Sequans Communications S.A.

Georges Karam – President & Chief Executive Officer Deborah Choate – Chief Financial Officer

N. Quinn Bolton – Needham & Company Alex Gauna – JMP Securities Hanna Wakim – UBS

Thank you very much. Good morning, ladies and gentlemen.

This is Georges speaking with Deborah Choate, our Chief Financial Officer, and we are pleased to welcome you to our Q3 2013 Results Conference Call. As you’ve seen in our earnings release this morning, our results for Q3 were consistent with our guidance, about in the middle of the range.

Our product revenues continue to increase as expected and we actually shipped some modules at the end of September ahead of our initial expectation of Q4 to begin shipments. At the very high-level view of the quarter I would like to highlight three major events.

First, we are very happy to report that we have secured an important new design win targeting the US market. Our LTE chip has been chosen for a new data device with the potential of more than 1 million units per year which is scheduled to be launched in the second half of next year.

Second, we are in a very advanced discussion on multiple design-in opportunities for tablet, notebook, machine-to-machine, and specialized consumer devices. As indicated previously, we have been working closely with a number of OEMs and ODMs for a while.

We have been making excellent progress and several of them already indicated that they are committed to our solution. We are working now to understand the launch window, secure the launch plan and get more clarity on the timing of the corresponding revenue round before we consider them design wins.

We are very encouraged by the progress we are making on this front and the business potential they represent for next year. Third, we recently reported an important milestone – our first modules built to support both of Verizon’s LTE frequencies, and I mean Band 4 and Band 13, were certified.

The modules are available in two form factors: the VZ20Q, the surface-mountable package for consumer electronics and machine-to-machine devices; and the VZ20M with an M.2 interface designed for notebooks, laptops, and some tablets. Our strategy here is very simple: make it easy and affordable to enable LTE in all types of devices.

By augmenting our offering with complete modem systems that have been pre-integrated, pre-tested, and pre-certified by operators we can provide faster time to market and lower development costs especially to nontraditional device makers with less knowhow in wireless technology. Of course customers also have the option of buying directly from our ODM or building it on their own, and we expect that this will be the trend when volumes increase and our customers will be looking for cost reductions.

We are extremely pleased with the market response to the introduction of these modules. In addition to the tablet and notebook opportunities already mentioned we are experiencing strong interest from nontraditional devices such as metering, home security, mobile health, telemedics, and industrial applications.

If you are new to our story I encourage you to visit our website and read our most recent blogs which explain our focus on LTE-only solutions and our modules strategy in more detail. Now we’ll go through our usual update region-by-region.

The United States continues to be the strongest market for single-mode LTE primarily owing to Verizon’s leadership in this area. Verizon recently announced that LTE service is available to more than 300 million people in over 500 markets, which represents over 97% POP coverage.

This coverage provides the necessary environment for near-term single mode opportunities and Verizon’s strong support for LTE-only is well known. I mentioned a moment ago that we have begun shipping modules.

Near term it will be relatively small quantities for a variety of consumer electronics and machine-to-machine devices that you can think of as proof of concept projects. These projects can eventually lead to much higher volumes next year.

Currently we are engaged with about a dozen different OEMs for various machine-to-machine and specialized consumer electronics device opportunities. This is in addition to traditional data device opportunities such as home and portable routers.

As we highlighted at the beginning of the call we expect to begin shipping for a new design win by mid-2014 and we believe this device could ramp to quantities in excess of 1 million units on an annual basis. We have already described the excellent progress we’ve made on the various tablet and notebook opportunity in this market and we are hopeful that one or more will become a full-fledged design win very soon.

It’s possible we could see a launch date of one of these during the first half of next year. Finally, our design win for the public safety market which we announced during Q1 continues to be on schedule and is expected to contribute to revenues during the second half of 2014.

Looking to the future of our business in the United States we are encouraged as well by the LTE expansion plans of the other US carriers. AT&T recently indicated that it expects to have 270 million POPs deployed by the end of the year and to complete its initial LTE deployment next year, reaching 300 million POPs.

