Sequans Communications S.A.
Q4 2017 Earnings Call Transcript

Published: 13 Feb 2018

[Operator:]

Welcome to the Sequans Fourth Quarter 2017 Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct question-and-answer session instructions will be given at that time. As a reminder, this conference call is being recorded. Before I turn the conference over to our host, Mr. Georges Karam, I would like to remind you of the following important information on behalf of Sequans. This call contains projections and other forward-looking statements regarding future events or future financial performance and potential financing 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 positions, business strategy and plans, expectations for IoT and broadband sales versus of funding and other objectives for future operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A and 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 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 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 [indiscernible]. Good morning, ladies and gentlemen. This is Georges speaking. I'm with Deborah Choate, our Chief Financial Officer. Welcome you to our fourth quarter and full year 2017 results conference call. We're entering 2018 in a strong overall position despite some recent challenges in our broadband business, and this promises to be pivotal year for Sequans. Before I get into a detailed discussion of the fourth quarter, I'd like to review the major achievements of the past year and how they position us for further success in the future. During 2017, the ramp in Cat 1 product shipments led to our first year of meaningful IoT product revenue, and set the stage for Cat 1 product revenue to double again in 2018. After being certified by the major carriers in the US and Japan in 2016. Cat 1 took a bit longer to start moving then we'd initially hope, but the demand is there. And with the Cat M revenue contributing ahead of schedule total IoT revenue grew 43% in 2017 and accounted for 25% of our total revenue. We're continuing to identify new Cat 1 projects, even now that Cat M is available. As Cat 1 technology is still needed for many IoT applications where speeds above 300 kilobit per second are required. In retrospect, it's apparent that because we're inventing something totally new and different. Cat 1 was not widely anticipated the way Cat M1 and NB1 have been. Therefore some operator were a little slower to move on Cat 1 and the traditional M2M customers spent a little longer with field trials before switching over from 2G, since they already had a working solution. But that hesitation is behind us now, we're shipping since mid-last year and we are excited to have good visibility on very strong growth in IoT Cat 1 business during 2018. Carriers attitudes toward LTE-M and NB-IoT are a totally different story. They have been quick to recognize the opportunities afforded by the narrowband cellular standards and have been moving aggressively on software upgrades to their networks. At the beginning we saw a kind of market split where some operators chose LTE-M and other chose NB-IoT only deployment. But realizing that the NB-IoT is not able to address all IoT use cases, most of the operators are on the word, who initially decided to deploy NB-IoT only have decided to add LTE-M. This is a major validation of the decision we made several years ago, when we began to develop Monarch platform to support both LTE-M and NB-IoT. We've been the only vendor with a fully optimized single-mode Cat M1 and NB1 solution. Certified and shipping for more than a year now. And we're viewed as leader in LTE for IoT. Therefore we're engaged with nearly every major carrier in the world. As a result of the reputation we've been building. During 2017, operators not only approached us to test our Monarch chip, but a number of them choose to engage in formal partnerships whereby they would contract with us to help them accelerate the rollout of LTE for IoT. These relationships are more than valuable, they're priceless. Having a team of smart engineers come up with a working solution that complies with the standard is only the beginning. The mutual trust and confidence that comes from years of working closely with partners and carriers to discover, analyze and address the endless list of challenges inherent in the evolution of LTE into IoT and 5G is something that cannot be quickly or easily replicated. In addition to cultivating more carrier relationships during 2017, we solidified our strong base of OEMs, ODMs and module partners to support a go-to-market strategy suitable for a global IoT business because there are vast differences in end-customers and their experience with cellular technology it's a very different challenges than selling to short list of highly-sophisticated smartphone makers. Hence the importance of our engagement with module partners who help us to address the fragmented IoT market on a global basis. Our module partners have been working with our Monarch chip for more than a year now. And all of them have completed or are well along in the certification process with multiple carriers in the US, Japan and Europe. As such end-customers building IoT devices have a wide choice and OEM and ODM module partners that will help them accelerate time-to-market and reduce the allotment and device certification cost. Our work with various carriers around the world in preparing to launch their Cat M1 or NB 1 networks this year also means expanding the ecosystem and supporting various module partners in certifying their solutions in Europe, Japan, Korea, Australia and even China. Another achievement during 2017 has been the farther diversification of our customer base. On our results call a year ago, we said we had around 40 active customers at the end of 2016. At the end of 2017 the comparable number is around 60 not counting operators or multiple projects with one customer. In terms of technical accomplishment, during 2017 we continued to demonstrate our leadership by introducing various derivatives of Monarch including development kits and application specific platform. We introduced Monarch SX which is sampling now the world's first single-chip LTE-M and NB-IoT SoC with an embedded processor optimized for IoT. Monarch SX eliminates the need to add an external application processor and integrates all IP blocks required to support voice, music and graphics display. It's also highly optimized for power and integrates a sensor hub making it