Hello, and welcome to the third quarter 2026 Sequans earnings conference call. My name is Towanda, and I will be your operator for today's call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please note that this conference is being recorded. I will now turn the call over to David Hanover, Investor Relations. David, you may begin.
Thank you, operator. Thank you to everyone participating in today's call. Joining me on the call from Sequans Communications are Georges Karam, CEO and Chairman, and Norman Brodt, CFO. Before turning the call over to Georges, I would like to remind our participants of the following important information on behalf of Sequans. First, Sequans issued an earnings press release this morning, and you'll find a copy of the release on the company's website at www.sequans.com under the Newsroom section. Second, this conference call contains projections and other forward-looking statements regarding future events or our future financial performance and potential financing sources.
All statements other than present and historical facts and conditions contained in this release, including any statements regarding our business strategy, cost optimization plans, strategic options, the ability to enter into new strategic agreements, expectations for sales, our ability to convert our pipeline to revenue, and our objectives for future operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. These statements are only predictions and reflect our current beliefs and expectations with respect to future events and are based on assumptions and subject to risk and uncertainties and subject to change at any time. We operate in a very competitive environment and rapidly changing environment. New risks emerge from time to time.
Given these risks and uncertainties, you should not rely on or place undue reliance on these forward-looking statements. Actual events or results may differ materially from those contained in the projections or forward-looking statements. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission. Now I'd like to hand the call over to Georges Karam. Please go ahead, Georges.
Thank you, David, and good morning, everyone. Before discussing our core business, I will start with a brief update on our balance sheet, as we have now fully concluded our Bitcoin treasury strategy. As announced on September 24, we sold the remaining 314 Bitcoin held on our balance sheet as of June 30, completing the Bitcoin treasury exit that began with the full redemption of our convertible debt in May. These final sales were executed at an average price of approximately $78,500 per Bitcoin, for total proceeds of $24.6 million. As a result, Sequans no longer holds any digital assets, and we have no outstanding debt other than a small amount tied to government-financed R&D projects. We ended the third quarter with [inaudible] cash equivalents, and short-term deposits, compared to $21 million in cash and 314 Bitcoin at the end of the second quarter.
With this exit complete, the Bitcoin treasury chapter is closed, and the full strategy and financial attention of the company is now on our semiconductor business. Our priority going forward is squarely on executing our semiconductor strategy, scaling our IoT product business, developing our new defense and drone business, and advancing our 5G RedCap roadmap to create long-term shareholder value. We enter the fourth quarter with a strong balance sheet and the financial flexibility to support our operations and invest in growth. Now, turning to our semiconductor business. Our 4G IoT products showed strong momentum in the third quarter. Third-quarter revenue came in at approximately $9.1 million, in line with our guidance range. That is up 22% from $7.5 million in the second quarter and up 183% from $3.2 million in the third quarter of 2025.
The vast majority of our Q3 revenue was generated by product sales, which increased by more than 4x year-over-year. Through the first nine months of 2026, revenue totaled $22.6 million. That already exceeds our full-year 2025 revenue of $18.3 million, excluding the $8 million of non-recurring Qualcomm-related revenue we recorded in the first half of 2025. We are seeing strong order momentum across our customer base, driven by design wins that have reached mass production, several of which we expect to keep scaling through 2027. This is reflected in its strong and growing backlog extending into the second half of 2027, which give us solid visibility and confidence in our product growth trajectory. As in the previous two quarters, our Q3 book-to-bill ratio was well above one. Our product design win pipeline, measured by potential three-year product revenue, keeps expanding.
We update this figure once a year, so for now, we are maintaining the $300 million reported at the end of 2025. However, in the third quarter alone, we added nine design win projects and eight advanced engagements. As reported at the end of the second quarter, $165 million of this pipeline is in mass production and generating revenue. Two additional projects moved to mass production in Q3, and we expect several more to follow in Q4, bringing the mass production portion of the pipeline to more than $180 million by year-end. Smart metering, telematics, and asset tracking remain our strongest verticals, and the volume and visibility we are building in these markets reflect the strength of our product positioning and customer relationships.