Sprint states that it expects to deploy TD-LTE across 5500 Clearwire sites by the end of this year using Clearwire’s 2.5 GHz spectrum and will continue to roll out nationwide next year. Following the same pattern as Verizon we expect the expansion of their coverage to enable each of them to kick off single mode products sometime next year.

We are just beginning to engage with ODM and OEM on these opportunities, therefore it’s too soon to include them in our list of identified opportunities for next year but we see them as potential upside that could materialize. Japan and South Korea are the other major markets where LTE has been deployed broadly enough to support 4G-only devices.

Looking first at Japan, in Q1 we announced a highly-competitive design win to supply our WiMAX chips for a triple mode 4G device in Japan. The customer here is Huawei, one of our traditionally strong OEM relationships, and we began shipping for this design win in Q3 as expected.

And we continue to expect volumes to increase in Q4 and 2014. Also we continued to make progress in our relationship with SoftBank, leveraging our interference cancellation technology which performed extremely well in the field test during Q2.

Now we are preparing for data device trials to happen this quarter. If these trials go well it could lead to meaningful revenue in 2014.

Meanwhile our design win with HiveMotion for an M2M device in Korea is on schedule and progressing through the carrier qualification phase. We continue to expect shipments to run during 2014.

Turning now to China we continue to work with our partners to support China Mobile. Multi-mode devices using our chips are deployed in the region and we expect to see growth after full-scale launch next year.

At the moment we have not received any further information about additional bids coming out of China Mobile headquarters. Also we are focusing on single-mode opportunities that we expect to see happening in the second half of next year.

In regulatory developments, both China Unicom and China Telecom are being awarded FDD-LTE spectrum and it seems that both carriers will support the national TD-LTE strategy and will have access to the TD-LTE spectrum. This expands the market in China beyond China Mobile and opens for us new opportunities to advance.

We have recently seen China Telecom asking for single-mode devices. We have engaged with them through our local OEM partners and we expect to enter their lab this quarter for testing and qualification.

In India, Reliance is still planning a soft launch in three cities by the end of the year. As we mentioned previously we are designed in with several ODMs and OEMs there.

Two of them are quite involved with Reliance and are shipping initial small volumes. There is no official published date for full scale launch yet but our sense from the apparent complexity of deploying the infrastructure is that this will happen sometime in the second half of next year.

Finally the last segment of emerging operators outside India are moving forward and we are shipping to this market. We continue booking additional orders for both our single-mode LTE solution and our unique dual-mode WiMAX LTE solution.

Our OEM partners are supplying data devices based on these solutions to carriers in Brazil, Europe, and the Middle East. We expect volumes to continue to grow next year and we see additional opportunities with carriers in Russia, Africa, and Latin America.

In addition to the LTE business we expect to continue to ship small quantities of WiMAX chips to a few emerging operators via our traditional OEM partners. So to summarize, as we view our pipeline of potential opportunities the portion pertaining to networks in the United States, Japan and South Korea, and certain emerging markets are moving very well.

We remain confident that we can convert more of them to solid design wins and orders next year. We also remain cautious regarding the timing of the ramp of the portion pertaining to India and China but they certainly represent important opportunities.

The large number of potential new customers and exciting array of potential new devices further strengthen our conviction in our single-mode LTE strategy. We look forward to growing with additional data devices such as (inaudible) equipment and personal routers as more networks come online and LTE coverage expands.

In addition, faster speeds, more coverage and new shared data plans should act as catalysts for more enabled LTE devices such as tablets, notebooks, and consumer electronics devices. The attractive economics of single-mode LTE will foster innovation in both devices and applications.

Meanwhile, we continue to see innovation in the newest machine-to-machine market which will fuel additional growth in 2015 and beyond – which means we’ll benefit from growth in our served market and from seeing our served market expand in scope. Now I’ll turn the call over to Deborah for a financial discussion including our guidance for Q4.

Deborah?

Hello, everyone. I’d like to add some details about our Q3 financial results and the financial outlook.

Revenues in Q3 were $4.1 million, up 73% from Q2 and a 49% decrease compared to Q3 2012. We shipped about 300,000 units during the quarter compared to about 180,000 in Q2.

We had three over-10% customers in the quarter with shares ranging from 28% to 37%. Our largest customer was again Huawei, our longstanding customer and primarily for WiMAX products.

