Akoustis Technologies Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 9 speakers on the call.

Operator

Day, ladies and gentlemen, and welcome to the Akoustis Technologies Fiscal 20 24 First Quarter Conference Call. As a reminder, this conference call is being recorded. At the conclusion of the company presentation, Akoustis Management will take questions. A replay of the call will be available on the Investor Relations section of the Akoustis website. Thank you.

Speaker 1

Thank you, operator, and good morning to everyone on the call. Welcome to Akoustis' Q1 fiscal 2024 conference call. We're joined today by our Founder and CEO, Jeff Shealy CFO, Ken Boller and EVP of Business Development, Dave Likeley. Before we begin, please note that today's presentation includes forward looking statements about our business outlook. All statements other than statements of historical facts included in this conference call, such as expectations regarding our strategies and operations, including the timing and prospects of product development and customer orders and design wins, possible collaborative or partnering relationships, Litigation matters and expected financial and operating results are forward looking statements.

Speaker 1

Such forward looking statements Our predictions are based on the company's expectations as of today and are subject to numerous risks and uncertainties. The company and our management team assume no obligation to update any forward looking statements made on today's call. Our SEC filings mention important factors that could cause actual results to differ materially. Please refer to our latest Form 10 ks and Form 10 Q Filed with the SEC to get a better understanding of those risks and uncertainties. In addition, our presentation today will also refer to certain non GAAP financial measures.

Speaker 1

A reconciliation of these measures to the most directly comparable GAAP measures is presented in our earnings call highlight release available in the Investors section of akoustis.com. I would now like to turn the call over to Jeff Shealy, Founder and CEO of Akoustis.

Speaker 2

Thank you, Ken, and welcome everyone to our fiscal Q1 conference call. Revenue in the September quarter was within our guided range down 15% sequentially. During the September quarter, we had one customer that made up greater than 10% of our revenue. XBAW related sales accounted for the top 5 customers and 7 out of the top 10 customers. Our top 10 customers made up 59% of revenue.

Speaker 2

Our top 25 customers made up 74% of revenue. In terms of regional sales from our top 35 customers, which make up 80% of our revenue, 53% Of those sales came from Asian customers followed by 35% of sales came from North American customers and 12% of our sales came from European customers. Earlier this calendar year, we commented on the buildup in Channel inventory, particularly at our WiFi customers in the Asia region. As we stated on last quarter's call, We expected 2 quarters of slowdown as we transition and ramp to new WiFi AP platforms, Work through a slowdown in the Infrastructure segment and transition a portion of our defense activity to new contract business. Consistent with our guidance on last quarter's investor call, we expect revenue for the December quarter to be $7,000,000 or flat sequentially.

Speaker 2

In reaction to the slowdown in the market, the company implemented 2 rounds of meaningful expense and cost savings plans To significantly reduce cash burn moving forward, Ken will detail our activities and impact on reducing our cash burn during his upcoming comments. However, looking around the corner at the March quarter, We are seeing signals of inventory channel clearing. We are presently delivering new lower cost RF filter products and are receiving multiple new design wins and new Wi Fi AP platforms with more RF filter content in early calendar 2024. As a first look, we expect to return to record quarterly revenue for the March quarter In the range of $8,300,000 to $8,800,000 or a sequential increase of 18% to 25%. We will update the March quarter guidance during next quarter's investor call.

Speaker 2

I would now like to take a moment to discuss updates involving the company's activity related to the Chips and Science Act of 2022. Regarding Chips Act funding, there are 4 updates to share with investors. First, in mid September, Our Microelectronics Commons proposal focused on EW Tech Hub was not selected by the DoD. According to the September 20th announcement made by the government, the majority of the 8 DoD Tech Hub Awards Went to major universities across the U. S.