very suitable for applications such as wearable. At Mobile World Congress America in September, we introduced CLOE a tracker platform to connect and locate objects. CLOE results from a close collaboration with STMicro to create a production-ready tracker design with out-of-the-box connectivity. CLOE has received a very enthusiastic reception and we already have a number of customer projects in the pipeline. Let's remember that Monarch was introduced almost one and a half years ago. And you can be sure we haven't been sitting still. We have been working for sometime on additional derivatives of the Monarch platform to address size, power and cost requirements and will be providing more details about these new innovation soon. Our strategy is to continue to innovate in corporation with our best-of-breed technical and strategic partners like Skyworks, STMicro and others to insure that by the time competitors reach parity with us, we'll moving the bar even higher. Although we're pressing a year our advantage in LTE for IoT, we should not forget that we continue to innovate outside IoT as well. We're expanding our roadmap for StreamrichLTE family to provide very high performance, feature-rich solution for cities, mobile hotspot, gateways and set-top-boxes as well as vertical market applications and we'll be announcing a new generation chipset this year. 2017 was also a year of great progress with our vertical market business. We expanded our relationship with blue chip companies like Thales and Motorola. Added new ones such as Lockheed Martin and made good progress with some others. We have now a solid revenue stream from this business with great visibility for 2018. We also have some existing strategic partnerships that have expanded and grown even stronger during 2017. This is certainly the case with Foxconn, STMicro and Skyworks. Also we're entering our fourth year of 5G collaboration with TCL and this partnership has been very fruitful so far with many 5G patents filed including some which are standard essential. As we mentioned on our last call, we are in active discussions with respect to additional strategic partnerships. Some of these discussion are at very advanced stage for at least the first phase of the relationship and we're quite optimistic. Also we continue to believe that here that some funding element can be related to those relationship. However the pace the things have been moving did not provide with enough confidence that we could receive the funding before we started to have an issue with the optics of our balance sheet. Therefore we decided to reinforce the balance sheet with the recent equity raise and avoid putting pressure on these strategic relationships and risk affecting the outcome. So to sum up the big picture, we're extremely well-positioned to capitalize on the global adoption of LTE for IoT with our Cat 1 Calliope platform as well as our Cat M1/NB 1 Monarch platform and related application specific solution, we're developing with our technology partners. We continue to see very attractive opportunities in the broadband market and use potential very favorably. As we expand and deepen our relationships in the vertical market, we see many more highly attractive opportunities there as well. So with our leadership position in LTE and 5G, we continue to believe we have the necessary ingredients to drive strong growth well into the next decade. Let me now give you some details on the development during Q4, 2017. Our Q4 revenue was toward the lower end of our original guidance mainly due to the delay in finalizing two agreements with new vertical market customers. One has since been signed and the other is still on track. Moving forward as our product revenue continues to ramp. The timing of such agreements will have left noticeable effect on the overall quarter. Revenue from IoT continues to grow as Cat 1 products were shipping in volume in the US and Japan. Also Q4 revenue included more than a $1 million of Cat M product revenue and several of our module partner landed new Cat M design wins during Q4. Some of them represent multi-million opportunities for us. In addition, we now have three carrier branded IoT design wins planned to launch in the second half of 2018. We expect very strong growth in IoT in 2018 supported by the continuous shipment of Cat 1 products and the ramp of Cat M particularly during the second half. Using the average of the current analyst estimates as that soon leveled off total revenue for 2018. IoT could account for more than half of our revenue received. As expect the broadband business was weak in Q4 and we expected to remain so in Q1. While we're making cautious assumption for the remainder of the year, there are some good reasons to believe we could see gradual improvement beginning in Q2 as excess inventory is wrote-down and newer broadband customers continue to ramp with new operators in emerging markets. We also have several promising new opportunities outside the emerging and Verizon markets. These could become design wins later this year and contribute to return to growth for the broadband business next year and beyond as we evolve towards 5G service. We spoke about the portion of the vertical market, but it's worth noting that both Thales and Motorola projects are in the deployment phase and the Lockheed Martin program has also started. As I mentioned earlier, we have some opportunities to expand with existing vertical market customers and we have won some new business as well. So we believe that revenue from the vertical markets can grow gradually. Although it's still up to be lumpy between quarters to summarize, although the optics of 2017 were not that great with the low growth year, it's important to note that we had very strong revenue growth in IoT as I mentioned 43%. This is the portion of our business that we expect to be the stronger growth driver for several years to come. Our momentum there is excellent. For all the reasons I described. You still see the broadband business contributing to profitable growth over the long-term and we already have a number of exciting new opportunities we're pursuing in that area. Therefore, we enter 2018 with the confidence that our technology leadership and excellent relationships with both customers and carriers will enable us to make significant progress recover with exponential growth and increase value for our shareholders. Now I'd like to turn the call over to Deborah to take you through the detail of the financial presentation.

