CalliP2 shipments to ramp through the second half of this year and accelerate in 2026, particularly in telematic and security markets. Our next generation Monarch three and CaliP3 chips, which we announced at Mobile World Congress are planned for launch by the end of twenty twenty six. These chips will further improve cost structure, power consumption, and radio performance, while supporting five gs eRED cap modem category to help customers future proof the network’s transition from four gs to five gs IoT.

The market response has been extremely positive and we are engaged in advanced discussions with several customers and partners interested in collaborating with us more closely on this technology. The ACP acquisition accelerated our five gs ERADCA roadmap by approximately eighteen months, giving us a first to market advantage. We expect this next generation of chips to contribute to our revenue in late twenty twenty seven. We’re also excited about our five gs RedCap platform called Taurus LTE, as it’s derived from our high end five gs broadband Taurus IP. Five gs RedCap is targeting high bandwidth IoT applications with speeds exceeding 100 megabits per second, like cameras, edge routers, and high end industrial devices.

We plan to sample this platform to early customers by year end, completing our portfolio to address the full range of IoT connectivity needs. Additionally, with the technology and resources gained from the ACP acquisition, we now offer RF transceiver chips that serve vertical markets such as defense, public safety, and proprietary radio devices. Particularly, we have a very advanced 22 nanometer RF transceiver shipping to one customer and under evaluation with a few others. We are preparing for a broader commercial launch supported by an enhanced marketing campaign to expand our market reach. This represents a significant new opportunity with meaningful revenue contributions expected to begin in late twenty twenty six.

With our comprehensive and rich portfolio, Sequans is one of the few comprehensive cellular IoT providers outside of China. This has become a meaningful differentiator in today’s geopolitical environment and has already contributed to new opportunities and design wins. Turning to customer interest. We are seeing strong momentum across the board. Our total pipeline representing advanced customer engagements or design ins on one side and secure design wins on the other side is reaching approximately $480,000,000 of potential revenue counting the first three years of sales for each project.

More than half of this pipeline, dollars $250,000,000 is already in the design win phase. And the balance, $230,000,000 covers the design in projects. I’m pleased to report that we were awarded nine new projects in the first quarter from six customers, including four new ones. They cover applications in telematic, metering, and e health and represent much more than $10,000,000 in expected annual revenue at full production. Some of them are part of our high velocity targets and expected to contribute to revenue in 2026.

These projects will be classified as full design wins in our pipeline as soon as our customers have initial hardware designs sampling with our chip or module. Also, have made progress on many other design in opportunities where we are shortlisted for final evaluation and selection. So how does the design win pipeline translate to revenue growth? About 18 design win projects are currently in production, contributing to revenue, representing around 20% of our design win revenue pipeline. We expect this number to grow to over 30 projects by the end of twenty twenty five, where around 50% of our design win pipeline will generate revenue.

And most of the remaining design win projects should reach the production phase by the end of twenty twenty six. On the licensing side, we are also seeing progress. Our Chinese partner who licensed our five gs Taurus broadband platform is advancing swiftly with its product development and we expect to begin receiving a royalty revenue from this partner in 2026. Separately, we are engaged in discussions on three new strategic deals, all leveraging our five gs RedCap and eRedCap IP. We anticipate closing one or more of these deals by year end 2025.

Looking ahead, our strategic priorities for the rest of 2025 are clear. We’ll continue moving design win projects into production, converting Monarch two and ramping CALIP two projects. We remain focused on winning new customers, expanding our design win pipeline and capturing share in high growth markets like security, fleet management and asset track. We are also aggressively executing our REDCap and eREDCap product roadmap to further solidify our leadership position in next generation five gs IoT and secure new strategic and licensing deals. Finally, we are expanding our vertical market sales by leveraging the RF chip opportunities we acquired with ACP.

Financially, we remain disciplined and focused on execution. While macroeconomic conditions are uncertain, we are managing what we can control. We remain focused on our target to achieve operating income breakeven in 2026. We are managing our cash operating expenses with a target of below $10,000,000 per quarter. We have two important levers to help with this.

First, the maturity of our MARAC two Ankali P2 product lines, which require limited additional investment. And second, the flexibility to adjust spending on next generation chips if needed. As revenue increases, we expect to reduce our cash burn rate to below $5,000,000 per quarter by the end of twenty twenty five and continue growing to achieve our breakeven target from there. Many new design win projects are expected to begin production in the second half of the year. While there is some market uncertainty around potential new US tariffs, it’s too early to draw firm conclusions.