Speaker 2

2nd, on October 23, Senator Schumer announced That the Greater Rochester region was selected as a prestigious tech hub, opening significant federal funds from the Department of Commerce to boost critical supply chains in Upstate New York. Akoustis is a member of the TechHub consortium and will pursue meaningful opportunities with the TechHub residing in our backyard in Upstate New York. 3rd, the Chips Act of 2022 includes a provision for a 25% refundable investment tax credit Or Chip's ITC on investments in facilities that manufacture semiconductors For semiconductor manufacturing equipment that were placed into service after December 31, 2022, We estimate the amount of the refundable tax credit applicable to Akoustis to be $3,500,000 to $4,000,000 over the next 18 months. And 4th and finally, Regarding our proposed expansion of our domestic manufacturing footprint, including both semiconductors and advanced packaging at our New York campus Under the Department of Commerce Chips for America program, we have completed a first pre application with the DOC. The Chips Program Office or CPO of the DOC has received The pre application submitted by Akoustis Technologies Inc.

Speaker 2

The CPO recommends that we move forward and submit a revised pre application addressing questions raised in our original application. Hence, our next step in the process is to file a revised pre application Once we complete a strategic review with our potential semiconductor partners who require a partner to manufacture semiconductor materials, wafers and or packaging on our New York manufacturing campus. Next, I would like to discuss several updates In our primary target markets, beginning with WiFi, our first milestone for the September quarter was to receive a design win For next generation WiFi 7 with a consumer focused OEM, we delivered a total of 3 design wins on the consumer front With all programs currently planned to begin production ramp in the March quarter of calendar 2024. Two programs are 4x4 MIMO architectures and the 3rd program is a 2x2 MIMO architecture, All utilizing our recently released widebandwidth XBAW RF filter solutions in the high band spectrum. Our second milestone was to secure a design win for our next generation Wi Fi 7 solution with a Tier 1 U.

Speaker 2

S.-based carrier. We remain confident that this carrier will launch with our filters on their platform, but we have moved this milestone to the December quarter Our 3rd milestone was to secure multiple RF filter design wins For our Tier 1 enterprise class customers, Wi Fi 7 suite of routers and access points, we have been aggressively developing and qualifying These parts for our customer and have made shipments to our customer over the past few months and expect to announce this design win in the December quarter. Also during the September quarter, we announced the introduction of our latest single crystal doped piezoelectric materials into a key product, which is slated to ramp with an upcoming WiFi 7 Enterprise customer. These advanced materials are utilized to allow greater design margin and flexibility to the customer in the design of their system. While the overall WiFi market has been impacted Over the past 12 months, by excess inventory and slowing Wi Fi AP demand post COVID, we see signs of reduced Looking ahead in the December quarter, we expect to announce a design win for a next generation Wi Fi 7 solution with a Tier 1 U.

Speaker 2

S.-based carrier. Further, we plan to secure multiple design wins for our Tier 1 enterprise class customers, WiFi 7 suite of routers and we plan to secure a design win for WiFi 7 solution with A Tier 1 enterprise class OEM. Next, I would like to discuss our recent developments in the 5 gs mobile market. During the September quarter, we made no new shipments to our Tier 1 RF component customer. The slowdown in shipments is due to Slowdown in marketing and adoption of the product in the China market, our customers' inability to secure a production slot On a new design program in the Tier 1 market as well as other market headwinds.

Speaker 2

During the September quarter, We expected to receive an order for a 2.4 gigahertz WiFi filter for our Tier 2 5 gs RF front end module customer. We received not only an XBAW Foundry order for the 2.4 gigahertz band, but the customer also added 2 additional high This customer has completed previous design evaluation and has down selected The final design for release in the first half of calendar year twenty twenty four. With the slowdown in headwinds in the mobile market, We have been focusing our resources on near term opportunities in the WiFi, 5 gs Infrastructure and Automotive segment. However, our anticipated milestones for the December quarter include, we expect to deliver the first of the 3 WiFi filters to our Tier 2 5 gs Mobile RF Front End Module Making customer. And Finally, we expect to engage a 5th mobile partner offering our XBAW process and foundry for their module and discrete product needs.