[Deborah Choate:]

Thank you George. Hello everyone. I'd like to add some details about our Q4 and annual financial results and discuss the outlook including our guidance for Q1, 2018. Our revenue for the full year and 2017 was $48.3 million about 6% increase from 2016. The strong growth in our IoT business was masked by a decline in the broadband business particularly during the second half of the year. As George mentioned total IoT revenue grew 43% to $12 million in 2017 and accounted for approximately 25% of total revenue. Gross margin in 2017 was 43.8% the same as in 2016 and our net loss in 2017 was $26.2 million or $0.34 loss per diluted share American depository share compared to $24.8 million of loss of $0.39 per diluted share in 2016. Our weighted average share count increased from 63.8 million shares in 2016 to 77.7 million shares in 2017 primarily as a result of an equity offering in June, 2017. On a non-IFRS basis our net loss for 2017 was $21.6 million or $0.28 per share compared to a full year non-IFRS net loss of $19.9 million or $0.31 per share in 2016. Our non-IFRS net loss excludes non-cash items related to stock-based compensation expense, the non-cash impact of convertible debt amendment and effective interest rate adjustment related to the convertible debt and other financings. Revenue in the fourth quarter of 2017 was $11.3 million the same as the revenue for Q3 and an 18.9% decrease compared to the fourth quarter of 2016 reflecting the weakness in the broadband area which was partially offset by the growth from IoT. We had three 10% customers in Q4, two are distributors who each serve a number of Asia OEM and ODM customers and one is an ODM directly. Gross margin was 41.7% reflecting this quarter's mix between chips and modules and operating expenses were $10.3 million in Q4 down from $10.6 million in Q3. This is primarily due to an unusually high favorable impact from R&D grants coming in the quarter with an impact of $1 million. Operating expenses were $10.2 million in the fourth quarter of 2016 and we expect operating expenses in 2018 to average about $11.5 million per quarter reflecting the impact of the stronger Euro versus the US Dollar as well as some headcount increases primarily in engineering. Our fourth quarter operating expense was $5.6 million compared to an operating loss of $5.6 million as well in the third quarter and $4.9 million in the fourth quarter of 2016. Net loss was $7.6 million in Q4 compared to $6.9 million in Q3 and $5.4 million in the fourth quarter of 2016. Basic and diluted loss per share was $0.10 in the fourth quarter of 2017 based on 79.8 million average shares outstanding compared to net losses at $0.09 in the third quarter and $0.07 in the fourth quarter 2016 based on 74.5 million shares. The increase in weighted average shares outstanding reflects the equity offerings in June 2017, as well as some stock option exercises and conversion of $150,000 in convertible debt. We have also reported our results on a non-IFRS basis, which excludes from net loss, the noncash items related to stock-based compensation expense and the noncash impact of convertible debt amendments and effective interest adjustments related to the convertible debt and other financing. Non-IFRS net loss was $6 million in fourth quarter of 2017, compared to net losses of $5.9 million in Q3 and $4.2 million in Q4, 2016. Non-IFRS basic and diluted loss per share was $0.07 in the fourth quarter and non-IFRS net loss was $0.07 in the third quarter of 2017 and $0.06 in the fourth quarter of 2016. Cash used in operations in Q4 was $9.3 million compared to $5.3 million in the third quarter of 2017 and reflects the slippage of $4.5 million in collections from a few customers moving from December to early January. Our cash and short-term deposits at December 31, 2017 totaled $3.3 million compared to $13.3 million at the end of Q3. And this ending amount is not reflect of course the $20.9 million net proceeds from the January 2018 follow-on equity offering. Accounts receivables at December 31, 2017 were $20.9 million reflecting DSOs of approximately 120 days. Again this is due to a concentration of shipments at the end of the quarter and large collections switched from December to early January. Have this $4.5 million in collections received in the first two weeks of January been received as expected in December DSOs would have been 106 days consistent with our Q3 and Q2 levels. Inventories decreased to $7.4 million compared to $8.8 million at the end of Q3 and short-term debt from financing are receivables decreased slightly to $7.4 million in the quarter compared to $7.6 million at September 30, 2017. Looking forward, we expect revenues for the first quarter of 2018 to be in the range of $10.5 million to $12 million reflecting our typical seasonal weakness. And we expect non-IFRS gross margin in Q1 to be above 40% and non-IFRS net loss per diluted share to range between $0.07 and $0.08 based on approximately 94.4 million weighted average diluted shares. Our guidance for Q1 non-IFRS net loss per share excludes noncash stock-based compensation expense, effective interest adjustments related to the convertible debt and other financing, and any other relevant noncash or nonrecurring expenses. As George indicated, we expect the growth in the IoT business to accelerate this year. The broadband business is expected to gradually improve in 2018 and our assumption is that revenue from the vertical markets which includes public safety, avionics and very strategic partnerships will be at least similar in 2018 to 2017. So our growth in 2018 will be driven by a full year shipments Cat 1 combined with the ramp in Cat M1 and NB-1 from design wins already in hand, as well as others we may close in the near future. It's premature to give a specific target for IoT revenue for the year, but we expect substantial growth in Cat 1 as customers provide devices on more networks and we fully expect the ramp in Cat M1, NB-1 to build momentum as the year progresses. Before I turn the call back to George. I'd like to just remind you that at the conclusion of this call we'll post the written version of our formal remarks in the investor relation section of our website on the webcast and presentations page that's the same location where you'll find the audio replay. George?