Looking at our product families, our Monarch CAT-M products remain a core growth driver, accounting for more than 80% of Q3 product revenue, with asset tracking and smart metering applications leading the way. We expect this business to keep growing in 2027, as we continue to win new customers and projects every quarter. Revenue from our Calliope Cat 1bis product is driven by our design wins in telematics and security, where several projects have now reached mass production. We expect this momentum to carry into Q4 and beyond, with significant revenue growth materializing in 2027. Overall, our cellular IoT pipeline for both CAT-M and Cat 1bis keeps growing, with many new opportunities every quarter. Beyond the design win pipeline, we are currently working on more than a dozen new projects that we hope to win in the near future.
In addition, we have begun substantive discussions on several 5G eRedCap projects, with customers preparing for the network transition from 4G to 5G, a market we are targeting with a highly competitive chip now in development. As we previously said, our 5G eRedCap test chip is in-house. We expect to complete end-to-end lab testing late this year, with a plan to engage customers in the second half of 2027 and generate revenue in 2028. As the IoT market transitions from 4G to 5G, eRedCap remains a key pillar of our long-term strategy. It positions Sequans to capture a significant product design win opportunity and expand our market share in cellular IoT while enhancing our IP leadership and supporting future licensing agreements. Beyond IoT, our Iris RF transceiver is attracting strong interest across defense, drone, and space applications.
Since we began shipping our development kit platform in Q2, we have generated more than 20 leads in these markets, including many tier-one customers. The first drone customer we announced last quarter is now ready for production, and we expect shipments to begin in Q4. While most of the RF pipeline is still in the engagement phase, it already represents more than $30 million in three years revenue potential, with very high margins. We are fully committed to scaling this defense and drone business by building out our go-to-market strategy and strategic partnerships, several of which are currently under discussion. Turning to services and licensing, this business remains an important source of high-margin revenue, although the timing of individual engagements can vary from quarter to quarter. Our goal is to leverage our RF and 5G IP portfolio to address new markets and regions beyond our own addressable markets.
We have already concluded several licensing deals in the past, some of which are now generating royalty revenue that we expect to grow in 2027. We also have several active licensing and strategic engagements under discussion with global customers and partners across a range of end markets and geographies. Individually, these opportunities range from several hundred thousand dollars to well over $10 million, and their total revenue potential exceeds $75 million. We are making progress on most of them and aim to close some in Q4. These opportunities provide potential upside to our revenue, would advance our path to break-even, and expand our strategic reach into new markets and applications. Now, a few words on supply chain and product costs. We continue to navigate a challenging supply and cost environment. While memory remains the primary constraint, we are increasingly seeing pressure across the broader semiconductor supply chain.
To mitigate these challenges, we have implemented multiple sourcing options for key components and manufacturing materials, including substrates, flash memory, and assembly and packaging, which puts us in a stronger position heading into 2027. However, we still need to address silicon supply, as TSMC will be operating under capacity allocation for all mature nodes in 2027. With significant growth expected next year, our main challenge is securing enough wafers to meet all customer demand. We have already secured the majority of our wafer needs, and our goal is to work closely with TSMC to secure the remaining volume required to support our full 2027 growth potential. At the same time, we are mitigating cost pressures by passing through increases to customers where appropriate, limiting the impact on gross margin. This is particularly important for memory components, where pricing remains volatile and changes month by month.
We managed all of these challenges well in 2026, and we have confidence in our ability to manage these challenges again in the coming year. Third quarter cash burn came in line with our plan. We remain focused on disciplined cost management and on reducing cash burn over time as revenue grows, with the objective of reaching break-even as quickly as possible. Overall, our third quarter reflected real progress in strengthening our core IoT business, completing the simplification of our capital structure, and positioning the company for sustained growth. For the fourth quarter, we expect revenue in the range of $9.5 million- $11 million. This guidance assumes a limited contribution from licensing and services. Should we close a major licensing deal during the quarter, revenue could exceed this range. We are executing from a position of strength.
