SEQUANS COMMUNICATIONS | CIK:0001383395 | 3

  • Filed: 4/12/2018
  • Entity registrant name: SEQUANS COMMUNICATIONS (CIK: 0001383395)
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    • ifrs-full:DisclosureOfFinancialInstrumentsExplanatory

    Information about financial instruments
    Financial assets and liabilities
     
     
    Carrying amount
     
    Fair value
     
     
    December 31,
     
    December 31,
     
     
    2015
     
    2016
     
    2017
     
    2015
     
    2016
     
    2017
     
     
    (in thousands)
    Financial assets:
     
     
     
     
     
     
     
     
     
     
     
     
    Trade and other receivables
     
     
     
     
     
     
     
     
     
     
     
     
    Trade receivables
     
    $
    16,497

     
    $
    15,285

     
    $
    20,926

     
    $
    16,497

     
    $
    15,285

     
    $
    20,926

    Loans and other receivables
     

     

     

     

     

     

    Deposits
     
    345

     
    332

     
    402

     
    345

     
    332

     
    402

    Available for sale instruments
     

     

     

     

     

     

    Long-term investments
     
    321

     
    310

     
    353

     
    321

     
    310

     
    353

    Cash, cash equivalents and short-term investments
     
    8,681

     
    20,547

     
    3,295

     
    8,681

     
    20,547

     
    3,295

    Total financial assets
     
    $
    25,844

     
    $
    36,474

     
    $
    24,976

     
    $
    25,844

     
    $
    36,474

     
    $
    24,976

    Total current
     
    $
    25,178

     
    $
    35,832

     
    $
    24,221

     
    $
    25,178

     
    $
    35,832

     
    $
    24,221

    Total non-current
     
    $
    666

     
    $
    642

     
    $
    755

     
    $
    666

     
    $
    642

     
    $
    755

    Financial liabilities:
     
     
     
     
     
     
     
     
     
     
     
     
    Interest-bearing loans and borrowings:
     
     
     
     
     
     
     
     
     
     
     
     
    Finance lease liability
     
    12

     
    —

     
    —

     
    12

     
    —

     
    —

    Interest-bearing receivables financing
     
    6,472

     
    7,712

     
    7,413

     
    6,472

     
    7,712

     
    7,413

    Convertible debt and accrued expenses
     
    8,984

     
    16,338

     
    17,063

     
    8,984

     
    16,115

     
    16,309

    Government loans
     
    1,851

     
    1,852

     
    2,071

     
    1,851

     
    1,852

     
    2,071

    Research project financing
     
    2,947

     
    3,306

     
    4,004

     
    2,947

     
    3,306

     
    4,004

    Trade and other payables (current and non current)
     
    12,755

     
    18,358

     
    13,023

     
    12,755

     
    18,358

     
    13,023

    Financial instruments at fair value through other comprehensive income:
     

     

     

     

     

     

    Cash flow hedges
     
    39

     
    150

     
    —

     
    39

     
    150

     
    —

    Financial instruments at fair value through profit and loss:
     

     

     

     

     

     

    Convertible debt embedded derivative
     
    6,091

     
    —

     
    —

     
    6,091

     
    —

     
    —

    Total financial liabilities
     
    $
    39,151

     
    $
    47,716

     
    $
    43,574

     
    $
    39,151

     
    $
    47,493

     
    $
    42,820

    Total current
     
    $
    22,112

     
    $
    26,431

     
    $
    21,935

     
    $
    22,112

     
    $
    26,431

     
    $
    21,935

    Total non-current
     
    $
    17,039

     
    $
    21,285

     
    $
    21,639

     
    $
    17,039

     
    $
    21,062

     
    $
    20,885


    The carrying values of current financial instruments (cash and cash equivalents, short-term investments, trade receivables and trade and other payables, and interest-bearing receivables financing) approximate their fair values, due to their short-term nature.
    Available for sale long-term investments are primarily related to:
    •
    a bank guarantee secured by pledges of investments in money market funds issued in favor of the owners of leased office space to secure annual lease payments by the Company for its office space in Colombes;
    •
    bank credit lines used in connection with the purchase of hedging instruments and finance lease, also secured by pledged money market funds.
    Government loans received from the financial agency of the French government were recorded as financial instruments in compliance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.
    The convertible debts are compound financial instruments. As described under Note 14.1, the fair value of the embedded derivative convertible debt was recalculated at the end of each reporting period until the related conversion prices were fixed. At December 31, 2016, as the conversion prices of both convertible debt issues had been fixed during the year, there was no longer any embedded derivative.
    Fair Value Hierarchy
    The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
    •
    Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
    •
    Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
    •
    Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data
    As at December 31, 2015, the Company held the following financial instruments carried at fair value on the statement of financial position:
    Assets measured at fair value
     
