Sequans Communications S.A.
Q1 2018 Earnings Call Transcript

Published: 2 May 2018

[Operator:]

Welcome to the Sequans First Quarter 2018 Results Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. Before I turn the conference over to our host, Mr. Georges Karam, I'd like to remind you of the following important information on behalf of Sequans. The call contains projections and other forward-looking statements regarding future events or future financial performance and potential financial sources. All statements other than present and historical facts and conditions discussed in this call, including any statements regarding our future results of operations and financial position, business strategy and plans, expectations for IoT and broadband sales, sources of funding and our objectives for future operations are forward-looking statements within the meanings 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 this call contains projections and other forward-looking statements regarding future events or future financial performance and potential financial sources, all statements other than the present - oops, sorry - 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 rapid changing environment. New risks emerge from time to time. Given these risks and uncertainties, you should not 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. Please go ahead, sir.

[Georges Karam:]

Thank you, Sean. Good morning, everybody. This is Georges speaking. I'm here with Deborah Choate, our Chief Financial Officer. Welcome to our first quarter 2018 results conference call. We are off to a very good start in 2018 with particularly strong performance from the IoT business. As expected, Q1 revenue was flat with Q4, although Q1 tends to be seasonally weaker. The strong momentum in our Cat 1 IoT business mostly offset the typical seasonal pattern and the expected weakness in the broadband business. In fact, IoT revenue grew more than 50% sequentially in Q1; setting the stage for IoT to be more than 50% of total revenue for the entire year, up from 25% of total revenue in 2017. In addition to the Cat 1 growth, we continue to gain traction with our Monarch Cat M1/NB1 solution and expect related revenue to accelerate during the second half of the year. The strong momentum in IoT is really the main story of Q1. But our vertical business also is performing very well. And we believe our broadband will pick up gradually during the balance of the year, followed by acceleration from some new projects next year. Allow me now to go into the detail of each business segment and I will start with the IoT business. The ramp in our Cat 1 revenue during the first quarter certainly validates our decision to be the first to offer a Cat 1 solution and essentially create this market. We all experienced some frustration as it took longer than we had hoped for Cat 1 to start moving. But now, it has clearly past the inflection point. We are shipping Calliope Cat 1 chips to Gemalto, our Cat 1 module partner, who is addressing end customers in both the United States and Japan. Also, we are shipping Cat 1 modules to several end-customers deploying in the U.S. Meanwhile, we are working on new opportunities and we expect Cat 1 revenue to continue to grow each quarter, during the remainder of 2018. Obviously, the Cat M1 and NB1 markets will be much larger than Cat 1. However, we believe our Cat 1 business will remain significant beyond this year as not all Cat 1 business will transition to Cat M1 or NB1. There are multiple reasons for this. First, not all operators will be ready at the same time with their Cat M1 or NB1 networks. And customers may deploy Cat 1 in the meantime. Second, once a major Cat M1 project has begun, the customer will not stop it to switch to a different solution when the project economics were already justified based on Cat 1. Third and most important, there are some specific applications that require better than Cat M1 throughput and features, such as video, audio streaming and certain voice applications. Turning to Cat M1 and NB1, the report here is also excellent. As we have noted before, the demand for these solutions is more organic, because these technologies have been anticipated by the standards body to address the lower power and low cost requirements of IoT devices. We enjoy the first mover advantage here as well, and we expect to see Cat M1 and NB1 reaching the inflection point more quickly than Cat 1 did. We continue to see operators, module partners and end customers pushing ahead to launch Cat M1/NB1 as quickly as possible. We can confirm that product launch has begun. As expected, one of our end customers we serve through a module partner has launched his product at the end of Q1 on one of the US carriers and is now in full production. We are very busy supporting our OEM customers and module partners with their product design and certification activities, and we expect a significant number of them to launch during the second half of this year. We continue to believe we can ship more than 3 million units in Cat M this year, although we will remain vulnerable to unexpected minor delays along the way. The most important factor is that these are firm design wins and, even if the timing were to slip a little, the business belongs to Sequans. We believe the number of design wins we have in hand and the number of opportunities in the pipe promise us a major market share in the Cat M1/NB1 market. To give you some color on the design wins we have, moving forward toward their target launch dates. We have close to a dozen tracking applications of various types, many design wins covering automotive telematics, various types of high value asset tracking, as well as wearables for tracking the elderly, children and pets. We also have a few design wins in hand for safety and security applications such as alarms and smoke detectors, and we have multiple customers designing connected buttons for just-in-time ordering of supplies. These Cat M1 devices will launch first in the U.S. market where both AT&T and Verizon Cat M networks are ready. Meanwhile, we have also made good progress in developing the business in Japan. Our Monarch platform is now certified on Softbank's network and we are fully engaged with Docomo and KDDI, supporting their network readiness and achieving certification as well. This will help us expanding our Cat M1/NB1 business to Japan by early 2019, where we already have a metering design win. During the first quarter, we also added several design wins for both Cat M1 and NB1, a couple are focusing on NB IoT applications and one is addressing a metering project. We continue to be sought after by operators to work with them on expediting the readiness of their Cat M1 or NB1 networks. In addition to the U.S. and Japan, we have added new engagements in Europe, Australia, South Korea and China. As we look toward the Cat M1 and NB1 ramp becoming significant during the second half of this year, you can see how much more diversified our customer base will become from design wins already we have in hand and this is only the beginning. On the competitive front, we feel very comfortable with our position. We have remained the only vendor shipping a fully-optimized solution for longer than we originally expected. Also, we have been sampling two derivative platforms