Speaker 2

I will now discuss our progress in our Network Infrastructure business. During the September quarter, we experienced strong XBAW filter shipments to our CBRS customers targeting the U. S. Market. However, we experienced minimal shipments in our small cell RF filters in the September quarter.

Speaker 2

Overall, we are seeing the 5 gs O RAN and RAN market slow in the December quarter As operators take inventory of existing deployments, we do expect the 5 gs small cell market to begin to improve in the March quarter And throughout calendar 2024, as carriers throughout the U. S, Europe, the Middle East and Africa continue to deploy sub-five gigahertz Regarding our milestone from the September quarter, we received a design win for our XBAW RF filters from a Tier 2 network infrastructure OEM for a massive MIMO base station. The radio design includes 64 TRx paths with 1 filter in the transmit path and 1 filter in the receive path. Altogether, We have 128 filters of content in the radio unit and expect production to begin ramping in the Q2 of calendar 2024. For the December quarter, we expect to complete the redesign and sample of our new and improved 5 gs Band 41 and 5 gs U.

Speaker 2

S. 3.8 Gigahertz Network Infrastructure Filter Solutions. The redesign of these filters pushed into the December quarter given engineering priorities related to near term WiFi business. Finally, before handing the call off to Ken, I would like to provide an update on our Defense and Other Markets business. It is noteworthy that 6 out of our top 10 customers Are in our Defense and Other Businesses category, and I will begin with an update on our published milestones for the September quarter.

Speaker 2

First, we made steady progress on securing a design win for an automotive wireless battery management system or WBMS solution used in a Tier 1 IC reference design and we expect to close out this milestone in the December quarter. 2nd, we received a specification change from a key customer, which delayed the start of the product qualification of our second XBAW resonator for the timing control market. At this point, We already started the qualification and plan to complete this product qualification in the December quarter. Beyond our published milestones, we achieved other notable milestones during the quarter in this segment. As mentioned in the past, our biggest success in the Defense and Other Markets segment was the introduction of our new P3F Technology, which incorporates a new revolutionary, patented multilayer nanomaterial that incorporates Our single crystal piezoelectric material, this new nano material was developed with funding from the Defense Advanced Research Projects Agency or DARPA to scale the XBAW technology to frequencies up to 18 gigahertz.

Speaker 2

At the end of the September quarter, we were awarded a multimillion dollar Phase 2 contract option, which extends our current DARPA coffee contract to $4,800,000 including base and exercise options. The new Phase 2 contract extends the funding for the program through December of 2024. During the September quarter, we received a purchase order as a foundry supplier supporting a new DARPA contract Unrelated to our current DARPA coffee contract, which requires high performance custom resonators For timing control applications, further, we completed initial wafer shipments from our New York fab during the September quarter, and we expect additional shipments over the next few quarters. In addition, we achieved a design win At an international engineering and technology company supplying timing products for an electric meter application and we have received purchase orders For more than 300,000 pieces of initial volumes with scheduled delivery now into Q3 fiscal Year 2024. For the December quarter, in the Defense and Other Markets segments, we are expecting To achieve a design win of at least one of the following: crystal oscillator, BAW filter and or SAW filter used Also, we plan to complete the qualification of the optimized second XBAW resonator for a key customer in the timing control market, And we expect to deliver an X band BAW filter utilizing Akoustis' advanced XP-3F technology to a Tier 1 defense customer.

Speaker 2

And now, I would like to hand the call over to Ken to go through our financial highlights.

Speaker 1

Thank you, Jeff. For the Q1 ended September 30, 2023, the company reported revenue of $7,000,000 which is a decrease of 16% over the prior quarter ended June 30, 2023, but still represents an increase of 26% year over year. On a GAAP basis, operating loss was $21,700,000 for the September quarter, driven by revenue of $7,000,000 Offset by labor costs of $9,400,000 depreciation and amortization of $3,200,000 and other operational costs totaling $16,100,000 As a result, GAAP net loss per share was $0.28 On a non GAAP basis, Operating loss was $19,100,000 and non GAAP net loss per share was $0.27 CapEx spending for Q1 was $4,200,000 primarily to enhance our back end processing capabilities and complete our New York fab tool capacity to 500,000,000 filters per year. Cash used in operating activities was $13,100,000 which included approximately $3,400,000 of year end expenses For $9,700,000 net, in the December quarter, as indicated in our prior call, we expected revenue to be flat given the broader market weakness along with the associated inventory correction. We continue to receive design wins and introduce new products, but we expect a return to record Quarterly revenue in the March quarter of up 18% to 25%.