We have a simplified balance sheet with approximately $40 million in cash and short-term deposits, no debt other than government-financed R&D funding, and significant financial flexibility. We have an IoT business with strong underlying momentum, supported by a growing backlog and a maturing design win pipeline that is increasingly converting into production revenue. We have an exciting new market opportunity in defense, drone, and space, which adds scale and diversification to our business with significant potential. We have a differentiated strategic IP portfolio in 5G and RF, which we believe remains one of the most important long-term value drivers for Sequans. We remain focused on scaling our product revenue across both our IoT and defense and drone markets, advancing our 5G RedCap roadmap, and executing against the key drivers we believe will unlock the full value of Sequans over time.
With that, I will now turn the call over to Norman Brodt to review our quarter financial results in greater detail.
Thank you, Georges, and good morning, everyone. I will now turn to the third quarter financial results. Total revenue for the third quarter was $9.1 million, an increase of 21.9% compared to the $7.5 million in the second quarter of 2026, and up 183% from $3.2 million in the third quarter of 2025. Revenue during the quarter was largely product-related, as product sales were more than 4x higher year-over-year, reflecting the continued growth of our core IoT business. For the first nine months of 2026, revenue was $22.6 million compared to the $19.4 million in the same period of 2025. When you exclude the $8 million of non-recurring upfront and late license and services revenue from the prior year period, revenue for the first nine months nearly doubled year-over-year.
Gross margin was 33%, compared to 32.9% in the second quarter and 25.3% in the third quarter of 2025. Operating expenses, consisting of R&D and SG&A expenses, were approximately $10.3 million, down from $11.9 million in the second quarter and $13.7 million in the third quarter of 2025. This is a reduction of about 14% sequentially and 25% year-over-year. Savings from our operating cost base reflect the cost reductions we discussed last quarter. We expect operating expense in the second quarter 2026 to be lower than in the first quarter, while we continue to invest in [inaudible] . During the quarter, we completed the sale of our remaining [inaudible] and reported a realized net gain of $6.2 million, compared to a realized net gain of $5.3 million in the second quarter.
There was no impairment on digital assets in the third quarter, compared to the $3 million in the second quarter. With no Bitcoin left on our balance sheet, our financial results will no longer be affected by Bitcoin price movements, whether through impairments or through realized gains. Operating loss was $1 million, compared to a loss of $7.2 million in the second quarter of 2026 and a loss of $24.4 million in the third quarter. The $1 million operating loss includes the $6.2 million gain from the Bitcoin sale, and also reflects the higher revenue and reduced operating expenses.
Net loss of the quarter was $1.5 million, or $0.10 per diluted ADS, compared to a $9.8 million loss, or $0.65 per diluted ADS in the second quarter, and $16.6 million loss, or $1.19 per diluted ADS in the third quarter of 2025. Net interest expense was $0.4 million, down from $2.4 million in the second quarter, which reflected the full redemption of our convertible notes. On a non-IFRS basis, excluding non-cash impairment stock-based compensation, and the non-cash items associated with convertible debt and debt derivatives, non-IFRS net loss was $0.6 million, or $0.04 per diluted ADS. This compares to a non-IFRS net loss of $3 million, or $0.24 per diluted ADS in the second quarter, and $12.3 million, or $0.88 per diluted ADS in the third quarter.
Now turning to the balance sheet, with significant strengthening of our financial position this quarter. Cash, cash equivalent, and short-term deposits on September 30 stood at $39.8 million, consisting of $6.2 million in cash and cash equivalent, and $33.5 million in short-term deposits. This is up $18.7 million from $21 million on June 30th, reflecting $24.6 million of proceeds from the sale of our remaining Bitcoin, partially offset by the quarterly cash burn. In addition, in October, we received a $2.5 million final payment for closing of our Chengdu development, which is not included in our September 30 cash position. The cash burn in the third quarter was approximately $5.9 million, in line with our plan. As of September 30, we held no Bitcoin, and had 0.16 Bitcoin at December 30, and 2,113 Bitcoin as of September 2025.