[Deborah Choate:]

Thanks, George, and hello everyone. I'd like to add some details about our Q1 results and discuss the outlook, including our guidance for Q2 of 2018. Our revenue was $11.2 million for the first quarter of 2018, flat compared to the fourth quarter and a decrease of 9.6% compared to the same quarter a year-ago. This reflected very strong growth in IoT that again was masked by a further decline in the broadband business. But as Georges noted, we believe this is the tough quarter for broadband and that we will see gradual improvement during the balance of the year in addition to further quarter-to-quarter growth from IoT. In Q1, we had four 10% customers, two are distributors serving a number of Asian OEM and ODM customers, one is an ODM and one is a vertical market customer. Gross margin in Q1 was 41.7%, the same as Q4 of 2017, but below Q1 of 2017 when gross margin reached 47.1%. The change from a year-ago primarily reflects a shift in mix toward a lower proportion of chips versus modules and lower overall product revenue less efficiently absorbing fixed costs, this is partially offset by higher license and service revenues. Operating expenses were $12 million in Q1, up from $10.3 million in Q4, primarily due to an unusually high favorable impact of grants reducing R&D expense by over $1 million and the expenses related to two major trade shows and the impact of currency changes increasing expenses in Q1. We continue expect non-IFRS operating expenses in 2018 to average about $11.5 million per quarter, reflecting the impact of the stronger euro versus the dollar as well as some headcount increases, primarily in engineering compared to last year. Our first quarter operating loss was $7.3 million, compared to an operating loss of $5.6 million in the fourth quarter of 2017, and a $4.2 million loss in the first quarter of 2017. Our net loss in Q1 was $8.7 million or $0.10 per diluted share or ADS, compared to a net loss of $7.6 million, or $0.10 per diluted share in the fourth quarter. The net loss in the first quarter of last year was $5.6 million or $0.07 per diluted share and ADS. Our weighted average share count increased to 91.5 million shares in Q1, compared to 79.8 million at the end of 2017 as a result of the equity offering in January of this year. On a non-IFRS basis, our net loss for Q1 was $7.5 million, or $0.08 per share, compared to a non-IFRS net loss of $5.9 million, or $0.07 per share in the fourth quarter of 2017, and $4.7 million or $0.06 per share in the first quarter of 2017. Our non-IFRS net loss excludes non-cash items related to stock based compensation expense, and the non-cash impact of convertible debt amendments and effective interest adjustments related to the convertible debt and other financings. Cash used in operations in Q1 was $6 million, compared to $9.3 million in the fourth quarter of 2017, reflecting improvement in accounts receivable collections as accounts receivable declined by more than $3 million, partially offset by a $2 million reduction in accounts payable. Our cash and short-term deposits at March 31, 2018, totaled $15 million, compared to $3.3 million at the end of 2017, reflecting the net proceeds of the equity offering in January. Accounts receivable at March 31, 2018 were $17.6 million, reflecting DSOs of approximately 113 days, down from 120 days at the end of Q4. And inventories were stable at $7.4 million. Short-term debt from financing receivables decreased by $2 million to $5.3 million in Q1, primarily due to the revenue mix, which contained lower product revenues and services that could be financed compared to the prior quarter. Looking forward, we expect revenues for the second quarter of 2018 to be in the range of $12.5 to $14.5 million, as IoT revenues continue to ramp and with some recovery expected in broadband revenues. We expect non-IFRS gross margin in Q2 to be above 40%, and non-IFRS net loss per diluted share to range between $0.07 and $0.08, based on approximately 94.5 million weighted average diluted shares. Our guidance for Q2 non-IFRS net loss per share excludes non-cash stock based compensation, effective interest adjustments related to the convertible debt and other financings, and any other relevant non-cash or non-recurring expenses. As Georges indicated, we continue to expect strong growth in IoT in 2018. The broadband business is expected to gradually improve during the year. Our assumption is that revenue from the vertical markets, which includes public safety, avionics, and various strategic partnerships, will be at least similar in 2018 to 2017. So, our growth in 2018 will be driven by a full year of shipments for Cat 1 combined with the ramp in Cat M1/NB1 during the second half of the year. And we continue to expect IoT to account for more than 50% of total revenue in 2018. And before concluding I would like to mention two housekeeping items. First, you may have seen that this morning we filed a new Form F-6 to register more American Depositary Shares. This is not reflective of any further registration of the underlying shares, those are still covered by our existing shelf registration on Form F-3. The original F-6 was filed at the time of our IPO and registered up to 100 million ADSs. Since we are now approaching this limit, we needed to file again to be sure we can cover conversion of our debt, stock option exercises, et cetera. So, no one should jump to any erroneous conclusions about the amount, which is just the same as before and this filing does not signal any plan to access the capital markets. And second point, our board of directors has called for our Annual General Meeting of Shareholders to take place on June 29. So voting information will be sent out in early June. And before I turn the call back to Georges, I'd just like to remind you that at the conclusion of 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. Georges?