Speaker 1

We will update this guidance during our next quarterly investor call. On the expense front, over the past several months, we have undertaken significant expense reductions and cost saving measures We estimate we'll reduce our operating cash flow burn rate below $8,000,000 for the December quarter. Given the top line projections, The Chip's ITC refund and a full quarter of cost savings, we currently expect operating cash burn to be below $6,000,000 in the March quarter, with operating cash flow breakeven less than 1 year away. The company exited the September quarter with $25,800,000 of cash and cash equivalents versus $43,100,000 at the end of the previous quarter. I will now turn the call back over to Jeff for his closing comments.

Speaker 2

Thank you, Ken. We continue to believe the market opportunity for our patented high frequency XBAW and XP3F filters and is substantial. As of September 25, 2023, we have approximately 200 issued patents and patents pending, representing a substantial IP moat around our technology. We continue to work diligently to achieve each of our stated objectives, and we will continue to provide updates on our execution against these objectives going forward. I want to emphasize to investors that while we have been navigating the challenges to our top line revenue during the first half of our fiscal year, We have aggressively taken steps to reduce operating expenses and achieve cost savings on our products to lower our operating cash burn.

Speaker 2

We believe this is prudent in the economic environment that we are facing. Finally, I would like to take the opportunity To thank our employees for their hard work, passion and dedication in working together to position our company for growth in the quarters ahead. I also wish to thank our shareholders who continue to support the company. And with that, I would like to open the call for questions from the investment community. Operator, please go ahead with the first question.

Operator

Thank you. Thank you. Our first question is from the line of Anthony Stoss with Craig Hallum. Please proceed with your questions.

Speaker 2

Good morning, guys. Ken, let

Speaker 3

me start with you. Can you maybe outline OpEx just for December and then March R and D and SG and A for each. And then, your comment about expected reach breakeven in less than What would the new kind of revenue per quarter to reach that breakeven be?

Speaker 4

Good morning, Tony. Yes, I'll dive into some of those So with the expense reductions and cost saving measures that we've undertaken, in essence, we've cut About 20% of our operating expense, we won't see a full quarter of that until the March quarter, as some of those were undertaken earlier in Q2. So we'll start to see up to 10% to 20% in December And then in March, 20 percent savings and OpEx overall. The question on operating cash flow breakeven, We still are projecting that to be within the next 12 months, still within $12,000,000 to $15,000,000 of revenue during that time period and that some of that depends on mix. We are A number of our new products are coming into production during the next two quarters, over a dozen.

Speaker 4

And those products are of a lower form factor and have lower laminate costs and back end processing costs. So we'll start to see not only a reduction in overall cost from the cost savings plan that we did, but also an introduction of our new parts that are lower back end in cost and those margins are now negative will turn positive. And then by this time next year, we project to be operating cash flow breakeven. Got it. And then as Follow-up

Speaker 3

maybe for Jeff. Just what gives you confidence in the $8,300,000 to $8,800,000 in March? And then Again, ramping from there to get to your $12,000,000 to $15,000,000 And then, Jeff or Ken again, where would you expect gross margins to kind of exit

Speaker 5

Good morning, Tony. Jeff here. I think the confidence is coming from What we're seeing, we made in the prepared comments some discussion about what we're seeing in the WiFi channel with inventories, Particularly in the Asia market, in our WiFi segment, clearly, we've seen firsthand some of the evidence of that. I think most importantly and maybe more importantly is that we have multiple programs that we've been focused on, which are ramping in the Q1 calendar year, which is In the Q1 calendar year, which is our March quarter, of course. So it's Confidence in the transition of some programs in WiFi.