The other two large customers were related to unannounced design wins. We realized an overall IFRS gross margin of 25.1%.

This is a bit lower than we expected, reflecting a less-favorable product mix. Our higher WiMAX revenue in Q3 was anticipated for the shipments for the new router in Japan which started in the quarter, however high-margin license and other revenue tends to be lumpy and we had some shift in these revenues.

As George mentioned we also made initial shipments of our LTE modules which carry lower margins than our LTE chips. Operating expenses were $9.8 million in Q3, slightly lower than Q2, due primarily to lower G&A expenses as we had fewer external services costs.

Operating expenses were also $9.8 million in Q3 2012. Our Q3 operating loss, which includes stock-based compensation expense, was $8.8 million compared to an operating loss of $9.2 million in Q2 and an operating loss of $6.0 million in Q3 2012.

Our net loss was $8.8 million in Q3 compared to a net loss of $9.1 million in Q2 and a net loss of $5.8 million in Q3 2012. Basic and diluted loss per share was $0.20 in Q3 2013, the same as in Q2 2013, and compared to a loss of $0.17 in Q3 2012.

To facilitate comparisons we have also provided our results on a non-IFRS basis which excludes stock-based compensation expense from net profit or loss. Our non-IFRS net loss was $8.3 million in Q3 2013 compared to net losses of $8.6 million in Q2 and $5.0 million in Q3 2012.

Non-IFRS basic and diluted loss per share was $0.19 in Q3, the same as in Q2, and basic and diluted loss of $0.14 per share in Q3 2012. Cash used by operations in Q3 was $9.5 million compared to $8.1 million in Q2.

The difference was due to the timing of customer collections and supplier payments. We also used $400,000 for CAPEX investments in the quarter.

Our cash position at September 30, 2013, was $15.0 million compared to $24.9 million at the end of Q2. We expect our cash position at year end to remain at a similar level, about $15.0 million, based on our current expectations for Q4 and the cash we expect to receive from French research tax credits that should be paid to us in Q4.

Accounts receivable at September 30, 2013, was $5.5 million reflecting DSOs of approximately 114 days compared to 120 days at the end of Q2. The DSO level, while improving, continues to reflect a combination of slow-paying customers and a concentration of revenues at the end of the quarter.

Inventory decreased slightly in the quarter to $7.4 million at the end of September from $7.9 million at the end of June. Now looking forward, we expect revenues in Q4 2013 to increase to somewhere in the range of $4.5 million to $5.5 million with non-IFRS gross margin of around 40%.

We expect non-IFRS net loss per diluted share to range between $0.15 and $0.17 for Q4 2013 based on approximately 44.7 million weighted average diluted shares. Our guidance for non-IFRS net loss per share excludes stock-based compensation expense which we expect to be around $350,000 in Q4.

We continue to expect the ramp in our LTE revenues to accelerate as we move into next year which will reduce our loss. And now I’ll turn the call back over to Georges.

So before I finish and turn it to questions I would like really to leave this call with three key points in mind. The first one for this call is keep in mind that all the design wins we have in hand are moving as expected, and as stated some of them have started to generate revenue and we expect them to continue building our revenue for the coming quarters.

I’m referring here to the design wins we have specifically in the US, Japan, and emerging markets. The second point is that we have added a new major design win in the United States that will generate revenue in the second half of 2013; and the third is to keep in mind that in addition to our success with traditional data devices we are making very good progress with various applications such as tablet, notebook, consumer electronic, and machine-to-machine.

We are engaged with about a dozen different ODMs and OEMs addressing this market in the United States and some of them as we said are already committed to our solution. We believe that one or more of them will become a full-fledged design win soon.

So to conclude we are very confident about our future and we are happy to say that things are moving as expected for 2014. Thank you very much for listening to this call.

I’ll turn it now to questions. Operator?

Hi Georges and Deborah. Georges, I just wanted to sort of come back.

On last quarter’s conference call you sort of talked about the opportunities as you looked at 2014 being approximately 7 million units. It sounds like your design wins in the US and Japan/Korea and emerging markets are all on track but you noted perhaps a little bit more caution in India and China.