We are monitoring the situation closely and will respond as needed. For now, we are not seeing a direct impact on our business. On the corporate governance side, the Board Governance Committee recommended refreshing our Board of Directors to strengthen our strategic execution and refine our long term vision. More information will be provided in our May proxy filing. In closing, I want to thank our employees, customers, partners, and shareholders for their continued support.

We are proud of the progress we’ve made in the first quarter of twenty twenty five and are excited about the opportunities ahead with strength of our product portfolio, the accelerating pace of projects into production and the strategic initiatives we are executing on, we believe we are well positioned to drive significant value for all our stakeholders. I will now turn the call over to Deborah to review the first quarter twenty twenty five preliminary financial results and details.

Deborah Choate, CFO, Sequans Communications: Thank you, George, and good morning to everyone. Before we get started, please note that the financial results released today are preliminary, subject to the finalization of the ACP purchase price allocation. Revenues for the first quarter of twenty twenty five increased 34% to $8,100,000 up from $6,100,000 in the first quarter of twenty twenty four and as projected declined sequentially by 27%. Product revenue reached $3,500,000 in the quarter and accounted for 44% of total revenues. Product revenue increased 42% from the year ago period and declined 26% sequentially, as we had a large customer shipment in Q4 that did not repeat in Q1.

Licensing and other revenue was $4,500,000 an increase compared to $3,600,000 in the prior year quarter and a 28% decline compared to $6,300,000 in the fourth quarter of twenty twenty four due to the distribution

Conference Operator: of

Deborah Choate, CFO, Sequans Communications: Yes? Can you hear us?

Georges Karam, CEO and Chairman, Sequans Communications: Go ahead, Becky.

Deborah Choate, CFO, Sequans Communications: Okay. Where was I? So, revenue variation is due to the distribution of revenue recognition from the five gs Taurus license to Qualcomm. This quarter we recognized $3,900,000 in revenue versus $5,500,000 in Q4 twenty twenty four from partial delivery under this license, which was part of the overall Qualcomm transaction. Gross margin in the first quarter of twenty twenty five was 64.5% compared to 67.4% in the prior quarter and 63.9% in the first quarter of twenty twenty four, reflecting the mix of revenues we had between CHIP, model, and licensing and services.

Product gross margin was 31% in Q1 versus 35.5% in Q4 twenty twenty four, reflecting a higher portion of module sales as well as initial sales of KALIA B2 with higher costs incurred during the product introduction phase. IFRS operating loss was $6,800,000 in the quarter compared to an operating loss of $5,600,000 in Q4 twenty twenty four and a loss of $8,500,000 in the first quarter of twenty twenty four. Please note that our non IFRS operating expenses of $11,000,000 declined from $12,500,000 in Q4, even with ACP operating expenses now included in Q1. Operating expenses also declined from the prior year period of $11,300,000 The Q1 twenty twenty four number included the benefit of capitalizing $9,100,000 of R and D costs, whereas no R and D costs were capitalized in Q1 twenty twenty five or in Q4 twenty twenty four. The reductions in our operating expenses show that we are making progress toward our goal to bring cash operating expenses down below $11,000,000 on a quarterly basis.

We recorded net interest income in Q1 and in Q4 twenty twenty four compared to net interest expense in the first quarter of twenty twenty four due to our investment of excess cash from the Qualcomm deal after repayment of all matured debt in October 2024. Net loss in Q1 twenty twenty five was $7,300,000 or $0.29 per diluted ADS. This compares to a net loss of $2,400,000 or $0.10 per diluted ADS in Q4 twenty twenty four and to a net loss in the first quarter of last year of $11,800,000 or $0.48 per diluted ADS. The net loss of Q4 twenty twenty four benefited from the reduction of the estimated tax expense recorded in the third quarter related to the gain on the Qualcomm transaction, therefore showing a tax benefit in Q4. On a non IFRS basis, our net loss for Q1 twenty twenty five was $6,100,000 or $0.24 per diluted ADS compared to a $1,800,000 loss or $07 per diluted ADS in the prior quarter and a non IFRS net loss of $8,800,000 or $0.36 per diluted ADS in the first quarter of twenty twenty four.