Speaker 5

We also made mention of some transition In our Defense and Other segment, we had really had a perfect storm First half of this fiscal year with some of the headwinds in the market with we were wrapping up certain contracts. So that's as well as the some of the slowdown in the inventory buildup in the channel. So for the March quarter, it's all about new programs in WiFi, which we have high confidence in, as well as The Defense and Other segment is really picking up. And the Infrastructure segment has been a little lumpy, but we've seen some signs An ongoing recovery in that as we head into next year.

Speaker 4

And Tony, I'll comment on gross margin. So in the next quarter or 2 by March, we will turn positive margins And then exit our fiscal year above 10% margin. And then when we come to The operating cash flow breakeven time period of this time next year, we're projecting to be 20% to 25% of the positive gross margin. And some of that, as Jeff just alluded to, is some of our product mix. We're also starting to see more interest in infrastructure and some of our base station So those, if you recall, have a very high ASP and very good margin.

Speaker 4

So that is a piece of the mix that we're talking about We're going into those time periods in the future.

Speaker 2

All right. Very good. Thanks, guys.

Speaker 5

Thank you, Tony.

Operator

Our next question is from the line of Greg Ellis with B. Riley Securities. Please proceed with your questions.

Speaker 6

Yes. Thanks for taking the question, guys. I wanted to follow-up on the earlier questions and just better understand the dynamics in March. So It looks like revenue is going to be up about $1,300,000 sequentially led by WiFi followed by Defense. Within WiFi, Can you characterize the incremental gains in the consumer part of the market versus the enterprise part of the market for the March quarter.

Speaker 5

Hey, good morning, Craig. Let me pull Dave in and he can give you What we see on the mix in WiFi, maybe I'll

Speaker 7

add some comments thereafter. Yes. Good morning, Craig. So it's Evenly split between the consumer side and the enterprise side, there's 2 dynamics that we're seeing. So we've got good traction With WiFi 6E programs that we've done with carrier market, that is going to start picking back up.

Speaker 7

It's gone through this inventory slowdown, so we expect that to pick back up. Plus we've got for the design win announcement we made in this recent call today is that we've got 2 consumer programs that we've already seen Substantial POs on 4 new Wi Fi 7 products that we launched probably about 3, 5 months ago. And then the other one is, our Tier 1 enterprise customer is going to start ramping and also their previous Form is picking back up. They've had a slowdown probably for the past 6 months. So we have both of those coming together, plus we announced in the call today another Enterprise customer that's also going to be planning to ramp and both of these enterprise customers have a significant amount of filter Content per system.

Speaker 7

So even though the volume of the system shipping are less than the carrier side, you still get very good dollar content and also total ASP per So I think it's going to be a balance between the 2 of them. We're still focusing on the big box retail side That we don't expect any real growth contribution probably till the second half of calendar year twenty twenty four. So I put emphasis mainly on the carrier and the enterprise side.

Speaker 6

Yes. That's really helpful, Dave. Thank you. And then the follow-up question is somewhat similar, But for the second half of calendar twenty twenty four, first half of fiscal twenty twenty five guys, If we're getting to cash flow breakeven@midteensrevenues, then our revenues are going to basically double through the year. So Can you just help us understand what your assumptions are around Mobile's contribution To that, Ram, and to the extent that it exists, how much of that is Tier 1 customers versus the Tier 2 It's ramping a little bit in the first half of calendar twenty twenty four and then beyond mobile just the relative contributions out of WiFi defense Thank

Speaker 5

you. Okay, Craig. So second half of calendar 2024, we see continued increase and transition in Wi Fi. I think Ken had touched on Some of the new products with the more favorable gross margin profile, that's going to be certainly a driver towards our cash flow breakeven, but it's continued ramp with programs in WiFi. Dave gave some outline of what that Looks like in terms of some of that mix, I did want to emphasize in these Wi Fi programs, we're moving from Programs that we may have 8 to 10 type filters In a WiFi 6E to some of these programs, we have multiple products and up to More than 30 filters of content in the box.

