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Sequans Communications (NYSE:SQNS)

Q1 2013 Earnings Call

April 24, 2013 08:00 am ET

Executives

Georges Karam – President & Chief Executive Officer

Deborah Choate – Chief Financial Officer

Analysts

N. Quinn Bolton – Needham & Company

Nick Clare – Robert W. Baird & Co.

Aaron Martin – AIGH Investment Partners

Hanna Wakim – UBS

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Sequans Q1 2013 Results Conference Call. (Operator instructions.) As a reminder, this conference 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 may contain projections or other forward-looking statements regarding future events or future financial performance. 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, plans, and our objectives for future operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended.

These statements are only predictions and reflect our current beliefs and expectations with respect to future events and are based on assumptions and subject to risks and uncertainties, and subject to change at any time. We operate in a very competitive and highly 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, Mr. Karam.

Georges Karam

Thank you. Good morning, ladies and gentlemen. This is Georges speaking. I’m with Deborah, our CFO, and we are very pleased to welcome you to this conference call presenting our Q1 2013 results.

Let me start my quick introduction and I will go later on with more detail following our go-to-market strategy. First of all I would like to say that our results this quarter were overall consistent with our guidance. The long sales cycle from sampling to revenue for our LTE solution has made this period of low revenue predictable; yet the fact that this was expected has made it no less frustrating for management and for shareholders.

The good news is that our visibility is gradually improving. In addition to the previous design win we’ve got in the past, we have added this quarter four new designs and some should impact our revenues later this year. The other will impact obviously in 2014. Also we expect to see a significant improvement in revenue for the second half of 2013 compared to the low level in the first half.

Regardless of exactly when the revenues are achieved in the next several quarters, the new design wins demonstrate that we are clearly gaining traction. In addition to these design wins, we have a number of opportunities still pending for which we are well positioned and making good progress.

We are also pleased to see the overall pipeline of opportunities expanding. This is another strong indicator for the future of our company. Specifically we see a good number of RFUs coming from large manufacturers – I’m talking here about companies that are household names in the tablet, PC, and consumer electronic arena – and all of them are asking for single-mode LTE solutions. Obviously, bear in mind that with typical design cycles in this industry, farther new design wins in Q2 and beyond will contribute to a ramp in revenues in the beginning of 2014.

Now I will talk about our new design wins in the context of our business strategy. In the recent weeks we landed four new designs as I said, aimed at the three most advanced 4G markets in the world – and this is the most important thing. Specifically we have got two design wins in the US, one in Japan, and one in Korea, and as you know this segment of the market is really one of our key focus because these are the markets where the LTE coverage is really very high.

Let us start with the US where Verizon is the acknowledged leader in terms of LTE coverage. In Q1, we have secured our first product commitment for the consumer electronics M2M space. We expect this to generate revenue beginning in Q4 this year. Although volumes will be low initially this represents a validation of our single-mode strategy. We are very excited about consumer electronics and M2M opportunities because we think this could be the beginning of a very attractive new market segment for us in addition to the established markets for more traditional data devices.

Also in Q1 we were selected by a major OEM for a variety of multi-network specialized handsets for the US public safety market. We expect to begin shipping by year-end and will add to our 2014 revenue. This is not all – we are working on other design wins for the US. Some of them are quite advanced and can contribute additional momentum next year.

Verizon has the world’s most extensive LTE network but other operators are following Verizon’s lead. These operators are focusing on the 2x cost savings of delivering data via a 4G network and the set of IP-based services they can introduce with LTE advanced capabilities. We believe the future direction of the industry is apparent as we see Verizon adding more handset (inaudible) devices and increasing usage via a shared data plan with tiered pricing. Once full LTE coverage is available data devices such as tablets, ultrabooks, personal routers and consumer electronics devices will have no reason to require fallback to legacy networks.

Operator focus is shifting toward NT advanced features such as carrier regulation to improve throughput and eMBMS for video broadcast services. All this must also be accomplished cost effectively with low par consumption and a small footprint, as you know. This is possible only by having an architecture optimized for LTE mode only.

