Good morning, ladies and gentlemen, and welcome to the Sequans Communications Third Quarter 2024 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. [Operator Instructions]. This call is being recorded on Tuesday, November 5, 2024. I would now like to turn the conference over to Ms. Kim Rogers, Managing Director of Hayden IR. Please go ahead.

Thank you, Chloe, and thank you to everyone participating in today's call. Joining me on the call today from Sequans is George Karam, Chairman and CEO; and Deborah Choate, Chief Financial Officer. 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 the earnings press release this morning, which was posted to the company's website at www.sequans.com under the Newsroom section. Before we start, I would like to remind everyone that 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 within this release, including any statements regarding our business strategy, cost optimization plans, strategic options, the ability to enter into new strategic agreements, expectations for Massive IoT 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 1993, 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 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 Security and Exchange Commission. And now, I'd like to hand the call over to Georges Karam. Please go ahead, George.

Thank you, Kim. Good morning, everyone. I'd like to thank you all for joining us today. I'm excited to share an update on where Sequans stands as we continue our transformation following the successful closing of the Qualcomm deal. As you may know, we've been navigating a rebuilding phase and I'm pleased to say that we believe Sequans is on a strong trajectory towards growth and long-term success. Let me walk you through the recent development highlighting why we believe in our future success and growth. First, we successfully closed the Qualcomm transaction securing $200 million in funding for the company. This was a critical milestone for us. The deal not only enhances our financial standing, but more importantly validates our technological leadership in the cellular IoT space. This bolster the confidence of both our existing and potential customers in our ability to innovate, compete, and support them in multi-year relationships. Our financial stability is no longer a challenge and a major industrial leader has endorsed our technology. Second, as we have retained perpetual licensing rights to our 4G IoT technology, we can maintain and enhance our 4G product offerings with the LTM and the IoT Monarch 2 and Cat 1bis Calliope 2 platforms. This enables us to support our design win pipeline and drive short-term revenue growth. Meanwhile, we'll focus our R&D resources on developing next-generation innovative 5G RedCap and eRedCap solutions to continue our growth trajectory and create more value for our shareholders. Let me provide more detail on these points. Starting with financial stability. I'm pleased to confirm that in October, we fully repaid all mature debt and it cleared all overdue payables to our suppliers. Our balance sheet is now nearly debt-free, marking a significant turning point in our ability to operate with a greater flexibility.…

Thank you, George, and good morning to everyone. Before we get started, please note that the financial results released today are preliminary. Our final results are subject to finalization of the purchase price allocation, including receiving purchase price allocation input from Qualcomm, which is expected to be completed in December. This process involves allocating the purchase price among the acquired intangible and intangible assets based on their estimated fair market value. This process is required for both financial reporting and tax purposes. Now moving on to our Q3 overview. Our revenues for the Q3 of 2024 increased 29.5% to $10.1 million from $7.8 million in the Q3 of 2023 and increased sequentially by 4.2%. Product revenue accounted for 23.4% of total revenues compared to 9.7% in the Q3 of 2023 and 25.2% in the prior quarter. We experienced a shipment delay at the end of September, which prevented us from shipping about $500,000 of product. Licensing revenue was $7.7 million a 9.8% increase compared to $7 million in the prior year quarter and a 6.7% increase compared to $7.2 million in the Q2 of this year. This quarter, we recognized $6.7 million in revenue from partial delivery under a 5G license to Qualcomm as part of the overall transaction. We expect additional licensing revenue under this agreement to be recognized in Q4 and into 2025. Gross margin in the third quarter of 2024 of 82.5% continues to reflect the favorable impact of higher margin license revenue, dominating the mix and is stable compared to 84% gross margin in Q2. Gross margin on product revenue was 36.9% in Q3 compared to 39.1% in Q2. IFRS operating profit was $87 million in the quarter compared to operating losses of $3.7 million in Q2 of 2024 and $7.8 million in the third quarter…

Thank you, Deborah. Operator, we are ready to open the call for Q&A please.

[Operator Instructions]. Our first question comes from the line of Scott Searle from Roth Capital. Please go ahead.

Good morning, and good afternoon. Congrats on getting the deal closed, George, and congrats on the improving outlook and customers returning to buy Sequans product. George, maybe just to start on that front, the product recovery seems to be strongly underway. You provided some details in some of the verticals. I'm wondering if you could go a little bit more into detail to seeing how that recovery progresses into 2025. I know there's a lot of meter opportunities, there's a lot of fleet opportunities that are in the pipeline. And how you expect that to kind of continue to ramp in 2025 given that you've got a $250 million design win pipeline? And kind of how that's starting to break down also by technologies? Are you starting to skew more towards Cat 1 versus Cat M? Any color on that front would be helpful.