     
    At December 31,
     
     
     
     
     
     
     
     
    2015
     
    Level 1
     
    Level 2
     
    Level 3
     
     
    (in thousands)
    Available-for-sale instruments:
     
     
     
     
     
     
     
     
    Long-term investments
     
    $
    321

     
    —

     
    $
    321

     
    —

    Liabilities measured at fair value
     
     
    At December 31,
     
     
     
     
     
     
     
     
    2015
     
    Level 1
     
    Level 2
     
    Level 3
     
     
    (in thousands)
    Financial instruments at fair value through other comprehensive income:
     
     
     
     
     
     
     
     
    Cash flow hedge
     
    $
    (39
    )
     
    —

     
    $
    (39
    )
     
    —

    Financial instruments at fair value through profit and loss:
     
     
     
     
     
     
     
     
    Convertible debt embedded derivative
     
    $
    (6,091
    )
     
    —

     
    $
    (6,091
    )
     
    —

    As at December 31, 2016, the Company held the following financial instruments carried at fair value on the statement of financial position:
    Assets measured at fair value
     
     
    At December 31,
     
     
     
     
     
     
     
     
    2016
     
    Level 1
     
    Level 2
     
    Level 3
     
     
    (in thousands)
    Available-for-sale instruments:
     
     
     
     
     
     
     
     
    Long-term investments
     
    $
    310

     
    —

     
    $
    310

     
    —

    Liabilities measured at fair value
     
     
    At December 31,
     
     
     
     
     
     
     
     
    2016
     
    Level 1
     
    Level 2
     
    Level 3
     
     
    (in thousands)
    Financial instruments at fair value through other comprehensive income:
     
     
     
     
     
     
     
     
    Cash flow hedge
     
    $
    (150
    )
     
    —

     
    $
    (150
    )
     
    —

    As at December 31, 2017, the Company held the following financial instruments carried at fair value on the statement of financial position:
    Assets measured at fair value
     
     
    At December 31,
     
     
     
     
     
     
     
     
    2017
     
    Level 1
     
    Level 2
     
    Level 3
     
     
    (in thousands)
    Available-for-sale instruments:
     
     
     
     
     
     
     
     
    Long-term investments
     
    $
    353

     
    —

     
    $
    353

     
    —

    Liabilities measured at fair value
     
     
    At December 31,
     
     
     
     
     
     
     
     
    2017
     
    Level 1
     
    Level 2
     
    Level 3
     
     
    (in thousands)
    Financial instruments at fair value through other comprehensive income:
     
     
     
     
     
     
     
     
    Cash flow hedge
     
    $
    72

     
    —

     
    $
    72

     
    —

    Financial instruments at fair value
    The Company uses financial instruments, including derivatives such as foreign currency forward and options contracts, to reduce the foreign exchange risk on cash flows from firm and highly probable commitments denominated in euros.
    The following tables present fair values of derivative financial instruments at December 31, 2015, 2016 and 2017.
     
     
    At December 31, 2015
     
     
    Notional Amount
     
    Fair value
     
     
    (in thousands)
    Forward contracts (buy U.S dollars, sell euros)
     
    €
    2,300

     
    $
    (38
    )
    Options (buy euros, sell U.S. dollars)
     
    2,500

     
    (1
    )
    Total
     
    €
    4,800

     
    $
    (39
    )
     
     
     
     
     
     
     
    At December 31, 2016
     
     
    Notional Amount
     
    Fair value
     
     
    (in thousands)
    Forward contracts (buy euros, sell U.S. dollars)
     
    €
    5,750

     
    $
    (142
    )
    Options (buy euros, sell U.S. dollars)
     
    1,500

     
    (8
    )
    Total
     
    €
    7,250

     
    $
    (150
    )
     
     
     
     
     
     
     
    At December 31, 2017
     
     
    Notional Amount
     
    Fair value
     
     
    (in thousands)
    Forward contracts (buy euros, sell U.S. dollars)
     
    €
    2,250

     
    $
    53

    Options (buy euros, sell U.S. dollars)
     