Cash and short term deposits totaled $45,900,000 at the end of Q1 compared to $62,100,000 at the end of twenty twenty four. We had several non operating or unusual items that had an approximate $9,000,000 drag on cash burn in the first quarter, including the payment of bonus and severance packages expensed in 2024, the impact of the termination of our factoring agreement, and the ACP acquisition payments. Excluding these items, the normalized operating cash burn for the first quarter would have been around $7,200,000 We anticipate certain nonrecurring items again in Q2, including final payments to ACP shareholders. However, we maintain a disciplined spending approach and target to finish 2025 with over $25,000,000 in cash. Based on our capital allocation plan, we do not foresee the need for an equity raise in 2025 or 2026.

Turning to the outlook for the second quarter of twenty twenty five, we expect total revenue in the range of 8,000,000 to $9,000,000 including final revenue recognition related to the five gs license to Qualcomm. And now for a few housekeeping items. After this call, we will post a written version of our formal remarks in the Investor Relations section of our website on the Webcasts and Presentations page, the same location where you will find the audio replay. And we filed our annual report on Form 20 F last week on April 30. And now I’ll turn the call back to George.

Georges Karam, CEO and Chairman, Sequans Communications: Thank you, Deborah. Thank you again for joining the call today. As we wrap up, I want to reiterate our confidence and the direction of our business, The strength of our revenue pipeline, the ramp up of key design win projects into production and the progress on our five gs REDCap and E REDCap roadmap, all position Sequans for long term value creation. We are staying focused on execution, scaling our product portfolio, deepening and broadening customer engagements, and managing expenses with discipline. With a strong demand for our solutions, we are confident not only in reaching breakeven in 2026, but in unlocking meaningful growth beyond that goal.

Thank you again for your continued support. Operator, we can turn now the call for Q and A, please.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer please press the star followed by the number one on your touch tone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you use the speakerphone, Your first question comes from Scott Scharley with ROTH Capital. Please go ahead.

Scott Scharley, Analyst, ROTH Capital: Hey, good morning, good afternoon. Thanks for taking the questions and nice job on the first quarter.

Deborah Choate, CFO, Sequans Communications: Thanks Scott. Hey

Scott Scharley, Analyst, ROTH Capital: George, maybe to dive in, in terms of the pipeline composition, I think you said now the design opportunity is around $230,000,000 Last quarter, I guess, sixty or so days ago was about $200,000,000 It sounds like you’ve had $10 plus million worth of wins. So in that sixty day period, we’ve added about another $40,000,000 of opportunities. Just wanted to confirm that. And then in terms of the velocity of what’s in that pipeline, we’ve been skewing more towards quick design opportunities that translate into revenue a lot sooner. I’m wondering if you could provide a little bit more color.

I think you gave some of the end market categories, but how quickly some of those revenue or those design in opportunities should be able to translate into revenue? Is it nine months, twelve months, eighteen months? And then I had a couple of follow ups.

Georges Karam, CEO and Chairman, Sequans Communications: Yes. Hi, Scott. So for the first question regarding the pipeline, as I said, we secured nine projects this quarter and the only problem of our KPI, I mean, we have a lot of discipline on measuring design win And we don’t measure it as award as design win before really being sure that the customer has achieved a key milestone on his hardware, which is the availability of the hardware in hand that we can see it. Because you never know, sometimes customers, can delay the ramp or it takes them some time. So we don’t want to change the pipeline by adding number then deduct them the following quarter.

So we are prudent on this. But when you look to the $230,000,000 there, this means some of this is awarded but not yet moved to the design win. And this will be done in the coming quarter or the following quarter, depending on the speed of the execution on each project. But in the same time, it shows as well more opportunity in these new deals. And with many of them, by the way, advanced because we are in on a few of them in a shortlist, we have been notified that we are shortlisted and we are finalizing the negotiation with the customer to close it.

So yes, all this is progressing well and your understanding is right in the sixty days progress we have done. In terms now on the velocity of the market, in reality, we spoke a lot about it in the past And this was a level of frustration we all had that we have a lot of design win projects in the metering space. And unfortunately, the metering is taking longer time to converge to revenue because the design is complex and the design cycle in general is much more complicated than regular other business. When you go to other IoT devices like fleet management, like security, we expect time to revenue to be faster. But what happened specifically, and I mentioned this, that some of the new deals will generate revenue, we’re sure about it in 2026 and very likely beginning of twenty twenty six.

They are on one side related to the nature of the business. As I mentioned, they are not in metering, they are in high velocity segment. But also some of those deals, they were like customers changing the modem if you want, not redesigning the full product and just only changing the modem for some related to the geopolitical situation, for some related to some people exiting the market where Sequans won those queues and the refresh of this product was much faster. So we’re expecting revenue from, let’s say, a couple of those projects to happen in less than twelve months as we are speaking.