[Georges Karam:]

Thank you Deborah. So before turning the call to the question, the key message of our today's call and my opinion can be summarized by just few simple word and I would like to conclude with this. Yes, we had some challenges in the broadband business that limited our 2017 revenue growth, but the IoT business which is the major growth engine of the company is doing great. We are the technology leader of LTE for IoT. We have a strong base of customers and partners and a solid partnership with carriers worldwide and IoT market is developing very nicely. So all this will result in 2018 and beyond in revenue growth acceleration and value creation to our shareholders. Thank you for listening and I would like to turn now the call for the questions. Operator?

[Operator:]

[Operator Instructions] our first question will come from the line of Mike Walkley of Canaccord Genuity. Please go ahead.

[Mike Walkley:]

George just a little more color on your IoT revenue growth expectations for the year. Can you talk about just that ramp in the second half? It sounds like Cat M1 kicks in the second half, can you maybe help us think about what could be the IoT run rate exiting the year versus the start of the year and could you also give us your view of the mix of Cat 1 and Cat M1 sales for 2018? Thank you.

[Georges Karam:]

Hi Mike, well you know when we look to the mix I'll say the IoT global as I said, we expect this strong growth and I gave an indication which is without really giving a guidance because taking a little bit the consensus number and look around this. I believe making 50% of this number in IoT this is really our target for the year. This number in my opinion will be coming. I do not - I should say 50-50 maybe, little more than 50 in Cat 1, we could say maybe 55 Cat 1 and 45 Cat M, if I have to give a guess today. But one side the Cat 1 will be full year business because this is really as I said, we had a half year business last year and we have very good visibility since Q3 shipments, Q4 and Q1 backlog and the forecast on getting from customer whether the customer buying our module in the Cat 1 like the Geotab, [indiscernible] Gemalto was buying our chip. So this is really quite solid the way we see to the good forecast. Now obviously the only variable which is today a little bit more complicated to guess, is the Cat M where here we have many module partner some of them have signed deal already and have start tripping as I mentioned we shipped for $1 million in Q4 in Cat M. this represents more than 200,000 Cat M chips that we sold to couple of customers. I will say this means we have really some run rate starting already since I'll say end of Q4 beginning of Q1 but obviously this will accelerate and the majority of the design launches are going to happen more towards the second half, some of them will be in Q2 and some more in Q3. I mentioned for example that we have carrier skew, three carrier skew that we'll be launching in the second half. So three independent device to be launching in the market and you have obviously the ramp up of our module maker going there. So I do know, this is - my comment is enough to give you color on this, but this is what I could say about it, without really giving a real guidance there. But if you make the split 55-45 you get the number more or less on the Cat M.

[Mike Walkley:]

That's helpful. Thanks George. And then just touching base on IoT environment. As you look at your design pipeline in the ramp coming, do you see any change in the competitive environment there's been some new companies launching some solutions in the market. So you've seen any changes in competitive environment as you execute on your pipeline this year.