[Georges Karam:]

Thank you, Deborah. So just before taking your question, let me stress one more time that we are very pleased with our business in general, and with the progress specifically, very excited about the progress of IoT. As I said, Cat 1 is now a solid established business and this is - we waited a long time to see it happening. And this is here today and it's here to stay. And on the Cat M/NB front, obviously, here the potential is much bigger. And as I explained, we have all the ingredients, whether from design wins in hand to secure ramp as fast as possible, the pipe of opportunity to show, to continue expanding this business for the following couple of years. The carrier networks' readiness, giving you a little bit the urgency of the timing of the development of this market and reaching an inflection point, as well the application when you look through the end-customer application, it's all of them makes sense for really expanding and deliver on the promise of the IoT. All this in hand, let us feel like we are really in a great position to make this business successful and be obviously an order of magnitude bigger than our Cat 1 business already. And with all this, let us feel like the IoT is really - execution of the company is really set here to prepare for an exponential growth year-over-year for the coming three years down the road. And I will turn now maybe the call for your questions. Thank you for your listening. Maybe, Sean.

[Operator:]

Yes, thank you. [Operator Instructions] Our first question is going to come from the line of Quinn Bolton from Needham. Please go ahead.

[Quinn Bolton:]

Hi, guys. Congratulations on the nice results and good to see the beginning of the hockey stick here in the IoT business. Georges or Deborah, just wanted to start with just kind of the mix of business in the March quarter. Could you give us a sense what the broadband business did and what the IoT business, what's the revenue for each of those segments were? And then other revenue was $3.6 million this quarter. How do you split that other revenue between broadband and IoT? And then we're going to have to follow-up.