Perhaps you saw in the media last week Verizon discussing how they see LTE enabling more than just faster speeds. They envision new types of devices, applications, and services. The article specifically was talking about things that haven’t been possible before, such as video in M2M applications enabled by LTE. The article is available on our Twitter feed or you can ask obviously to get this article from the Head of our IR, Claudia Gatlin, for it.

While our large competitors have been pursuing the multimode smartphone market, where an integration with legacy technology is required, we’ve been pursuing an LTE only strategy based on the highly optimized 4G architecture tailored to this smaller-market but rapidly-growing segment. Obviously we can seek a position in this segment but multimode products are not well suited to this as they are extremely complex and expensive.

To compete effectively with our advanced 4G solution we believe they have to redesign their chips with a completely new architecture. As we keep expanding our roadmap with new products, with more features and optimization, we believe we will maintain the lead in this segment. Leveraging our strong position for the LTE only segment, we are now winning designs for the US market and gaining serious traction as the market is evolving in our direction with the expansion of the LTE network coverage.

Now, let’s turn to South Korea where as I said previously we have the US, Korea, and Japan in terms of design wins. South Korea has been an early adopter of 4G and now the operators there are also interested in single-mode LTE devices for all the reasons I’ve already described. We’ve been engaging with these operators in the last few months, and during Q1 we gained a new design win with a Korean OEM working for a Korean operator for an M2M application. We believe this will provide initial revenue in Q4 and will grow in 2014.

Last but not least, Japan. There we have also been very busy with the new business in Japan. Recently we won the highly competitive opportunity to supply a WiMAX solution as a part of a dual-mode WiMAX LTE device. This project is expected to make some contribution in Q3 this year and to a greater extent in Q4 and beyond. In addition, we believe we have the future opportunity to supply our own LTE solution once we complete certification with this carrier.

Also on the last call we discussed the tests we’ve been doing with Softbank to show them the benefit of our AIR solution, which is as you know Active Interference Rejection technology. We are making good progress there and we’ll be moving from the lab to the field test and we think this should translate to a design win in this year.

So this is about our first segment, essentially focusing on the developed company. Let’s turn now to China, where as you know China Mobile is a big component of our go-to-market strategy. The information we are receiving from China is very encouraging. China Mobile is on track to receive the spectrum license that will enable them to begin commercial service later this year.

Meanwhile, we are preparing with our local partners in China for the second device bid which is expected to come this month, in the coming weeks. While the information is consistent with media reports we are getting, noting that the total requirement for the large-scale trial this year could be as large as 1 million units. We were very pleased with our share of the first bid that we got in January this year and we believe we are very well positioned for the second and subsequent bids to come, but obviously we cannot predict our market share in those bids.

Whatever it turns out to be, it will be likely the quantity that we’ll be shipping there will be spread over two or three quarters starting in Q3 of this year. If we continue to perform well in China, this will allow us to participate in a potentially huge opportunity when China Mobile moves to a full commercial launch.

Now let’s talk about the third segment with the BWA greenfield opportunity and let us start with India. We have a little more insight into Reliance’s plan in India. We understand that there will be a soft launch of the service in Mumbai and Delhi by mid-year with full service in those two cities expected by the end of this year – so this has been officially announced by Reliance.

This means that the ramp in our revenue related to India will be skewed towards Q4, versus what I was expecting – more in Q3 – at the beginning of the year. But we still believe that things are moving aggressively, and if you have seen in the press all of Reliance’s plans about getting backbone connection and size and all this – all the signs are positive and let us believe that this will happen sooner or later.

Outside of India we continue to have a number of emerging market opportunities. We are well positioned because our customers have product ready and in Q1 we have finished qualifying with two new carriers. In addition we are the only vendor with the products that support the 3.5 GHz frequency which is a requirement in many of these markets, and with this unique feature we are quite unique for this segment in the emerging market.