[Georges Karam:]

Obviously I mean the environment is little somehow positive in a sense that the market is validating and there is no one day where we don't see carrier moving full speed and I re-insist on this, we didn't see this in the Cat 1 world, when we move to the Cat 1 it was much a slower, much longer, it took us much longer time ramp up to product. The Cat M I see completely different speed. First of all, people are really jumping quickly to get product to the market because there is a value proposition coming with the Cat M whether from their power or the cost or the data plan of the carriers, so all those drivers all say are incentives to the end-customers to launch product. So this is absolutely happening and obviously in this environment there is a competitive landscape the competition landscape is developing, people coming with solution sometimes announcing and so on. As we're speaking I didn't see any product certified other than the I'll say, the duopoly between our big brothers and Sequans I mean that we have, the two chip solution. We still hear our closest competitor that they were supposed to come with the product last year they're not there yet I'm still hearing more beginning of this year and we heard some new other guys are announcing product which as I believe it will be the beginning of the journey for them to go through development of the product, developing the software, certifying validate this and the field and you cannot imagine them out of effort we put behind Monarch. As I said, we have this since one year and half and for one year and half really working - I'll say - mostly with Verizon and AT&T because they're the first two guys ready to get all this working up and running given their within the field and check all the corner cases and solve, it's really very complicated task and we're happy to lead this. And the last bullet about it to share, I'd like to say you know anyone announcing a product today. He's announcing something taking in account I'll say, what we have done two years ago. But in the meantime as you could imagine we're working on next generation product. We're working on derivative of [indiscernible]. I didn't want to say anything more in detail on this because timing of product announcement will come as we determine internally from marketing point of view and but you'll hear soon from us, new product that will set the bar even higher versus Monarch and I believe towards the second of the year you'll see another bar as well coming from Sequans. So we're staying there and we believe we'll defend our competitive landscape and I'll say our leadership position in this competitive environment to maintain our market share.

[Mike Walkley:]

Great. Thanks last question from me. I'll pass it on - Deborah as we think about the mix of Cat M1 coming into the models later in the year, how should we think about just modeling gross margin trends for the year? Thank you.

[Deborah Choate:]

Overall we're expecting that the gross margin on the Cat M should be equivalent. So I think plus it's really overall bringing up the volumes to get more into the higher 40s on the chip business.

[Mike Walkley:]

Thank you. Look forward to seeing you at Mobile World Congress.

[Operator:]

Thank you. We'll go next to line of Quinn Bolton of Needham.

[Quinn Bolton:]

First off a little bit more color on the carrier branded Cat M1 design wins, maybe little bit about what the applications are, there's trackers or there's other types of Cat M1 devices?

[Georges Karam:]

I don't know how much I can say on this very frankly without really making a mistake versus my carrier partners. I would like to avoid commenting on this. Obviously you could imagine those I mean if - it's all many people are interested in many consumer type application and or businesses B2B application. So this is the kind of product that the people are launching. I could not comment more on this. I mean you heard some carriers announcing here and there, some kind of application there, so really to serve them from this angle.

[Quinn Bolton:]

Understood the sensitivity, George. And maybe another shot at that, do you think that these are sort of high volumes wins. I mean could these be devices that chip and steady state in hundreds of thousands of units a quarter or is that too aggressive on an assumption?

[Georges Karam:]

Absolutely I mean obviously when we're talking about three designs. I didn't want as well to mention which carrier and so on. There is risk related to this you know about how much the carrier will be successful in launching a new product and so on, but you can imagine that they're not products to build 1,000, 100,000 units a year. you know so on principal the target for those are really in hopefully in minimum half million unit a year, so this is the minimum target to achieve and some of them have the potential to be in millions of unit. But obviously that will be ramp [ph], there will be some results. Very frankly when you look towards - we have so many application happening in the Cat M and some of them are really big, some of them we'll be testing overtime all this we'll build up and the volume will be there. Whether this device or the other it doesn't matter for us. I mean we're - whether people buying modules from our partner or people taking our chip for a design, chip on board and in the initial phase of launch and so on, [indiscernible] looking really for short-term. They will definitely launch in - if you had thousands of unit for second half.

[Quinn Bolton:]

Great and then just the broad business IoT mix in the December quarter can you give us sort of the sense, what the broadband revenue was in Q4?

[Georges Karam:]

It was below $5 million in Q4.

[Quinn Bolton:]

And given sort of the current trajectory of that business in the sort of anticipated modest recovery begin in Q2, does that business, do you think that business is now likely to be down in calendar 2018 versus 2017 or do you think you can get back a roughly flat year end broadband with the ramp of new products in the second half of 2018.

[Georges Karam:]

In our projection we're taking this a little bit down because we assumed at Q1, if you want our beginning of Q2 is going to be weak. We started the year in 2017 very high, we started close to $10 million now we're $9 million I will say in Q1. So obviously we had a year, which is the impact was more in Q4 but we enjoyed first half at high level. Now our cautious approach we're assuming year-to-year it will be down in broadband a little bit down, but very frankly we're seeing a lot of good opportunity that and you know one of the challenge I would like to come back to this that you had on a broadband, that the broadband business is not too much diversified because the carrier all of them didn't launch single-mode LTE, we should not forget this. I mean Sequans is playing in single-mode LTE broadband and unfortunately this didn't go all the carriers so far and it was limited to the emerging plus Verizon. But as I see this year things continue to go in the right direction. We're seeing all carriers in Europe, we're seeing carriers in the US and outside Verizon coming within the new RFP and opportunity where they're willing to go single-mode LTE. So that potential remains big for this application and the carrier are deploying 4G to exceed 3G. I'm hearing this confirmation from other carrier as well, someone like AT&T mentioned this to me as well. So all this let me feel like the opportunity are there and they're going to come. Unfortunately we have some issues that they end of the last year and this is going to continue so maybe the impact of all this will not be highly noticeable in 2018, but it will go back I'll say hopefully to growth at the end of the year and beginning of next year.