The convertible debt fully redeemed, and our Bitcoin treasury exit is complete, and is not on our balance sheet. Our only remaining funding is government research funding. It is carried at $5.2 million on our balance sheet, while the amount we actually expect to reimburse is approximately $3 million over the next five years. Coming back to Georges' comments on licensing. We have several discussions that are well advanced, and we believe a number of these have the potential to contribute meaningfully to revenue. The timing of licensing revenue recognition can be difficult to predict, and that variability is reflected in our Q4 guidance. Before I hand the call back to Georges, I want to summarize the key points of our third quarter. We are reducing our operating costs. We are working on product cost structure to improve gross margin. We no longer hold any Bitcoin.
We have a strong balance sheet, almost debt-free, and an overall cash position of approximately $40 million. With this foundation, we believe that Sequans is well-positioned to support its operating and strategic priorities going forward. With that, I will turn the call back to Georges.
Thank you, Norman. As we close, our priorities are clear. We are focused on scaling our IoT semiconductor business, expanding into software-defined radio applications across drones, defense, and space, and advancing our 5G eRedCap portfolio. The third quarter showed solid momentum across the business. Revenue grew 22% sequentially and 183% year-over-year. Product revenue more than quadrupled, and our book-to-bill ratio was again well above one, supported by a backlog that now extends into the second half of 2027. More design wins are moving into mass production, and we expect the mass production portion of our pipeline to exceed $180 million by year-end. Beyond IoT, our Iris RF transceiver is building traction in the defense and drone industries, and our licensing pipeline gives us additional upside on top of our product revenue. We have also completed an important transformation of our balance sheet.
With our convertible debt fully redeemed and our Bitcoin treasury exit complete, we have now approximately $40 million in cash and short-term deposits and a simple capital structure, giving us the flexibility to support operations and invest in growth as we move toward the break-even runway. Overall, we believe Sequans is well-positioned with a clean balance sheet, improving visibility into product revenue, a differentiated technology portfolio across 4G, 5G, and RF, and multiple avenues for growth. We remain focused on execution and on creating long-term value for our shareholders. With that, operator, we are ready to open the call for the questions. Thank you.
Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Searle with ROTH. Your line is open.
Hey, good morning, good afternoon. Thanks for taking the questions. Hey, Georges, just quickly to clarify on the cash front, I believe there was still an outstanding incoming payment from the French government of $3 million. So, want to clarify whether or not that came into the third quarter, if that's expected in the fourth quarter. And just to clarify, $180 million of those design wins now going into production over a three-year estimated time period. So in 2027, we're looking at some point, ramping up to a $60 million a year product run rate. Is that the correct way to interpret it?
Hi, Scott. On the first question, yeah, in fact, we received $2.5 million from the French government in October. It's not recorded in the balance sheet end of September, obviously. It came almost the first week of October, and on a pro forma basis, yes, I mean, you can add that. And on the design win pipeline, the target is to be above $180 million by year end, and you're absolutely accurate, this represents three years' revenue. So this will give you the average run rate over the coming three years. I will not say $60 million is the number for the first year, but an average for the three years, you have $60 million, so it will be somewhere between $50 million+ , I would say, because it's growing over the three years. You still have product ramping every year over those three years period.
Got you. On the RF front with the Iris product line, it seems like you are starting to get a lot of traction there. I wanted to clarify the comments that you made on the call. I thought you said $30 million. Is that from the initial drone win by itself, that it could ramp up to $10 million a year over time? It seems like not only the timeline to win, but the timeline to production has actually been pretty fast on this front. Engaging with 20+ customers now, how do you expect that to, I guess, roll and progress over the course of 2027?
Yeah, I mean, honestly, the traction is really, I should say, overwhelming. We have a lot of demand on this platform. We are out of all the EVK we built in the first batch to sell them to customers. Now we are fighting to catch up, to get more and feed more customers. We shipped more than 30 units so far, and we have 20 leads customer there. This is developing. I mean, the $30 million I gave, this is really the potential of the leads we have in hand, or an estimate of what we have in hand that we are working on today. It is not the design win we have alone.