It has been proving very challenging to go through the timing of projects in emerging markets but our current assumption is that revenue could begin from the second half of this year. Although they are moving slowly during the early stages, these emerging market opportunities are an important component of our long-term strategy. In these regions, operators face the challenge of profitability delivering basic broadband with DSL data devices to millions of people. Our optimized single mode LTE solutions are well suited to devices such as (inaudible) equipment, US (inaudible) and personal routers – devices requested in those markets.

Finally we continue to see growing interest in Europe from European operators looking to use single mode LTE to replace or compliment DSL coverage, thus eliminating the cost of leasing copper. We are in the process of engaging with the early movers among these operators, and this could add to our business next year as well.

To recap, our main messages for you today is that our visibility is gradually improving and our momentum is building. The most important news in terms of our business model is that we are closing design wins for the developed markets in the US, Japan, and Korea; and the pipeline of new single mode opportunities continues to expand. The market is evolving in the direction of our strategic focus and the trends are validating our business models. It’s gratifying to see interest in LTE-only solutions is growing among both operators and OEMs. This developing momentum is the basis of our confidence in our future.

Now I will turn the call over to Deborah for the financial discussion, including our guidance for Q2.

Deborah Choate

Hello, everyone. I’d like to add some details about our Q1 financial results and the financial outlook. Revenues in Q1 were $2.3 million for the quarter, which is a sequential decrease of 26% quarter-on-quarter and a 44% decrease compared to Q1 2012.

We shipped about 100,000 units in the quarter compared to about 300,000 units in Q4. Our largest customer, a new customer, represented 37% of revenues in the quarter and this reflected license and service revenues related to designs for the US public safety market. We had two other customers, both long-time existing customers, above 10% in the quarter. One represented 18% of revenue and the other represented 11%.

We realized an overall IFRS gross margin of 31.3%. This was better than the 9.4% we reported in Q4 due to revenue mix but below the 57.4% gross margin in Q1 2012, primarily due to the impact of fixed costs on a lower revenue base. Our variable cost margin continues to be above 50%.

Operating expenses were $10.0 million in Q1 compared to $10.1 million in Q4, and compared to $11.4 million a year ago. Our Q1 operating expenses included a provision for doubtful accounts receivable of $770,000.

Operating loss in Q1, which includes stock-based compensation expense, was $9.3 million compared to an operating loss of $9.8 million in Q4 and an operating loss of $9.0 million in Q1 2012. To facilitate comparisons we have also reported our results on a non-IFRS basis which excludes stock-based compensation expense from operating profit or loss. Non-IFRS operating loss was $8.8 million in Q1 2013 compared to operating losses of $9.7 million in Q4 and $7.7 million in Q1 2012.

Basic and diluted loss per share was $0.24 in Q1 compared to basic and diluted loss per share of $0.29 in Q4 and $0.26 in Q1 2012. Non-IFRS basic and diluted loss per share was $0.23 in Q1 compared to basic and diluted loss of $0.28 in Q4 and $0.22 in Q1 2012. Without the effect of the 10 million share capital increase in February, the non-IFRS loss per diluted share would have been $0.25 in Q1 2013.

Cash used by operations in Q1 was $6.4 million compared to $6.8 million in Q4. We also used $2.1 million for CAPEX investments in the quarter. The net proceeds from our public offering of 10 million shares in February was $13.8 million, and our cash position at the end of March was $34.0 million compared to $28.8 million at the end of 2012.

Accounts receivable at March 31, 2013, decreased to $4.4 million from $5.5 million at the end of December, reflecting DSOs of approximately 105 days compared to 120 days at the end of Q4. The DSO level reflected a combination of slow paying customers with a concentration of revenues at the end of the quarter.

The provision for doubtful accounts recorded in Q1 arises from a payment dispute with a customer targeting emerging markets who has experienced delays in the ramp of their business. We are hoping to resolve this dispute during Q2 this year.

Inventory increased slightly in the quarter to $8.1 million at the end of March from $7.4 million at the end of December, reflecting an increase in finished goods. In fact this reflects new production of WiMAX initiatives in anticipation of shipment requirements later this year.