[Quinn Bolton:]

Understood in your last question, Deborah the OpEx guidance of roughly $11.5 million was that a non-IFRS number or was that a IFRS number in a relation question. I know some of that is due to the appreciation of the Euro, but it also sounds like you're adding staff. Should we sort of interpret the staff additions is sort of confidence in the design wins that you have any kind of the expected revenue ramp you see in the - throughout 2018.

[Deborah Choate:]

Yes, so first of all that's the non-IFRS number and keeping it in mind that sort of the $0.10 change in the Euro, Dollar adds about $500,000 per quarter in terms of our OpEx, so a lot of that increases is related to the dollar movement. And yes I would say the headcount increases are because we're seeing more and more business opportunities and more and more operators to support, so it's a good find for the future.

[Quinn Bolton:]

Thank you.

[Operator:]

Thank you. We'll go next to line of Scott Searle with Roth Capital.

[Scott Searle:]

Deborah just quickly to hit on the balance sheet. I wanted to make sure I had my hands around that, so it sounds like there was already a collection on a couple of large receivables in the first quarter and also I think you typically have a tax credit that gets paid in the first quarter, so if you could just update us on the [technical difficulty] as well and additionally George on the strategic front, are you still - the evolution of these relationships. Is there a cash component that's going to be involved with that or otherwise can you give us some idea about where they stand and how that might or might not impact balance sheet and then I have a couple of follow ups?

[Deborah Choate:]

So in terms of the cash collections. Yes I mentioned we had $4.5 million that came in early January that should have been paid at the end of December. In the first quarter we get a little bit of grant money coming in, but not a significant amount. The tax credit it actually comes in the third quarter.

[Georges Karam:]

Hi Scott for the strategic relationship. I mean definitely I'm very optimistic and I tend to say if I have to confer my view on this versus last call. There is progress and I'm more optimistic than last call if you want on closing some of those views. We have some of them made very, very good progress and hopefully they could close. Again thinking about those strategic relationships is not only to go on and get some money, which is - obviously money is important whether coming as revenue line or to strengthen the balance sheet, all this is an important element. But there is a go-to-market and the strategy behind it, which is also could bring lot of value for the company and the shareholders because if Sequans thanks to some of those strategic ship we can secure and accelerate, secure some market share or secure some region because of those relationship this will be very important I'll say for the company. And obviously all those relationship will say will have some cash component linked that will help the company on the balance sheet somehow. The nature of those cash, how that will come whether equity, whether revenue and so on. It could be either way, it could be the two together I'll say some of them. It depends, it's also part of the negotiations that we have with our partners.

[Scott Searle:]

Okay, thank you. And just to follow-up on the IoT front. You got a number of strong relationships on the semi front with STMicro and Skyworks. STMicro it seemed to more recent news related what they're doing with the CLOE platform. I'm guessing we might see some stuff at Mobile World Congress as well, but Skyworks has been a little bit more quiet and I guess in the context of Nordic announcing relationships with [indiscernible]. I'm wondering if you could update us in terms of how that's progressing, is that relationships strong. Do we start to see some more tangible benefits of that? And in the broader view of Cat M1 this year, how are you thinking about the overall size of the market. I think in the past you talked about being 10 to 30 million units and having relatively high share. I mean how you see in that opportunity shape up now in 2018 and what are your thoughts on share? I think you talked about earlier probably being half of the market nearly going and we've had some competitive announcements out there, but it seems like they're more skewed towards 2019, so maybe your updated thoughts on that front.