We have one design win, it is smaller than this, but this design win moved to production, as I said, because we have an initial order to ship in Q4 for production, and we are expecting for 2027 more orders to come from this customer. On the last remark, the time to turn this to production, we need to keep in mind that this radio, we do not have a lot of software there, so it is really a piece of hardware that you add to a baseband technology and so on. Depending on the situation, if they have their own existing product and they are changing radio to benefit of the radio of Sequans, which has a feature allowing anti-jamming, we can move very quickly the frequency. This is what happened with the first customer.
He has an existing product, he moved to change the radio, and obviously, almost in six months, he got this product up and running, and now we are seeing revenue. If you are in a situation where the customer is building from scratch all his platform, obviously, it will be much longer, not limited by Sequans technology. It will be limited by the overall system the customer is building.
Okay. Very helpful. Lastly, if I could, on the licensing front, it sounds like there is an active pipeline. I want to clarify a couple of things. It is not really built into the Q4 guidance at the current time. It sounded like the total opportunity pipeline, I think the number you said was $75 million. You are also expecting to see potentially some of these opportunities convert in the Q4. I just want to clarify that. Thanks.
Yeah, indeed. I mean, we have, as we said, a decent number of deals that we are engaged with, and to sum them all will exceed $75 million opportunity. Honestly, all of them are likely, so I give them We do not have a deal which is maybe 10% chance to get it. The deals we are counting in are, I should say, 50% chance to close it. Some of them are quite advanced, and hopefully we can sign something in Q4. Now, obviously, from the time you sign to take the revenue, all depends, as you know, you have the revenue recognition comes into play, and sometimes we are not able to factor in the revenue in Q4 because it depends if we are able to make delivery in order that can allow us to make some of the revenue even if we sign in Q4.
So we could sign in Q4 and take zero revenue, even though obviously the chance of deal will be okay, and that is what we are doing in Q1 and beyond. That is why we are in our-
Great. Thanks so much.
guidance, we are not factoring big deal inside, I would say. We are taking, I would say, normal business that we have in hand, mainly product with a little bit of small licensing deals that they are already secured by the company.
Great. Thanks so much. I will get back in the queue.
Thank you. Our next question comes from the line of Josh Nichols with B. Riley Securities. Your line is open.
Yeah, thanks for taking my question, and good to see the company fully transition to IoT semiconductor business with the selling of the Bitcoin treasury part. Two questions I want to ask. Sorry, it was a little bit garbled on my end. One is, you gave a revenue level of like $9.5 million-$11 million for Q4, but that excludes significant license revenue. Looking at that, you talked about some of the pricing headwinds on memory. Should we assume that Q4 gross margin is like comparable to Q3, ex any large licensing deals generally?
Hi, Josh. I mean, first of all, you are right. I mean, this, we did not factor major licensing deal. There is a little bit of licensing inside, more or less small one or some of them we already sign, and we take some revenue as we move forward. To go back on the question on the gross margin, to be honest, it is really, I do not know what prediction I can give there, but we have a big, big problem with those memory that the price change every month, really every month, literally. This is really creating a lot of challenge for us to predict, if you want, exactly even the price increase we reflect on our customer. So it is really like a catch. We adjust the price, and later on some basis, very hard to anticipate a lot of cost increase.
I mean, we take whatever logically we can justify it to customers, and sometimes catch up in the middle of the quarter when we have. So I believe I remain cautious on the margin in Q4. I do not believe we are settled for the now. Hopefully, this will change in 2027 because we have a lot of actions with double sourcing that will enter into play. For example, we put some double sourcing specifically for the flash memory, but this is not factored in yet in our shipment to customer because it takes some time to transition to a new model as we need to adjust a little bit the software and so on with the customers. This is coming more in 2027 than Q4. So in Q4, I remain a little bit cautious on my gross margin, similar to what we have seen in current quarter.
Appreciate the context. Thanks. I will hop back in the queue.
Thanks, Josh.
Thank you. Please stand by for our next question. Our next question comes from the line of Jacob Stephan with Lake Street Capital Markets. Jacob, your line is open.
Yeah. Hey, guys. Appreciate you taking the questions. Nice quarter. Just first, I want to touch on the advanced discussions that you're having on the 5G RedCap opportunities. Maybe, could you help us kind of think through the sizing of some of those newer deals in the pipeline versus what you have currently?