Scott Scharley, Analyst, ROTH Capital: Very helpful. Thank you. And George, it sounds like we’re looking for a little bit of a product inflection as we get into the second half of this year. I think some of those have been some long standing metering projects. But what’s your comfort and visibility to that product revenue starting to accelerate in the second half of this year?

Georges Karam, CEO and Chairman, Sequans Communications: Yeah, I mean, honestly, Scott, all of this is progressing very well in terms of design. Unfortunately, you have always sometimes customers, you’re not sure about the level of ramp. In other words, the execution, I believe it’s moving. We’re seeing, I mentioned a couple of metering by the way projects that they moved to a pilot phase. Now the phase from pilot to full mass production, we are a little bit in the we don’t have full visibility on it because it depends on the end customer validation and so on.

So this can take more six months, maybe less, maybe a little bit more, but this is the order of magnitude on those projects. So we have that. On the others that they are in the space of fleet and other application related by the way to the automotive segment, we’re seeing some progress and we have confidence that we get order and we’ll be shipping in the second half. So definitely all is positive. It’s more the order of magnitude where we are a little bit, we have uncertainty around it, if you want, like quarter to quarter, because it depends if the guys will move the ramp very quickly in the first quarter or takes them two quarter to ramp.

And we need to make some estimate for the time being, but all positive and progressing.

Scott Scharley, Analyst, ROTH Capital: Got you. Thank you. And George, I think for the first time we’ve heard you talk a little bit about additional RF or transceiver opportunities going into some other markets, be it defense, public safety. I’m wondering if you could quantify the size of that and the timeline of that opportunity.

Georges Karam, CEO and Chairman, Sequans Communications: Indeed, I mean, didn’t, by the way, more will come from us towards the end of the quarter because we’ll be making launch of this product. We decided to take a little bit of time and after the acquisition of ACP, although we knew about it, but we want really to assess the market, understand and so on. But as I mentioned, we have strong expertise in radio where they sell ACP sold in hundreds of millions of those IP to many, many product in the past. And we have an existing product, very, very advanced in mass production shipping to one customer by the way in China, Initial shipment, not big shipment for this customer. But assessing all those application of defense and public safety, we realized like there is a real demand for this chip, which is very advanced in comparison to what you can find in the market.

So we’ll be moving there. We engaged already few customer, all the feedback was extremely positive. So that’s why we are excited to launch the product and put it on our portfolio and start selling and marketing this. Opportunity could be, I mean, we should be able to do $10,000,000 per year easily just to give a number. The market is very, I’ll say diverse.

So it’s very, very hard to look to a study where you can attack because you can go to base station, you can go to a point to point radio, you can go to defense, you can go to drones application. So many applications we are talking with the customer and everyone, those customers like this product. I will give it like twelve to eighteen months to ramp to revenue, but we should, I’m quite positive that even in 2026, we could generate maybe $5,000,000 to give a number like this from this product line.

Scott Scharley, Analyst, ROTH Capital: Great. Very helpful. And lastly, if I could, just on the licensing front. It’s encouraging to hear the Chinese customer converting to royalties, but it also sounds like you remain pretty actively engaged on REDCap and e REDCap. I’m wondering if you could just provide a little bit more color on that front.

And Deborah, just on the cash, I just wanted to clarify, I think that there were some final escrow payments coming from Qualcomm of $10,000,000 sometime in the second half of this year, and then with some additional grant money. I’m wondering if you could just clarify that. Thanks.

Georges Karam, CEO and Chairman, Sequans Communications: Yep. Mean, unless I think indeed, with our Chinese partner, are reaching the MP version of the chip. I mean, it’s still not MP tip out, I should say. It should go to production for sure towards the end of the year and we should start getting revenue from them next year. So it’s good with the geopolitical environment, you could imagine those guys selling in China, they should be able to make some good number.

China is full speed on five gs SA, so REDCap will be quite strong market there. And this could generate a few million dollars for us per year in terms of royalty, depending on the volume, what they can do. Today, we’re not putting this yet in our forecast. So this will be like an upside for us next year as part of the servicing, part of the service and licensing. But also we’re engaged with, as we mentioned, a few others opportunity, all interested in RedCap eRedCap for other application or for different regions as well.