Looking forward, we expect revenues for Q2 2013 to be roughly flat with Q1 in a range of $2 million to $3 million with non-IFRS gross margin around 32%. This is still reflecting the absorption of fixed costs on our product gross margin. We expect non-IFRS net loss per diluted share to be in the range between $0.18 and $0.20 for Q2 based on approximately 44.7 million weighted average diluted shares. Our guidance for non-IFRS loss per share excludes stock-based compensation expanse which we expect will be around $500,000 in Q2.

We continue to expect the ramp in our LTE revenues to accelerate during the second half of 2013, which will significantly lower our loss in the second half compared to the first half. And now I’ll turn the call back over to Georges.

Georges Karam

So just to conclude this session, let me highlight and conclude it with two points that I would really like you to take from this call and in opening this for questions. First, again, our market for single mode LTE is real and it’s happening, and this is completely in line with our strategy – and this is what we insisted many times when we had one-on-one discussions with you guys. More than 20% of the LTE market will be single mode LTE and this represents around 700 million units, 800 million units in the coming five years.

Our execution and our product quality are delivering results. Recently as you’ve seen we added in this quarter four new design wins, and it’s most important there to remember that those design wins, the four of them, are happening in developed countries – the US, Japan, and Korea. This obviously gives us better visibility and more confidence in our future, and obviously some of those design wins and the previous design wins we got in the past, we still believe that the y should generate revenue in the second half of the year and help ramp the revenue as we expect in the second half of this year.

Obviously you need to keep in mind that the sales cycle is long, but even if everything is going fine on our side and we are going in the right direction in a real market and a sizable market for a company the size of Sequans, it still takes always longer than expected in terms of time and this requires from time to time more patience from shareholders and management before we take this company back to profitability.

So I would like to thank you for all your listening time and turn this now to the Operator to open the question session.

Question-and-Answer Session

Operator

(Operator instructions.) We’ll go to Quinn Bolton with Needham & Company. Please go ahead.

N. Quinn Bolton – Needham & Company

Good morning, Georges and Deborah. A few questions: first, Georges, you went through a number of opportunities in the developed markets. I was wondering if you could give us a little bit more detail on the applications for the machine-to-machine design wins as well as public radio, specifically on the M2M? Can you tell us what types of consumer electronics or what types of applications you’re seeing interest on the M2M side? Thanks.

Georges Karam

Yeah, Quinn, thanks for the question. Obviously you imagine the sensitivity of those announcements, and I appreciate in advance not to make all these announcements because as you see otherwise we could get a press release and be much more specific on this. But we want really to give you guidelines of what’s happening on the company’s side in terms of design wins.

More specific I tend to say we spoke in the US about an opportunity, one which is M2M and to consumer. Essentially this addresses both of them, and you’re seeing big traction and a big push more specifically in Verizon – and it’s really public information – that you check what the Verizon guys are doing with the coverage that they are achieving mid this year. They are moving really for full coverage LTE, enabling for any device to get an LTE connection.

And this is really the strategy that’s going together as you know with the data share plan they’re opening, and you can get it by paying a little bit of money – you can connect more devices. And all the information we are getting that consumers, this is by the fact obviously that they love to have smartphones where the smartphone is doing everything, but still the behavior of the people is “I would like to have my camera, I would like to have my other device, my game device,” and all those other devices that they would like to see, completely independent of form because a device is always personal. And people don’t like to share them with others.

And the one we indicated as a design win is really addressing multi applications I tend to say, between M2M and consumer electronics – addressing those kinds of devices. And when you go also in M2M to give another application we believe it’s important – the camera essentially – to put IT inside the camera. Those cameras can find a lot of applications, not only for security and so on but you have for example in Korea it’s very interesting – they put cameras in all the cars to watch what’s happening when you have an accident so the insurance company can get all the information about what happens during the accident. And this is becoming mandatory in Korea and for the time they can give you a [ration] off your fee.