And I’m just wondering is 7 million still a good number to be thinking about in terms of sort of the opportunity you’re going after, or has a portion of that related to India and China moved out? And if it has moved out what’s a good sort of [number] for folks to be thinking about for 2014?

Yes, thanks for that question, Quinn. In fact the way we look at it, as we said the total pipe we are addressing – not the total addressable market but let’s say the total pipe that we are working on, we mentioned that this is around 7 million units for 2014.

I can say at the end of Q3 we’re being a little bit cautious as I said more in India specifically and obviously you could say okay, this means the pipe is a little bit less because if you’re shifting in time this is absolutely true. On the other side, the positive there is that we’re seeing more and more potential in the more developed market and specifically in the US we are really quite bullish about the new opportunities we are seeing in the US for single-mode LTE covering a variety of devices.

And more or less if we count the plusses and minuses we have there I tend to say we still have the same rough number that we are addressing today. That’s how I see it.

Okay, great. Sort of following up on that, you talked about the new win, the major win for the US market that starts to ship in the second half of the year.

I guess I wasn’t entirely sure – is that a traditional data device, a CPE or a [MyFi] or is that in the new sort of tablet/notebook/Ultrabook/Chromebook or machine-to-machine category? Can you comment what the application is?

It’s a data device, Quinn. Allow me to not be too specific on this but I tend to say it’s more in the traditional devices.

Okay, great. And then just it sounds like the modules that were certified for Verizon, you’ve started shipping those ahead of plan.

To the extent that those start to represent greater volumes can you talk about how the margins compare on that business versus the traditional chip business?

Yeah, absolutely. Obviously the margin in terms of percentage on the module is less than on the pure chip.

Obviously this relates to the extra component you have there. If you look to it on margin, I would say the chip business, the [regular] chip business is in the range of 50% let’s say and the module we see it more in the range of 30% or so – obviously because we have our own chip there.

So if you compare this to someone else’s [static modules and buying chips] it would maybe be 25% or below a 25% margin; but from our side because you had the chip margin there. So this will be the impact in terms of percentages.

Now obviously, if you imagine that the company is shipping half of the revenue as pure silica and half of the revenue is modules we could converge, instead of having a gross margin on a global basis of 50% more 40% if you add the two components. But the way we see it very honestly, and this is why it’s very hard to give you a model today because we are putting everything in place and so on.

So in the future we’ll remain selling more chips than modules and the model should have maybe a smaller percentage because obviously when the volume will ramp our OEM or our customers will be pushing more to control the costs on the modules and we’ll get them go directly through our OEM or license to them all the design so they can build it on their own and keep buying from us chips. So we are a little bit in a phase where it’s very, very hard to say on a quarterly basis in the coming I would say two quarters what would be the percentage when we may have maybe significant or some portion of modules which is higher than regular business.

But we believe over time that this will remain small to avoid impacting our gross margin percentage on a global basis.

Okay. And my last question for you, Georges, and then one quick one for Deborah: just for the two modules that you have certified now on the Verizon network, I know you haven’t announced formally sort of design wins, but can you talk about the pricing those modules would enable were they to be embedded in a tablet and notebook?

Are these modules sort of enabling the OEM to sort of retail an LTE-only solution for say $40 or $50 to try and really make the cost of that LTE connectivity fairly insignificant relative to the cost of the total device?

Absolutely, you say it right here. The [custom] of those models, the pricing and all this – all these models will work if we can keep the delta in terms of extra costs for LTE at the device level below $50.

Fifty dollars is really the bar where people are trying to be below it to reduce the sensitivity to the extra costs you have on the LTE-enabled devices if you want. And so obviously you can imagine that the pricing and all this is somehow to accommodate for the margin and all the stacking margin from ODM to OEM to operator or whatever to stay below $50.

And this is by the way what’s great about our strategy in single-mode LTE, is really to enable a solution allowing those kinds of pricing keeping in mind that when you go single-mode LTE you don’t have only the lower cost or lower price on the chips level but even you’re reducing the frontend cost of the (inaudible), and obviously the IPR equation adding on top of all of this.