[Deborah Choate:]

So I'm thinking with - we're not going to give the specifics on a quarterly basis, just because the information remains a little bit sensitive from a competitive situation. But IoT was definitely comfortably over 50% in the first quarter. And I'd say that there is a bit of service revenue included in the IoT numbers. But most of it - because we do sign when we add new licenses for example related to IoT customers that will go into our IoT bucket. But the bulk of the other revenue line was more from - was from verticals.

[Quinn Bolton:]

And so, that would be in the, quote unquote, broadband segment then?

[Deborah Choate:]

Yes.

[Quinn Bolton:]

Got it, got it. And then, Georges, you talked about still looking for, I think you said greater than 3 million Cat M units this year depending on ramp timing. I think in the past you've said sort of 3 million to 4 million. I'm just wondering if there has been a little bit of a tone change or expectations change or are you still sort of consistent with that Cat M ramp as you look into the second half of the year.

[Georges Karam:]

Well, Quinn, I mean, the trend remains there. There is no real - there is nothing changing other than adding up and we feel the ramp happening. The question is always, by the way, I mean, when I was talking about 3 million to 4 million last year, it's more in preparation of some timing of some project in hand that needs to happen on a given time. And no matter how much you estimate, the execution of the launch dates, you can have a slippage of one month here, one month there. So there is also maybe - so for all this, I'm factoring a little bit more closer execution, because the timing of the launch is more precise now for some of the devices. There is another element which is - I don't know how much it's more to be cautious on the issue that you're seeing with ZTE and Huawei, mainly on a Huawei angle, as you know, Huawei is one of our module partners and they have product for the U.S. So without really getting any detail here, because product - they're working on the product continue and they are working as well for products outside the U.S. But we are taking a little bit some cautious approach there, maybe saying this maybe will take time to happen, taking the new general politics or whatever you want to call it happening between the U.S. and China these days. So all this - it's more moderating a little bit the number, but we're still in the bracket we're thinking about.

[Quinn Bolton:]

Okay, great. And then, Deborah, just can you walk us through the sort of timing of government grants, tax credits, you sort of - that you would expect to hear in calendar 2018?

[Deborah Choate:]

Sure, so the biggest impact and the one that is easier to plan for is the reimbursement of our French research tax credit. This is [received from us] [ph] annually. We have $3.2 million from 2017 that we generally are able to collect in September each year. It could be some risk that it slips to October, but there is no risk of it not being received. Otherwise, we have government grants, are more sort of scattered across the year, probably little bit less than $1 million in total expected this year, so a few hundred thousand each quarter expected to come in.

[Quinn Bolton:]

And then any of the vertical market projects that you're working on, say, with TCL, do those generate onetime sort of cash payments through the year?

[Deborah Choate:]

In this year, they are more spread across the year. So in the past we had in the example of TCL there was a large upfront payment received in the first quarter and this year it's we're now having that spread across the year.

[Quinn Bolton:]

Great. Thank you.

[Operator:]

Thank you. And our next question is coming from the line of Mike Walkley from Canaccord Genuity. Please go ahead.

[Michael Walkley:]

Great, thank you. Yeah, it's great to see the IoT business ramping off. So, Georges, as we think about just growing IoT throughout the year, can you maybe walk us through some of your carrier opportunity such as SoftBank. It sounds like Japan will be more of an early 2019 ramp. Is it mainly U.S. the key driver this year and how should we think about different carriers and opportunities, timing of Cat M all layering into the model, as we think about sequential growth throughout 2018?