Yeah. Hi, Jacob. I mean, first of all, in terms of design win, in other words, the pipeline, when we talk about the $165 million that has been publicly announced end of June, and the target I'm giving for year-end above $180 million, this doesn't have really RedCap design win, right? I mean, because what we factor design win is really customers, they have the chip, they integrate it, they have hardware, and they are working on their design. And obviously, the eRedCap, we're still in the prototype phase on our side, and we have not yet something to discuss. So all the portion of eRedCap comes into the pipeline above this, if you want, like in the above even the design win and production, and literally above the $300 million design win that we have.
It's really advanced opportunity that we are working on to grow, and we have many of them. It's really a lot. And you have few elements happening there. I mean, just to understand the market. First of all, the carrier are transitioning from 4G to 5G, refarming more spectrum. And as you know, all the IoT products today, they run on 4G. So definitely, the past to prepare the future, to be future-proof on the meter- It's not about you need it today, you need it to predict, to be ready to have your product operating in 2035 and so on. So that's why there is an urgency to start taking a 5G product as soon as possible to market. Obviously, the carrier are not ready yet. They are deploying their network or preparing to deploy their networks.
Ericsson and all the infra vendor, they didn't yet finish their release to those carriers. This will happen really an activity in 2027, and from there on, we'll start seeing more and more design. All new design will be switching to 5G. You will have the old design maintaining on 4G, but the new one definitely, I predict end of 2027, it will be, "I need 5G. I don't need anymore 4G on any new SKU." It doesn't mean we stop shipping 4G. We keep shipping this for maybe 10 years if you want some of them. But at least all new design will be, you need to win them with the RedCap. The opportunity for Sequans there is like, first of all, there is higher ASP on the 5G.
Second, the potential of market share could be much bigger because the competitive landscape will be much limited, will be less Chinese or zero Chinese competition, if you want, which was not the case in the 4G war. This should give the chance for Sequans to have much more potential, I would say, in terms of design win. We are leading with our product. We believe we are ahead of competition to go there. All this should allow us to increase the pipeline of IoT product and get more 5G SKU and continue the growth of the company beyond what we have won in the 4G today.
Okay, great. Maybe if I could just ask on some of the cost assumptions. I know you said it in the last kind of answer that the gross margin front would be a little bit difficult to predict, but maybe just looking at R&D, you guys have kind of been able to taper that down over the last couple quarters. But from a total operating expense kind of level, how should we think about the business going forward? Is this kind of $11 million kind of rate sustainable, or do you expect to take a little bit more out?
I mean, definitely our target, to be honest, to be below $11 million per quarter. I believe it's sustainable because, as we said, 4G, we're investing less and less. I mean, to some extent, even this year, we're doing very little on 4G, but although we introduce new flavors and new maintenance releases and so on, next year it will be even at lower scale. We'll keep investing only into the 5G. Our RF is also mature and ready for the drone and the defense. So there is no big surprise in terms of investment with the current plan we have. We're really trying to keep controlling our OPEX to keep it as close as possible to $10 million on an average, I would say, for 2027. So this should be the math.
On the gross margin, not to be confused, obviously, we have a chip and modules in the IoT, and obviously we have the RF chip that is adding up. So the mix between chip and module, depending on the mix of the product, average, this is where we are targeting to be. Obviously, with a little bit of services on top, but at least the way we are heading there will take us well above 50% on a global basis for the company. For this year, the things are a little bit biased, obviously, because we have cost structure, we are losing few points on our cost coming from this discrepancy between the price and cost, I would say, or variability of the cost, unfortunately. And obviously, because we have very low level of licensing, plus still the RF is lower, I would say. The chip business is not half-half.
The chip business is more below 1/3 and 2/3 module. So it is shifted a little bit towards lower margin this year. But hopefully this will be an exception and will improve it in 2027 going forward.
Got it. I appreciate all the color. Thanks, Georges.
Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Georges for closing remarks.
Many thanks, operator. Thanks for all of you for the questions and being on the call, and looking forward to have a chance to talk with you on different opportunity. Thanks very much.
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.