Okay, great. And then the last question just for Deborah – you mentioned the receipt of some research tax credits in Q4.

Is there an amount you can sort of guide us to as to what you expect to receive from those tax credits in Q4?

Yes, it’s the amount we recorded for 2012 which is about $4 million.

Okay, great. Thank you.

Good morning, thanks so much for taking my question. I was wondering if you could elaborate back on the pipeline answer you discussed on the prior question, can you clarify for me please the overall single-mode LTE addressable market you see this year and then going to next year?

And then is that 7 million pipeline units you discussed, what percentage share of the market do you kind of feel like you’re going after now? Thank you.

Thanks. The challenge when you look to the global market completely because really this is really emerging some in many places, and any shift there, you can make mistakes on the global assumption on a yearly basis.

The way we look to it, honestly only four to five years down the road single-mode LTE will be… We’re picking up all the phone market and all data devices outside phone, we consider this market 1 billion units in the coming five years; and we consider that at least more than half of this, close to 60% of this will be single-mode. So this is really if you want the addressable market in the coming years.

When we look in terms of market share, what Sequans is targeting there, obviously if you look to the picture of something around 15%. If we assume that this will become a very competitive market we’ll be still at a large number for a company of our size to achieve our goals from a financial point of view.

But obviously depending on if all the big guys, the giants will come to it or not, if it’s too much competitive or not that you can play maybe a goal higher than this and next year maybe 25% market share there. So this is really on a five years.

For 2014, if I were to go directly straight for next year I believe we are maybe a little bit higher in terms of market share, in terms of addressable opportunity; and obviously the 7 million units, it’s not really what I’ll call it the pipe of identified opportunity. Looking to the size of the company, looking to the knowledge we have and our sales machine these are opportunities that we have in hand, whether they are real design wins and secured already as the one that I mentioned or some that we’re working on to secure.

I’m not counting in for example anything coming from for example expansion in the US with AT&T introducing something in single-mode and so on. This is not really included there.

So this is what I can comment on.

That’s very helpful, thank you. I was wondering can you maybe talk to how many single-mode direct rivals you believe are in the market?

There’s obviously some big gorillas out there who can make different moves if they choose to, but maybe how many companies you feel like you’re going up directly against right now and if you have any color you’re willing to share about who you see most often I’d be interested in that. Thank you.

Sure. I believe in terms of the competitive landscape, you have obviously all the big guys – and namely, to name one I would way Qualcomm who’s there.

Most of them, related to total strategy or at least the way I see it today, are focusing on the smartphone market with multi-mode devices. And as you know, many of them are not there yet or they have something, they are not yet in the market with really production and volume except for Qualcomm.

So very honestly we see Qualcomm there and the other guys, and we can argue that all of those guys may come to the single mode. It’s not that easy in a sense like it’s not okay, I wake up one day and switch off the 2G/3G and start competing with Sequans.

This is true on a piece of paper but all the value of the single-mode LTE is the ability to re-architecture your chip in a way that you can optimize the [dye] for lower cost and lower power consumption. And you need to add to this all the development happening in the LTE, because the LTE is not really something which is completely stable today.

We are talking about release 11, release 12, this is in the pipe; we’re talking about MIMO 4x4. So again for us very honestly, to product ourselves from any move from those guys to attack this niche in the market is to really stay the best solution in terms of LTE and deliver the best LTE with the most advanced features that will keep us there ahead of everybody in performance; but at the same time in cost thanks to our architectural optimization.

So this is the big guys, you know. And then when you go to the small guys, and here I’m not naming… You know, you see obviously some few guys in China that they have some solution; and outside this we see two private companies currently where they came to market with an early solution so far – even to some extent before Sequans in terms of FDD technology, because if you remember we started in TD and we come to FDD with our technology.

But the [generation] we have today lets us feel like we are in a very good position to win I would say this market with the right market share we are addressing.

Thank you. And one more if I could: can you speak to where we are with voice over LTE both for Sequans and the market?

Yeah, voice over LTE, I tend to say you have two angles of it – one which is if you are doing voice over LTE to make a phone. And you need to keep in mind, and again, to avoid any confusion when you do voice over LTE for a phone, the operator, they could have a voice over LTE phone that’s still multi-mode in a sense.