[Georges Karam:]

I mean obviously the technology partnership that we have, we value all this and it's very important for a company the size of Sequans because it give us strength and positioning. So with STMicro, as I mentioned the CLOE platform is very, very successful we have reel [ph] design win with his, not only one I mean few design win with many customers, but some of them have been announced, some they secured even on their side customers. I mean in other words it's really business in hand and for us and for ST and the relationship is moving, extremely well and what I could say, we're not only stopping here we're thinking about as well the future of this CLOE and how this will evolve to stay competitive and be more better price, better cost, better power and so on. So this is definitely moving well and I'm quite happy about this. Skyworks is absolutely it's very strong relationship that we have, you need to as well to keep in mind when Skyworks define their front-end module for this IoT space, we did it with them. I mean we were the guy helping Skyworks to define it exactly to come with what we call the worldwide skew, when one hardware can fit all the carrier bands worldwide. All the other guys copied us afterwards. So you see, Qualcomm didn't have it and all the other small competitor they were coming with stuff, some of them they changed the name. We talk about single skew, other guys they talk about one skew. Which is just to call it like this? But all this was thanks to this relationship ahead of everybody between Skyworks and Sequans. And what I could say again all the product that we had certified, all those customers that we are launching at 90% of the cases. They are with Skyworks as well and this is good for them and good for us and definitely thanks to this relationship we're not stopping where we are and we'll work on next generation as well, how to improve this solution together and I cannot comment more now, but market will hear from us as well. again people will see that the bar as soon as someone is talking about something we'll be delivering something even higher what he's talking about, that's how we should perceive us in technology front.

[Scott Searle:]

George just from a market perspective, how big do you see the market this year?

[Georges Karam:]

I'm little bit puzzled and confused by China. Whatever I talk about market it's very hard to talk about NB-IoT in China because in China, if the government decide to equip all the park meter or all the bicycle or whatever on one night even if the business case is not flying, I mean the government is able to do this and you can have millions of unit and so on. So it's very, very hard you know to guess real number. But if I'm talking about the business today where I see it for 2018 it will be majority focus on the US, majority specifically on Verizon and AT&T in my opinion even if some others will come in the second half of the year in Japan specifically obviously China and Europe and other carriers in the US. And in this scope when I look to this I'm still thinking about those 10 million plus, maybe 15 million unit that could be Cat M technology majority in the US and our market share yes definitely we believe all the competitor coming to the market they will not influence the market share of 2018. 2018 is over. It's between two guys. Now we'll see if it's 50-50 or 60-40 or whatever because it depends on the number of unit that will be shipping or what product was successful more one guy versus the other guy, but this is how we see.

[Scott Searle:]

Just one last question and then I'll hop off. It sounds like you're talking with in the context of the competitive landscape people announcing products. Still to go through certification process, but you basically what I'm hearing today is that the next generation of SX, worst scenario we'll be seeing that in the second half this year at least more details around the specs and otherwise, that correct. Thank you.

[Georges Karam:]

Sure. Yes. Absolutely. And again you know when we talk about the certification don't take this, just only a question of certification go on work one month or two months with the carriers. Getting a stable stack for LTE guys I mean you saw how many company tried to play in LTE and big players and $100 million have been spent on R&D and very little delivered, later people managed to get it out. Because it's complex, it's not because people are not smart because it's very, very complex and Sequans is not leveraging I'll say one year of LTE or two years or two years, it's 15 years. all our life this is what we're doing and when we move to go Cat M, we were doing Cat 1 before, we were doing Cat 4 before and so on, this help us a lot and despite this, we go and spend one year and half to get a matured solution on new chip Cat M. so when you put this is in perspective, it gives you what any new competitor is able to do and impact the short-term.

[Scott Searle:]

Thank you.

[Operator:]

Thank you. We'll go next to line of Craig Ellis with B. Riley FBR.

[Craig Ellis:]

Just a couple follow ups to some of the prepared and Q&A comments. George first on strategic partners, it sounds like you're working on a number of opportunities. I'm hoping you can give us some color on your view for the potential for those strategic partners or partner engagements to be announced in either the first half or the second half and your view on the potential for there to be any kind of cash, rather investment either in the first half or the second half of this year related to the work that you're doing there.

[Georges Karam:]

Very frankly I mean the way I see it. It's again I don't want to say because things can be strategic [ph] relationship can evolve and with the strategy as well as the company on our side, what we want to do, but the way I see it, we could conclude something in the first half definitely this is very realistic. I will say where we are today and the progress we have done and as I mentioned, if we had to stretch maybe we could avoid I'll say delay, I'll say foundry [ph] is on my call but this means something was really eminent and they're still there. And still our target is to close some of them first half and some of those deals I believe they have an angle strong business development on the companies side that I'm doing everything to close it SAP [ph] because this will give us more I'll say potential not factoring in our revenue of 2018 or my projection if you want in the short-term. Any of this, but obviously those happening will boost further our revenue potential and definitely will help in the cash for the company to get stronger balance sheet for our future.

[Craig Ellis:]

That's helpful and then the follow-up on the broadband commentary. It sounds like the US, Europe, Japan and emerging markets. I mean the key opportunities, but as you look at the potential inflection in that business in the second half, where do you feel most confident about growth, would it be in the US or is it in one of the other geographies.