And those cameras today, they have only WiFi connections. So if you put an LTE inside this creates a big potential. So we’re seeing many, many applications. And on the public safety specifically, this is really for the public safety market – those kinds of devices that will run on obviously networks in the US, such as Verizon or AT&T networks, but they have the special frequency band, the band 14 for public safety. So it’s really a phone but this obviously is a specialized phone. Sometimes with quantity I don’t want to give the indication that this phone could be similar to what we can have in the consumer.

So it’s less consumer, however it’s still a sizable opportunity for the company in our size and it could be a deal on a yearly basis that could exceed a $5 million number in terms of selling for this opportunity.

Operator

And we’ll go to the line of Nick Clare with Baird. Please go ahead.

Nick Clare – Robert W. Baird & Co.

Good morning, guys, and thanks for letting me ask a question. The first question is just a clarification. I heard the US which you had actually just talked about for the public safety – do you currently have the win for the US consumer space that’s going to be ramping in the second half of this year?

Georges Karam

Yes.

Nick Clare – Robert W. Baird & Co.

You do, okay. Next question: I look at the revenue breakdown for the just finished quarter, and we actually have licensing and other revenue kind of exceeding product revenue in what looks like the first time from just a quick glance. Moving forward, particularly in Q2, I guess just in terms of looking at this is this something that you would expect to kind of persist where these two now become more equal in terms of size or would you expect to revert back to kind of historical levels?

Deborah Choate

I think this was really an unusual situation in the quarter. We don’t see fundamentally a change in our business model; we just happened to have a number of deals land in Q1. But I think that overall we would expect it to return to a more traditional split between products and other revenue.

Nick Clare – Robert W. Baird & Co.

Okay, great. And then lastly, just looking at kind of the guidance for the quarter and with margins where they’re at, I mean is it safe to assume you guys are going to be looking to kind of cut OPEX meaningfully throughout the remainder of the year?

Deborah Choate

Today we’re planning to keep OPEX fairly flat. Where we have more flexibility is on the timing of capital expenditures, so we may play with the timing of those somewhat depending on the confirmation we have on the ramp in revenues.

Nick Clare – Robert W. Baird & Co.

Okay, so then even for Q2 OPEX you would expect it to be flattish?

Deborah Choate

Yes, more or less.

Nick Clare – Robert W. Baird & Co.

Okay, great. Thank you very much.

Operator

We’ll go to the line of Aaron Martin with AIGH Investment Partners. Please go ahead.

Aaron Martin – AIGH Investment Partners

Hi guys. I appreciate the color you gave us and the detail on the four design wins for this quarter. Can you give some quantification and perhaps some color on the design wins that you had prior to this quarter that are kind of contributing to our confidence in the second half of this year’s ramp?

Georges Karam

Sure. I really need to go back, and prior to this – and essentially it’s better to look at this in terms of market segment. Where we are completely ready in terms of design wins, I mean not only ready at Sequans but our customers have product and are shipping as you know is China Mobile and this is the emerging market. These two segments, we worked on them since some time ago because this is where we started with our [TDNT] investment and we have customers ready with the product, and those products are softly qualifying with customers – essentially in the emerging market where it’s between India, obviously like Reliance and the other small carriers for emerging BWA guys; and you have as well the China Mobile opportunity where we are well positioned because we have products shipping and even in Q1 in Q4 last year. And those products are ready, just waiting for the new bid to come.

So if you want the decision here, it’s really waiting for the operator to put in the new order for our customer to move forward. So in China there is a bid, the second bid expected to happen very honestly from the information I have now really within one or two weeks. The bid should go out and this will be the second bid of the large-scale trial. We have some quantity expected for this bid, not really public but it’s increasing versus the first bid and going towards the direction of the need for this year. In other words, it maybe a second bid or third bid could be complimenting all this to go up to 1 million units in China Mobile. And we know that all depends on our win on those bids and the market share, and this will obviously be translated into revenue in Q3 and Q4 from this.