[Georges Karam:]

Yeah. Hi, Mike. I mean, it's - yeah, obviously, the U.S. market is ready. So there is no question about it. As we said, we have product launching there and I'm talking here to the two carriers, about Verizon and AT&T, with both we are certified. We have many customers certified on this and it's moving. When you look globally before seeing what's having, if you look globally, if you really realize that, just after the U.S. the guys that they are pushing, I tend to say to be as fast as possible will happen in Japan, and maybe SoftBank in Japan as the first guy, followed by Docomo and KDDI. And you see as well, Korea, South Korea. You see as well Australia, all this I believe it's really on the trend to happen this year. So we should see them ready as the carrier this year, second half of the year more than maybe Q3 and worst case Q4 depending on those carriers. And then you will see a lot of activity with the European carrier and where I feel like they - even if they could be launching here and there, some region in Europe could be ready before others. I tend to say this is more towards the end of the year let's start talking about more general readiness. And obviously, in line of all this, our strategy is obviously to our focus on the first mover, I mean, who is ready first, that's why we focus a lot on the U.S. so far. And our second focus was to move on Japan. And that's why you saw some announcement about certification with SoftBank, but also the other guys we are very close as well. And we should complete this, it remains our first priority. We have even if we didn't do, not mentioning this, we have also Australia, good move there. And, it's again really driven by the design win quite often and the readiness of the carrier. So these are the carrier where I see them happening first and to some extent South Korea. And then we have partner as well for China that we close this quarter and we are now putting some energy even on China in the IoT through this partner.

[Michael Walkley:]

Okay. It seems like during the quarter, the IoT business offset what maybe what's perhaps weaker-than-expected broadband business. Can you give us your updated thoughts on size of this business, how you think it is for 2018? And maybe an update on the U.S. market like Verizon working through inventory, et cetera?

[Georges Karam:]

Earlier what I mention, I mean, we're still on a recovery plan in the broadband. So I believe we reached the minimum in Q1. And it has two reasons, Q1 as you know it's a seasonable weak for this market particularly obviously, because it's something established. It's not like the IoT where you have new launches. So Q1 in general is weak. But here we get the double hit of Q1 seasonable plus obviously the inventory we were talking about. We have, as I said, some nice news I will say on the U.S. front - U.S. broadband. We're seeing some forecast of recovery. And for the timing I'm still a little bit cautious, I'd like to see it happening, because we start seeing this really now, I mean, almost fresh news where I'm seeing this. So this in any case indicate that this business will go back to normal after the struggle we had end of the last year. And on the emerging, we have some recovery with one major carrier, the major customer. The other guys still have a little bit of inventory, so all this to say, we're still on a plan of recovery, maybe a little bit slower towards the end of the year. But if you project this for 2018, in 2018 where we have the new design win we are working on today. And as I mentioned, we're working - one of the issue we faced on the broadband is that we are really typically working on two regions, one business with Verizon and the other business in the emerging. So we are not too much diversified, so any problem happening there could hurt us. So we put a lot of energy recently on expanding this market for other regions. And I mentioned a few applications there, a lot by the way in the enterprise, in the CBRS business it's in the U.S. market on new carrier. So we see the real opportunity that we are addressing and we are closing. Some even - we get them already almost in hand I tend to say. So this should help us beefing up this business. So 2018 - 2019 can go back to normal growth if you want. So we see this year kind of bottom of the year, and we should go back to growth next year.

[Michael Walkley:]

Great. Thanks for taking my questions.

[Operator:]

Thank you. [Operator Instructions] We have a question from the line of Scott Searle from Roth Capital. Please go ahead.

[Scott Searle:]

Hey, good morning, good afternoon. Hey, George, Deborah, just a couple of quick clarifications, M1 in the first quarter, do you have some relative numbers of where we were. I think it was about $700,000 in the fourth quarter. Was it up sequentially? Also on the broadband front, if you could give us an idea of what the U.S. versus emerging market mix was. And then on the vertical front, you talked about doing very good about the year, I think, George, you talked about $10 million to $15 million for the year. Are you thinking more towards the higher end of that range at the current time? And then I have a couple of follow-ups.