    3,000

     
    19

    Total
     
    €
    5,250

     
    $
    72


    The fair value of foreign currency related derivatives are included in the Consolidated Statement of Financial Position in “Other current financial liabilities” at December 31, 2015 and 2016 and in "Prepaid and other receivables" at December 31, 2017. The earnings impact of cash flow hedges relating to forecasted operating expense transactions is reported in operating expense. Realized and unrealized gains and losses on these instruments deemed effective for hedge accounting are deferred in accumulated other comprehensive income until the underlying transaction is recognized in earnings or the instruments are designated as hedges.
    During the year ended December 31, 2017, the Company recorded a gain of $195,000 (loss of $91,000 and gain of $78,000 for the years ended December 31, 2016 and 2015, respectively) in other comprehensive income related to the effective portion of the change in fair value of its cash flow hedges. During the year ended December 31, 2017, the amount transferred from other comprehensive income to Consolidated Statement of Operations was a loss of $74,000 (losses of $44,000 and $309,000 during the year ended December 31, 2016 and 2015, respectively).
    During the years ended December 31, 2015 and 2017, the Company recognized net losses of $6,000 and $3,000, respectively, related to the ineffective position of its hedging instrument. There was no ineffective portion of hedging instrument in the year ended December 31, 2016.
    The derivatives have maturity dates of less than 12 months. Management believes counterparty risk on financial instruments is minimal since the Company deals with major banks and financial institutions.
    The use of different estimations, methodologies and assumptions could have a material effect on the estimated fair value amounts. The methodologies are as follows:
    •
    Cash, cash equivalents, short-term investments, accounts receivable, accounts payable, other receivable and accrued liabilities: due to the short-term nature of these balances, carrying amounts approximate fair value.
    •
    Available for sale long-term investments are composed of debt-based mutual funds with traded market prices. Their fair values amounted to $321,000, $310,000 and $353,000 at December 31, 2015, 2016 and 2017, respectively.
    •
    Foreign exchange forward and option contracts: the fair values of foreign exchange forward and option contracts were calculated using the market price that the Company would pay or receive to settle the related agreements, by reference to published exchange rates.
    Financial risk management objectives and policies
    The Company’s principal financial liabilities comprise trade payables (current and non-current), interest-bearing receivables financing, government loans and convertible debt. The Company has various financial assets such as trade receivables and cash and cash equivalents, which arise directly from its operations, as well as from capital increases.
    The main risks arising from the Company’s financial instruments are foreign currency risk, credit risk, interest rate risk and cash flow liquidity risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarized below.
    Foreign currency risk
    The Company faces the following foreign currency exposures:
    •
    Transaction risk arising from:
    •
    Operating activities, when revenues or expenses are denominated in different currencies from the functional currency of the entity carrying out these transactions.
    •
    Non derivative monetary financial instruments that are denominated and settled in a currency different from the functional currency of the entity which holds them.
    Nearly 100% of total revenues and approximately 89% of total cost of sales are denominated in U.S. dollars. However, as a result of significant headcount and related costs from operations in France, which are denominated and settled in euros (the “structural costs”), the Company has transactional currency exposures which can be affected significantly by movements in the US dollar/euro exchange rates. Approximately 57% of operating expense is denominated in euros. (See Note 19.2 regarding the hedging arrangement in progress as of December 31, 2017).
    If there were a 10% increase or decrease in exchange rate of the U.S. dollar to the euro, as measured using the Company's 2017 weighted average exchange rate of one euro = $1.1185, the Company estimates the impact, in absolute terms, on operating expenses for the year ended December 31, 2017 would have been approximately $2.3 million.
    Credit risk
    The Company trades only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. The Company has subscribed to a credit insurance policy which provides assistance in determining credit limits and collection, in addition to some coverage of uncollectible amounts. In addition, receivable balances are monitored on an ongoing basis.
    The following table summarizes customers representing a significant portion of the Company’s total revenue:
    Customer
     
    Customer Location
     
    % of total revenues for the year ended December 31,
     
    Trade receivables at December 31,
     
     
     
     
    2017
     
    2016
     
    2015
     
    2017
     
    2016
     
    2015
    A
     
    Taiwan
     
    17
    %
     
    29
    %
     
    —

     
    $
    5,352,000

     
    $
    4,870,000

     
    $
    —

    B
     
    Taiwan
     
    16
    %
     
    Less than 10%

     
    —

     
    $
    4,060,000

     
    $
    —

     
    $
    —

    C
     
    China
     
    Less than 10%

     
    15
    %
     
    14
    %
     
    $
    246,800

     
    $
    (100,000
    )
     