In other words, they have a multi-mode phone but to have also LTE inside. The multi-mode enables the operator to have a phone that can roam over other carriers when you travel and so on.

So even if you have a voice over LTE solution it doesn’t mean you can switch off 2G/3G, just to be clear on this. However, having the voice over LTE network ready can create an opportunity for a pure 4G phone giving VoLTE kind of an entry-level phone or prepaid phones or whatever you want to call them – that could be something interesting for us that we see as an upside.

On the other side you have VoLTE as well for all kinds of applications like home security and so on, where the people can go with a pure 4G device but they need VoLTE on it because you know, for home security you need to make some calls as well using even pure LTE. So these are where we see the applications if you want in terms of VoLTE.

Now back to Sequans, on our side we have already made a demo and even a live demo with VoLTE and we have a project engaged to integrate VoLTE currently. So it’s a technology that we control obviously through a partnership to get the VoLTE stack if you want.

But this is something that’s fully under control on our chip and Sequans allows you to put all what’s required to run the VoLTE on the chip directly so we don’t need an extra chip next to it. So this is for us.

And obviously in terms of carriers you receive VoLTE today moving at least some in service in Korea; and obviously there is a big push happening from Verizon to have this happening sometime next year. I cannot say more but it’s really public information what I am sharing here about the carrier.

Okay, thank you very much and congratulations on the progress.

Thank you.

Georges good morning, good morning Deborah. I just had a quick question about when you’re discussing single-mode LTE, how do you find the psychology of those carriers regarding that thing?

Sometimes you get pushback saying “Single-mode LTE will be not so popular in like rural areas where there’s no coverage,” and all that stuff. But I’m just wondering about the psychology of those carriers regarding the concept?

Hi Hanna. Very honestly it depends on which carrier, where you are.

And if you asked me the same question maybe six months ago and now we are seeing, if I can compare just the progress the carriers have been making in the last six months it’s tremendous. We are today seeing obviously someone like Verizon, they are talking about it.

So we are not coming to them to talk about it – it’s a [separate] item to say. You see in some places like Japan and Korea they have no problem, and this is again, it’s a question of coverage.

If they have very large coverage and we are talking about single-mode LTE for devices, for data devices, there is no question. I mean people understand the value and they see it as something moving, that should happen and it’s happening on their side even in the short term.

And it’s interesting to see that even carriers who originally were kind of multi-mode, they have very good multi-mode technology – even like AT&T, they are considering this as well. Even at the beginning of this year they started talking about it for obviously some kind of application.

And just to mention this, if you go even in Europe now which is an area where so far we didn’t talk too much about it on the call, European operators because Europe was kind of lagging in terms of 4G deployment. But things have been accelerated in the last I would say three to six months.

We’re seeing, just to say France where I’m living now, we had the three carriers that came with the LTE launch and the one of them made a kind of big surprise by getting 66% coverage on (inaudible) of France. So obviously we’re discussing with those guys, we’re making… And even those guys that if we spoke to them three months ago they were very reluctant to go with single-mode LTE, now they consider this seriously and we’re having some discussion and a talk with them that we see this happening as well – kind of an upside sometime next year.

So no, I don’t believe there is really a big debate anymore about it in the industry honestly. I mean the phone is clear.

Outside the phone people understand this. It’s a question of costs, and also once you start choosing 4G – you need to think about 4G is not only about speed, it’s about services.

If you have video services on LTE like the eMBMS, for example AT&T spoke about services; Verizon is talking about it as well. So if I’m taking a video service over my LTE I’m not going to pay the service and accept that from time to time to be shut down on this service.

And just on the fallback to 3G, fallback to 3G is not helpful because I lose my service. So you see the equation – LTE is bringing value of added services that forces the carrier no matter what to give coverage everywhere as good as they have on 3G.

And it’s only a question of time and investment that this needs to happen in the coming one or two years to become a commodity or a must have I would say, where no one will question about falling back to 3G on a data device.

Fantastic, thank you so much.

Okay. So thanks very much for the questions, for listening to the call and I hope to see you soon or at least in the Q4 call.

Thank you very much.