[Georges Karam:]

Well, let me start to the last one. I mean, on the vertical, obviously, I mean, the range, I was talking about doing at least $10 million. And today I tend to say we have this in hand. So obviously, there are still a couple of quarters to go, but we hope to secure more and exceed this $10 million. Are we going to go to the $15 million, still a little bit big bet to say it like this. But at least the $10 million, because many of those deals, they are - we recognized revenue over time and some they are big deal when you sign them. So when you look to our backlog, it's kind of secured. And my point is that securing I will say the low end of the range. And then, hopefully, this allow us to get some upside, if we close couple of deals in Q2 and Q3. On the question about the broadband, the split between U.S. and emerging, technically it should - we should have in principle broadband - the emerging bigger than the broadband than the U.S. in general, I will say, maybe 60% emerging, 40% U.S. And I obviously with the - if we focus just on the current quarter, I believe maybe it was half-half, something like this. If I have to think about it, because both of them were kind of weak in Q1, on one side we have inventory and both sides we have the inventory issue. But I believe they tend to - they were close to 50-50. But if we go back to normal, we should have more 40%, I'll say the U.S. and 60% the emerging, and at the current level where we stand for this year. And if you go to the - I go to the first question about M1 and what happened in Q1, what as I said in - we have a couple of customers ready already. Some of them by the way, they are sampling to a dozen of customers. And here I am referring to some module partners. So the engagement, as I mentioned always to remember on M1. We have direct engagement, where ourself we're helping the end customer to build the device and take it to the market directly. And this is obviously 100% on our control, because we know the timing and execution at 100%. Then we have big chunk of the business going through module partner like Gemalto, like WNC and so on. Where those guys, they are ready, by the way all of them are ready with their at least a version for the U.S. And they have engaged customers, some of them are very advanced, some of them moved to production. This is what I mentioned, one guy has moved to full production in Q1, and some are turning for Q2. So the - we shift, as I mentioned end of Q4, some quantity. I mean, last year we shipped around 300K units. Obviously, this was to start serving Q1 ramp with those customers on the module side. In Q2, we ship as well, I - it's a still similar level, if you want, of volume for all those new customers, some of them are in the initial launch, some still sampling on this buildup for us some amount for this quarter.

[Scott Searle:]

Thanks. And just a follow-up, I apologize, it's one of my multipart questions. But looking at the M1 opportunity, continues to see like more and more design traction as you're going on. Part of that related to the competitive landscape, part of that related to your leadership and time to market. But a lot of the design seem like they were focused towards ramping in the third quarter. And your expectations were really focused and built around about a half-dozen or so larger design wins contributing to that 3 to 4 million unit into $15 million. Is that still the case? And it seems like you have visibility to it, so if you could comment on that. And then some of the other areas that you talked about, that are higher volume opportunities in terms of wearables, palettes, et cetera. That seems like it's all upside to those numbers. Is that the case and how does China fit in to what your current expectations are for the year? Thank you.

[Georges Karam:]

Yeah, definitely big chunk of our - what I mentioned that my number is building around getting half a dozen of revenue stream established this year, knowing that we have - I don't know, 30, 40, I don't know how many design. Now, if I count them, maybe we are closed to 40-plus customers designing with us Cat M and NB-IoT. I was - I am betting if you want on half a dozen of them, where they have secured design on their end, and product on their end, moving to production. And majority of them are more in Q3, the launch of those guys. So this is through. It's still valid. No change on this versus what I said. But also, we continue to engage with a lot of opportunities. Some of them, by the way, are design win already in hand, but production is more for 2019, because if you take for example e-health application, you could imagine that production of e-health will take time. The guys, they have much longer cycle, I'll say, to take product to market. And this will happen more in 2019. Some of them as well like large deployment like metering and so on, they could be sometimes waiting as well to get the maturity of the network ready before pushing on the bottom. So it could be the making trial to be sure it's working. But they are waiting to get the assurance that all the coverage is good. And by the way, those projects are not only for the U.S. We're seeing a lot of project outside the U.S. as well. And we're - maybe some - in some places you have some challenging environment in terms of coverage. And they are waiting more for the carriers to get them. So this is still through, I mean, there is no change for this other than building up more designing in hand - design win in hand. The only visibility we have a little bit more, I mean, for example, we could have a product with the launch plan for end of June, July. We could be fine-tuning this and we have exact date when this can happen, if it has slipped two weeks or three weeks. So this is what we have today. But still there are 3 million units I'm bating on. It's based on the same foundation of design win in hand.

[Scott Searle:]

Great. Thank you.