I mean, Scott, as you mentioned, I mean, really the design win pipeline is intact and this is maybe the best thing we achieved, I will say during the last couple of years of challenge or a year and a half of challenge because we could lose a lot of deals, but customers stick with us and they continue to design. And I mentioned a little bit like, although the design win conversions was not fast or was very minimum I should say, now it's back to life and we are seeing traction again and we start closing new deals. But to talk about the specifically the growth, you need to imagine that this year, most of our business was really focusing in terms of product on Cat MNOG2 revenue, which are projects that they were, they moved to production beginning of the year and they were progressing. We start seeing new ones coming in Q4, and this will continue next year with more projects turning. And when I talk about projects, not necessarily always by the way, new customers, sometimes we have the same customer with whom we have like multiple projects. And in the first year we saw only one project converging to revenue, and we are shipping to this customer, but the shipment level remain, I'll say low in comparison to the potential of this customer when three more projects will be turning to mass production as scheduled by our customer executing. So, we're going to see sequential growth, maybe Q1 will be a little bit Q4, as I said, will double Q1 will be okay, and then we'll continue from there. Growing every quarter based on what we are seeing in terms of convergence of product, really one customer. We just only waiting for the customer to turn to mass fraction. And there is an inflection point as well next year related really to what you mentioned about the product nature. As I said, we are shipping more to the Monarch and Cat M. Cat 1bis platform, we didn't ship much, will be shipping a little bit in Q4, but really the beginning of this. However, we had many customers projects where turning again to mass production, we start getting backlog for next year with some customer ready already with their platform and others to turn to production in more towards end of Q1 and Q2. So next year we are going to have continuity of Monarch 2 projects growth with more projects win. And really the conversions of the design win of Calliope 2 turning to mass production next year. I will not say like half next year, maybe in dollar amount that will be 60/40, because the Cat 1 value is higher. The Cat 1 is still in the beginning of the ram. However, in 2026 we could see Cat 1 as big, as Cat M even a little bit higher, I tend to say.

Very helpful. And, maybe to just build on that and kind of wrap RedCap into the conversation, it's clear from going to industry trade shows and events that, you guys have kind of been pulled into center stage post the Qualcomm acquisition. It seems like from a design activity standpoint, from a relevant standpoint, validation standpoint, that's driving that opportunity pipeline, that design when pipeline. So, I wonder if you could address that as well with RedCap. The timing of RedCap and it seems like it's becoming increasingly more relevant with customer roadmaps, particularly on the industrial IoT front in terms of your ability to not only offer Cat M and Cat 1, but to migrate to Red Cap. And so how that's all playing together and when RedCap starts to become relevant and who the competition is.

Yes, I mean, maybe just one clarification. When we talk about RedCap, obviously it's the family reduced capacity of 5G, so it's, let's call it low cost 5G, and we talk about RedCap and eRedCap and the difference between the two that RedCap is really for high-end IoT for camera application because it allows you to do 100 megabit to 150 megabit per second, while when you go to eRedCap, you limit the speed really to let's say 10 megabit and below. And the eRedCap is the solution that will be, I would say the 5G flavor of Cat 1bis and LTM, and the RedCap will be like addressing high end industrial application. So, we're working on the two as we said. Our eRedCap will be faster and will bring something to market, next year. I don't want to say more on this because we'll be announcing this and, our customer, they know on NDA what we are telling them, and we believe eRedCap will follow the following year to market from execution point of view. In a high-level view what I'm saying here. Now, when you look to the demand, this will be, you need to understand that to get RedCap and eRedCap, you need 5G to be standalone. 5G deployments standalone where today most of that 5G deployment are non-standalone. In other words, the device will connect first immediately on 5G. The device doesn't need at all 4G to connect. And we know that in the U.S., carriers started their deployment of standalone and this will take them maybe a couple of years to be, I would say, nationwide coverage where the RedCap and eRedCap will be almost a must in every place. However, you need to think about it like the customers have concern and because they…

Great. Very helpful. And lastly, if I could, just on the licensing front, looks like near term you're going to have some ongoing licensing recognition or RedCap from Qualcomm. But it sounds like there's also a pipeline of opportunities building on the RedCap and eRedCap front that are similar to the licensing deals you've won in the past. I'm wondering if you could elaborate on that front, just how active the engagement pipeline is, and then I'll get back in the queue.

I mean, Scott, I mean, as you know, track record of Sequans, if you go back even 10 years, I mean, there is no 1 year where we didn't do strong licensing and revenue. It's not the business that scales to many 100 million or whatever I mean, but this business exists and gives the capability to Sequans to always get $10 plus maybe sometimes $20 plus and $30 plus million depending on the platform and so. And this is because we are always on the edge with our innovation and we have customer and partner interested in approaching us and get access to this technology. And we believe this will continue. We are engaged with many partners, obviously we'll be selective on the partner because we always do those deals to avoid impacting our product revenue, I'll say in terms of relationship by selecting the nature of this partnership. But we are quite optimistic and positive. We have few deals under discussion and I'm sure we'll sign more next year in 2025.

Thanks, so much. Congrats on closing the deal and looking forward to 2025.

Thanks, Scott.

[Operator Instructions]. There are no question at this time. Please continue.

Thank you, Operator. Thank you again for joining the call today. Just a few words to conclude this call. As I said, with a $250 million three years product revenue design win pipeline and the strong support of our customers to the new position of Sequans and our innovative product roadmap, we are confident in our ability to expand our market share in the 4G and 5G IoT market. The road ahead is exciting and I believe Sequans is in a strong position to grow and be success. I extend the heartfelt thanks to all our stakeholder who have stood by us and we look forward to your continued support. Thank you very much. Thanks, operator. We can close the call now.

This concludes today's conference call. Thank you and you may now disconnect.