And the emerging markets, we expect to start to see it as well in Q3 and Q4, and with a bigger portion of the emerging markets in India that we’ll see in Q4. We have already been shipping in India and it’s not, we have I tend to say 10,000 units just to give a number going to India. But this is all used on the original [friendly] launch and when they go to the full launch of this it will accelerate. And then obviously I mentioned the new design win which we were working on for a long time, which was in Japan that we won, and with this one I was more specific with saying some revenue will start in Q3, not only Q4 for us there. And then obviously I told you Korea is Q4 and the US is more Q4 as we see it today.

Aaron Martin – AIGH Investment Partners

Okay. Can you give us some color in terms of where gross margins can go slowly with a small ramp in Q3 and then with a bigger ramp in Q4? Can we see them return to historical margins yet or do we need to go a little further on the volume line before we can have that?

Deborah Choate

Well, it’s really just a question of being able to absorb our fixed costs which run typically about $500,000 per quarter. So our variable margins are still staying above 50% so we expect to get back to our more traditional around 50% gross margin once we get back closer to sort of the $10 million in terms of revenues.

Aaron Martin – AIGH Investment Partners

Okay, thank you.

Operator

(Operator instructions.) We have a follow-up from the line of Quinn Bolton with Needham & Company. Please go ahead.

N. Quinn Bolton – Needham & Company

Two follow-ons: first Georges, you mentioned the opportunity in Japan and you sort of talked about a dual mode device. And I just wanted to confirm, are you supplying your dual mode radio for that with both the WiMAX and LTE? Or did you say you were providing only the WiMAX portion of that initially?

Georges Karam

Yeah, what they said on their call, and again, trying to not give too much specifics to avoid the confidentiality of the deal because it’s an awarded deal and not announced. So it’s a dual mode device, and again a single mode is LTE plus the WiMAX because in Japan you have WiMAX as well. We are in a very good position with our dual mode, if you want, WiMAX LTE product from optimization [customers] and so on, and this is well known that we have a unique position there. And currently our LTE portion is not qualified with this carrier – in other words, in timing for us to have something this year happening this will delay the project if we go with our qualification.

So we landed, not without a big fight by the way to win this, to get only the WiMAX portion. So in this deal specifically we’re getting only the WiMAX portion which is a good thing for us in any case. But obviously it’s a major design that I believe will go farther two, three years down the road, not only one shot. We are in a very good position there with the OEM, with the relation and we are engaged obviously in trying to finish the qualification of our LTE that would allow us to come on the next SKU – not this one, because this SKU, whatever it is is only WiMAX. Next SKU we can increase our revenue portion in those kinds of designs because we can add the LTE to the WiMAX that we’ll be selling using our dual mode WiMAX LTE.

N. Quinn Bolton – Needham & Company

Thank you. And then just, Deborah, I know you’re not giving any guidance specifically for the second half of the year but I was wondering if you might be able to address the cash burn. I think you said you used approximately $6.4 million of cash for operations in Q1 and with revenue and margins relatively flat in Q2, I’m expecting that cash burn in Q2 is probably about that level. But can you give us any sense of how you see cash burn progressing or decreasing into the second half?

Deborah Choate

Sure. So at this point we are expecting to maintain our operating expenses at the current level. We don’t expect to see them growing much but we want to maintain the investment and the development going forward. And as I mentioned, as we’re expecting revenues to go up we’re expecting to return closer to our traditional 50% gross margin so that should also be helping us to bring the cash burn down quite significantly in the second half of the year.

I also mentioned we do have the flexibility with CAPEX which we’re typically burning $1.5 million to $2.0 million a quarter, so that also gives us some flexibility in terms of the timing on that depending on the visibility we have on the revenue ramp.

N. Quinn Bolton – Needham & Company

Okay, great. Thank you.

Operator

And we’ll go to Aaron Martin with AIGH. Please go ahead.

Aaron Martin – AIGH Investment Partners

Hi, thanks. Just another follow-up question: I know obviously the (inaudible) guys are going all for multimode and for them they’d have to reengineer to go single mode. In terms of some of the smaller guys, are you seeing anything different on the competitive front maybe specifically in regard to this time with this new tender from China Mobile? Is it a slightly different landscape from the first tender? Any thoughts on that?