[Georges Karam:]

In the broadband to element on one side, what we were hoping. I mean, as I mentioned we have first of all a new product in the broadband coming to the market and this product is really nice. And I don't want to - saying a lot of things on this, but when I look really to the competitive product in the broadband which is, in the broadband space really we compete obviously with Qualcomm we compete with Huawei using their own silicon these are the major guy, but when I look where they are heading on the broadband, what they're developing and what we've done there. We're really addressing something that they haven't covered and in terms of, if you want performance, price positioning and so on. And this product will come out this year second half and we've many guys waiting for this product to engage further and develop further with business. And on the other side which is related to what your question directly which is, outside Verizon and emerging you have many carriers moving. We have for example one of them already testing products with our customers completely new product, new customers that will start with initial revenue. I mean that will be huge at the beginning but this is really penetrating a new carrier with single-mode LTE. We have couple of RFP and the process with our customer bidding there. So I believe and what I would like to see even if Verizon business and emerging business are recovering and we go back to where we've been last year. I would like to see at the end of the year more design wins outside of those market that will diversify further the broadband and give the broadband more potential higher growth potential but also less sensitivity to any problem happening with one problem chipping on Verizon or one emerging carrier getting a little bit of inventory and so on. So this is really my target and I believe it's achievable. The only question is really we need to be little bit patient before we see the revenue that will come from this.

[Craig Ellis:]

That's helpful and then the last question from me. I understand the comments about the uncertainty of the China market given the influence that the Chinese government can have on the way product adoption takes place. But there's recently been a report I think stating that the Ministry of Information Technology things there could be as many as $100 million NB-IoT units that was shipped this year. The question isn't on that, as much as if China is that committed to NB-IoT and given the global network relationships that you have, what you think that means for the pace of activity in other countries globally as we hit the on ramp to Cat M and NB-IoT. Thank you.

[Georges Karam:]

Well you know I believe and very frankly the carriers are going back to the what I hope that from the beginning that will start to, some carriers at the beginning they enter into the kind of [indiscernible] competition with the technology between Cat M and NB-IoT and very frankly the two can co-exists because they don't address the same used cases. So you can argue at the end, do you have more parking slot to connect versus wearable or versus large panels and so on, so you can argue how big if you take from the equation if the network NB-IoT is ready or Cat M is ready. You have some that it's ready everywhere you have bottled them existing. You can argue that this case is better to go in NB-IoT and this case is better to go on Cat M and I have always the feeling like have you put it in dollar perspective you will have at least 50% of this Cat M. and at the beginning you had some fight because you had some of the Chinese pushing more NB-IoT and even some European lining behind them. The way I see it today, all of those guys are now engaging over Cat M and all of them get rid of this fight and they want the two technology and they're deploying the two, even carriers that they were very, very strong on their NB-IoT position now you talk about Cat M as well. So for us it's good because this means we have the two, we have the leadership on Cat M and NB-IoT and we're moving there. Now the potential I still believe that China NB-IoT that will favor it, that will push it for any political reason and so on to have at least the NB-IoT successful and that's fine, but it will not impact the rest of the world. I mean I don't see this why, why this will be impact because the used case whether in the US or in Europe if you need Cat M, you need Cat M, its - that's how it is. And we're now second generation Cat M so even the price difference between Cat M and NB-IoT will be close of. So I don't see any showstopper against Cat M. this will continue developing and you will have as well NB-IoT developing and we'll play the two on our side.

[Operator:]

Thank you. And we'll go next to line of Jim Boyle with Charles Schwab. Please go ahead.

[Jim Boyle:]

Just curiosity, what can you tell me about the current sales force, are you looking to expand in the future?

[Georges Karam:]

Depends I do call sales force, we have between the two sales what I call two sales people we have - but you need to add all the business developing guy - business development and marketing guys and then you have obviously support team which is very strong. On the support we have very, very large team because it's key this is where we make the difference to support our customer, be with them and all the carriers and we have almost officers and people in every any big Tier-1 carriers and even sometimes with vendor lab as well. So this is large, in terms of sales. Pure sales what I'll call it we have close to 10 people, something like this.

[Jim Boyle:]

Thank you.

[Operator:]

Nothing further Mr. Boyle.

[Jim Boyle:]

No, that's enough.

[Operator:]

Thank you. And I'll turn it back to management at this time for closing remark.

[Georges Karam:]

Okay, thanks for your time today guys. Happy to have you with us. Many thanks for all the question and listening and looking forward to have you with our next call Q1 call in April, right?

[Deborah Choate:]

Early May.

[Georges Karam:]

Early May. Thank you very much guys. Bye.

[Operator:]

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.