[Operator:]

Thank you. And we have a question from the line of Craig Ellis from B. Riley FBR. Please go ahead.

[Craig Ellis:]

Yeah, thanks for taking the questions and congratulations on the momentum in the IoT business. Georges, the first question was partially answered in your response to the last question. But I wanted to go back and acknowledging that in cases where you're working through a module partner you may not have the visibility. But where you're working directly what are some of the use-cases? You mentioned metering and e-health. But beyond that, what are the early adopters doing with the technology from your vantage point?

[Georges Karam:]

So the early adopter and this is what we are going to see this year. First, we are going to see a lot of tracking solution, whether in telematics or going to personal tracking, whether for old person or kids, for pet, for personal asset. So these are - the tracking functional is really largely we see a lot of application on this. And with all that - all kind of services around, they don't serve the same kind of application all of them, but all kind of services. For us, it ends by being really a tracker taking different form and under different applications. So this is where we see a lot of application there. We are seeing metering. Definitely this is - we have metering in hand. Metering tend to take time to kick off. I mentioned as well the button to order service. This is we should see it as well in the early adopter piece. So these are the kind of application we're seeing them now. And for e-health and maybe some larger projects like palette tracking or something like this - those you could see some trials. But there are more for us business for end of the year or beginning next year in terms of customer launch.

[Craig Ellis:]

That's very helpful and then the follow-up question goes back to comments you made about the geographic waves of adoption that are coming to the U.S., Japan, Korea, Australia and then Europe and China. And it's more of a longer-term question. As you look out to, say, the second half of 2019 and where you'll exit next year, can you help us size where you'll be geographically with technology shipments and deployments? Would you expect the U.S. to be your largest geography at the end of next year or are you seeing things that leads you to believe that Japan or Korea or one of the other geographies would be your number one geo? Any color on longer-term adoption in uptake would be helpful. Thanks, Georges.

[Georges Karam:]

Well, I believe, Craig, if we look for mid-2019, I believe all the market will be open for us. In other words, it will be maybe excluding some emerging market where the 4G deployment is not large. But I tend to say all the market will be open for us. We need to keep in mind as well that we have many customers. When we talk to them they are working today on the U.S. market. But those guys, they sell as well outside the U.S. And they are ready and eager to move to Europe, to Japan to other places. So we have, for example, design win today in the U.S. And this guy is promoting his solution in Japan or promoting his solution in Europe to sell it. So for us it's like in one stone we have three, four birds, I mean, expanding the market with the same customer. So if I project for the second half of 2019, I look to my business. I still believe the U.S. will be the dominant in the IoT, the dominant market, just because of the maturity, the readiness, the competitive landscape between the carriers. I believe it will be there always for Sequans the major market. But maybe between if we add Japan, Australia, Europe and all those guys we'll start maybe being at least one-third plus of our IoT business if I compare it to the U.S., the kind of two-third U.S., one-third. Now China, I'm excluding explicitly this and I believe I had this question before, maybe I didn't address it, which is we always in all our numbers and all this cautiously decided not to include China in our number as kind - making exceed, I would like to call it, complicated market to address, not to see it we're not able to address it, but we have so much little bit more complicated. But we didn't give up on this. As I said previously, where we're working with a close partner to build a go-to-market strategy there that can work in China despite all the challenges that you can face there. And as long as this is big, it's not negligible. And I hope between now and maybe mid-2019 to see some component of our business as well in China through this kind of partnership. But maybe revenue-wise, because this will be maybe some model that we could adopt, not giving us I will say the full percentage of the revenue, but just only a portion of it, because we're leaving a portion to our go-to-market partner. But still on the profit basis, I believe it should be significant for the company as well.

[Craig Ellis:]

Thanks, Georges. Good luck.

[Georges Karam:]

Thank you.

[Operator:]

Thank you. And currently I have no questions in queue.

[Georges Karam:]

Okay. So, if no more questions, thank you all for the questions and staying on the call. Thanks, Sean as well for helping in arranging this conference.

[Operator:]

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thanks for your participation, for using AT&T Executive Teleconference. You may now disconnect.