    $
    1,167,000

    D
     
    China
     
    —

     
    Less than 10%

     
    27
    %
     
    $
    —

     
    $
    (3,000
    )
     
    $
    3,102,000

    E
     
    Taiwan
     
    —

     
    —

     
    16
    %
     
    $
    —

     
    $
    —

     
    $
    2,222,000


    With respect to credit risk arising from the other financial assets, which comprise cash and cash equivalents, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Nearly all cash and cash equivalents are held in France at two large and international banks.
    Vendor concentration risk
    Access to foundry capacity is critical to the Company’s operations as a fabless semiconductor company. The Company depends on a sole independent foundry in Taiwan to manufacture its semiconductor wafers.
    Liquidity risk
    The Company monitors its risk of a shortage of funds using a cash flow planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g. accounts receivables, other financial assets) and projected cash flows from operations.
     
    Within 1
    year
    1 to 2
    years
    2 to 3
    years
    3 to 4
    years
    4 to 5
    years
    More
    than 5
    years
    Total
     
    (in thousands)
    At December 31, 2015
     
     
     
     
     
     
     
    Research project financing
    $
    1,132

    $
    —

    $
    330

    $
    645

    $
    840

    $
    —

    $
    2,947

    Interest-bearing receivables financing
    6,472

    —

    —

    —

    —

    —

    6,472

    Government loans
    —

    93

    370

    370

    370

    648

    1,851

    Convertible debt and accrued interests
    —

    —

    8,984

    —

    —

    —

    8,984

    Finance lease
    39

    —

    —

    —

    —

    —

    39

    Trade payables
    9,498

    3,257

    —

    —

    —

    —

    12,755

    Other financial liabilities
    4,604

    —

    —

    —

    —

    —

    4,604

     
    $
    21,745

    $
    3,350

    $
    9,684

    $
    1,015

    $
    1,210

    $
    648

    $
    37,652

    At December 31, 2016
     
     
     
     
     
     
     
    Research project financing
    $
    1,376

    $
    631

    $
    742

    $
    425

    $
    19

    $
    30

    $
    3,223

    Interest-bearing receivables financing
    7,712

    —

    —

    —

    —

    —

    7,712

    Government loans
    167

    376

    373

    370

    368

    198

    1,852

    Convertible debt and accrued interests
    —

    —

    16,338

    —

    —

    —

    16,338

    Trade payables
    18,358

    —

    —

    —

    —

    —

    18,358

    Other financial liabilities
    4,415

    —

    —

    —

    —

    —

    4,415

     
    $
    32,028

    $
    1,007

    $
    17,453

    $
    795

    $
    387

    $
    228

    $
    51,898

    At December 31, 2017
     
     
     
     
     
     
     
    Research project financing
    $
    899

    $
    1,246

    $
    671

    $
    291

    $
    297

    $
    441

    $
    3,845

    Interest-bearing receivables financing
    7,413

    —

    —

    —

    —

    —

    7,413

    Government loans
    600

    398

    398

    398

    159

    —

    1,953

    Convertible debt and accrued interests
    —

    11,861

    5,202

    —

    —

    —

    17,063

    Trade payables
    13,023

    —

    —

    —

    —

    —

    13,023

    Other financial liabilities
    5,138

    —

    —

    —

    —

    —

    5,138

     
    $
    27,073

    $
    13,505

    $
    6,271

    $
    689

    $
    456

    $
    441

    $
    48,435


    Company’s liquidity risk for the next 12 months is described in note 2.1.
    Capital management
    The primary objective of the Company’s capital management is to continue to execute according to its business plans and budgets in order to achieve profitability and positive cash flow, and to maximize shareholder value.
    Changes in liabilities arising from financing activities
     
    January 1, 2017
    Cash flows
    Foreign exchange movement
    Other
    December 31, 2017
     
    (In thousands)
    Government grant advances and loans
    $
    5,745

    2,600

    915

    (2,638
    )
    $
    6,622

    Convertible debt and accrued interest
    $
    16,338

    —

    —

    725

    $
    17,063

    Interest-bearing financing of receivables
    $
    7,712

    (299
    )
    —

    —

    $
    7,413

    Total
    $
    29,795

    2,301

    915

    (1,913
    )
    $
    31,098