Georges Karam

Well, I believe in terms of competitive, obviously you’re hitting all the big companies who are all trying to build this multimode device to go and compete with the major company leading this space today. And as we see it, we see a little bit more development in China. I tend to say in this tender we should at least have one new guy who I believe was new. He was not already in the first bid if you want, and he will be in. I don’t see more than this for this tender with China Mobile.

Aaron Martin – AIGH Investment Partners

In terms of the guys who were involved in the first bid getting a better chipset that can get closer to your specs, are you seeing anything like that?

Georges Karam

No, I mean we are not seeing very honestly today at least an official plan or any clarity if one of those big guys is really attacking already the portion that we are working on, which is single mode LTE with optimized devices and so on. We believe they could be attracted on this but we are very confident that even if they have to do it, they need to reshuffle their architecture – otherwise they don’t get a benefit. It’s not just that if they take the [guy] only and just take off the 2G/3G they don’t get any benefit. They will keep their [guy] big and then they cannot land where we are.

And obviously on the other side you know, I didn’t insist too much about the technology in my call, and explicitly I focused the call more on business and less on technology. But you should not neglect and forget the fact that Sequans, we are leading with the carrier [regulation] chip which we sampled, we announced this in Q1; and soon we’ll be showing this more in trial mode with carriers as well.

So we are really advanced with many, many features where other guys don’t have it, and we see this traction through the carrier easily for us even if we don’t have all the information from the competition. But you know your position with the carrier when you are a small company like Sequans, how much they are pushing to test an advanced feature and you know if you are the only guy who has it or not. It’s very easy to have.

So I believe we are really maintaining the lead and I am very comfortable on this, whether in our Streamrich family or Streamlite family. And by the way, we are investing. If you look today, and because of all those questions about the OPEX – if we don’t believe in our future on our side as a management team it would be very easy for us to cut our OPEX and take out, I don’t say 20%, 30% without really hurting short term in terms of positioning. The investment we are doing in the company is really for maintaining our leadership and coming with next generation.

So with both Streamrich and Streamlite we maintain our leadership with the single mode LTE and finally we end by being the only company more or less who attacked this market properly. And it’s a question of timing, so maybe timing will be this time it’s going in the right direction – we’ll be lucky and this will turn to more profits for the company.

Aaron Martin – AIGH Investment Partners

Okay, thank you.

Operator

We’ll go to the line of Hanna Wakim with UBS. Please go ahead.

Hanna Wakim – UBS

Thank you. Georges, just a clarification please on the public safety comment handset. You said that will be a major OEM working on a multi-network handset – is that correct? Did I hear that correctly?

Georges Karam

Yes, and I mean as you know it’s public safety… I’m trying to avoid giving too much detail but when I say multi-network just to not limit this to just Verizon’s network. In other words, those kinds of devices can work on AT&T and Verizon, but as well the vertical network which is the public network, the public safety network which is the band 14. So they are a quite specialized multi-frequency band which support many things, and in the public safety environment this phone can work everywhere in general.

And obviously the major OEM we won, they have a big, big, good position in the US market but they have as well in the international. I didn’t cover it just to avoid making things complicated but those devices can go as well internationally for public safety.

Hanna Wakim – UBS

You answered my second part of the question, thank you for answering it.

Operator

And we have a follow-up from Nick Clare of Baird. Please go ahead.

Nick Clare – Robert W. Baird & Co.

Hey guys, just one more quick one on the margin stuff. So for the quarter, I know in the past you’ve given it but looking at your non-IFRS gross margin versus the IFRS one, what were the charges related to COGS for the quarter that would kind of show the difference?

Deborah Choate

The only differences were related to stock-based compensation, and in this quarter it was about a little bit less than $30,000. So it wasn’t a big difference.

Nick Clare – Robert W. Baird & Co.

Got it, thank you.

Operator

And we have no further questions at this time.

Georges Karam

Okay. So thanks, guys, for attending this call. Thanks for your questions and again, I hope to see you as soon as possible face-to-face and on the next call obviously. Thank you.

Operator

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

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