We’re quite advanced. I cannot say more on this, but there are serious opportunity, well identified engagement and negotiation is there. And we feel comfortable that we should close something this year. It’s not something to drag for next year. You hear from us, I would say, hopefully in the second half of the year closing at least one, maybe two opportunities.

Deborah Choate, CFO, Sequans Communications: Yeah. And Scott, on the cash, yes, we have $10,000,000 in escrow from the Qualcomm deal that we’re expecting to have released on September 30. And in terms of government in the second half of the year, we’re expecting about $5,500,000 to come in.

Scott Scharley, Analyst, ROTH Capital: Great. Thanks so much. Nice quarter.

Georges Karam, CEO and Chairman, Sequans Communications: Thank you, Oscar. Thanks, Scott.

Conference Operator: Thank you. The next question comes from Nick Doyle with Needham. Please go ahead, sir.

Nick Doyle, Analyst, Needham: Hey, guys. Thanks for taking my questions. For the non GAAP gross margin that came in a little below and you discussed some drivers. But my question is what is the Calliope two gross margin improvement roadmap? How long until that drag grows away on product gross margin?

Thanks.

Georges Karam, CEO and Chairman, Sequans Communications: Hi, Nick. It’s essentially, first of all, more generic, Nick, all our chip business stand around the 50% of gross margin. Yeah, it can vary. You could have depending on the phase of the life cycle or depending on the size of the deal, it could be a little bit below 50 or it could be above 50, up to 55. With the volume we’re talking about today, we’re not talking about improvement over time, which definitely will happen when the volume will grow, we’ll solidify it and make it above 50 and hopefully closer to 55.

The module business, as we said in the past, this vary as well around the 30% number. Could be 35, it could be 25, again, depending on the deal and so on. So the mix of the two give you the product gross margin, which is in the above 40 today where we should be around 40%. Now for this quarter, again, you have two elements when you look to the margin currently. We have a fixed cost of our manufacturing costs, which is included.

In other words, if we have a revenue of few million dollars, this fixed cost is going to impact by more than maybe close to five points in our margin. So our variable gross margin today is not what you see. You need to add like 5% as we grow just only by growing volume discussed will be like negligible to our variable gross margin. And we had specifically this quarter, the mix of module and chip plus some launch of initial production of CALiP2. As you know, the initial production will come a little bit at high cost of the module, serving the customer with the first thousands, 10 thousands unit here and there.

So the cost is not really optimal. But there is nothing unique to CaliP2, I will say, which is different from the Monarch two recipe. In terms of gross margin, whether Monarch two or CaliP2 or even in the future eRedCap, they will play with the number I explained to you more generically, 50% of the chip, 35% for the module, and obviously licensing and services above 70%.

Nick Doyle, Analyst, Needham: Yeah, that makes sense. It sounds a lot more like a volume leverage So I know we’ll find out soon, but maybe you can give us a hint at what kind of board changes are being discussed. Thank you.

Georges Karam, CEO and Chairman, Sequans Communications: Yeah, I mean, obviously we don’t want to, I give you the guideline. Obviously, the board, we have great people on our board, but they serve many mandates. And I believe for the interest of the company is to refresh, bring new blood. So this is one trend if you want. Also, believe the size of the board could be a little bit lower.

At some time, we increase the size. We have the complexity of when we added some strategic, when we get Renaissance on board and then we had to increase the size of the board to compensate for The US versus non US as we are foreign follower issuer. So this adds another constraint when we build our board. But now we believe we can reduce the size of the board to be in any case maybe six, in any case below seven people in total and have at least a couple of new guys. In the same time, obviously, some people will be reaching their term now and they will be leaving immediately.

But also others are very likely as soon as we hire other board members that will be resigning and leaving afterwards. So this is a process that we will engage now starting obviously with the next shareholder meeting. And in the coming, I’ll say two or three quarters, we should be able to achieve this target, reduce the sizes of the board to six, or maybe in any case below seven or six, and have almost more half of the board, new blood and new people that they are serving for their first mandate on our board.

Nick Doyle, Analyst, Needham: Thank you very much.

Georges Karam, CEO and Chairman, Sequans Communications: Thank you, Nick.

Conference Operator: Thank you. There are no further questions at this time. I would now like to turn the call over to Doctor. George Karam, President and CEO. Please go ahead, sir.

Georges Karam, CEO and Chairman, Sequans Communications: Thank you, operator, and thank you all again, and looking forward to speak whether on next earnings calls or before if we have the opportunity to have this. Thank you very much. Operator, we can close the

Conference Operator: connection. Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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