Speaker 5

So Wi Fi is a big part of that story. The other part that we're seeing is We do see a recovery of network infrastructure as we go in the second half of twenty twenty four. We announced this morning a first massive MIMO design win in infrastructure that has You're talking about in that particular design win 128 filters And that was significant content in that. And the Defense and Others segment, which is Core and key to us, continued strength there. We have new programs that we've been bidding.

Speaker 5

We did announce a second support of a second DARPA program there As well as some ramp in the automotive. We've been active in the automotive, Not only in the battery management, but also in the CB2X, we've been very active marketing That product as well. You asked about 5 gs Mobile. Our activity there is primarily in the Tier 2 market. I think it's well documented the headwinds That have been in the China segment, but our activity there that's supporting this is primarily in the Tier 2 market.

Speaker 5

Anything else you want to add?

Speaker 7

I was just going to comment, we're still very excited about the mobile market. We've got a handful of customers that Our actives, it's just certain dynamics that we're encountering right now. So I agree with Jeff's comment is most of the revenue Increase we'll see in the second half of twenty twenty four is going to be with the Tier 2 market. We hope with the activity that we'll see opportunities Back in with the Tier 1 in 2025, 2026. But that's something that we've got to continue to push With our Tier one customers that we're engaged with.

Speaker 6

That's really helpful guys. And then lastly, for me before I get back in the queue. Ken, my connection was breaking up as you talked about the timing of what I believe was a $4,000,000 ITC refund. When do you expect to realize that?

Speaker 4

Hey, Greg. So yes, so we that's actually over an 18 month period, $3,500,000 to $4,000,000 that will be filed with our tax return this year and our tax return next year. And then it's Projection of when we expect to get a refund from the IRS, how long that may take. But we would expect the first tranche of that to be Roughly about half of that, a little over $1,500,000 to $2,000,000 for this upcoming time period and we expect that to occur in the March Quarter, March of 2024.

Speaker 6

Got it. Thanks, Scott.

Speaker 2

Thanks, Greg.

Operator

Thank you. Our final question is from the line of Suji Desilva with ROTH Please proceed with your questions.

Speaker 8

Hi, Jeff, Dave and Ken. The product cost improvements you talked about in terms of improving the margins in the Alignment and so forth, what mix of the products as we go 6 to 12 months out will be at that improved cost structure It's a target getting to breakeven.

Speaker 5

Good morning, Suji. We'll get both Dave and Ken On that one from the product, obviously, one from the numbers on financial.

Speaker 7

Good morning, Suji. So yes, there is I would say that the mix Right now, for the next quarter, quarter and half, it's going to be more of the older products. But as we get the new products Profiles ramp and you'll see that transition point probably 3 quarters out that you will start to see it move True that the new products will take a higher percentage. And then by the, I guess, 12 month period, I would expect a majority of the products that we're shipping or a good chunk It's going to be the new platform, the smaller form factor. A lot of the 6E and even the 6 programs are getting replaced At least with the customers that we're targeting, we'll have some legacy products that continue to ship some of the enterprise customers.

Speaker 7

They'll be utilizing these older generation products for 2 to 3 years out. So It's a transition period. It's baked into Ken's models too as well that you can touch on.

Speaker 4

Yes. So we like I said, there's about over a dozen new products that we're introducing over the next 3 to 9 months And then more to follow after that. And as Dave mentioned, they'll slowly be accepted by the market and be brought into our sales funnel. And as I mentioned earlier, there also is the new base station products and those have a higher ASP and have a lower cost as well. So We'll start to see that funnel in more and then get the 25% gross margin in that range when we get to this time next year in the December quarter.

Speaker 5

And Suji, let me add to that really three dynamics that's going On that margin improvement, Dave touched on size. The laminate has our selection of laminate to lower cost Laminates is certainly a selection criteria. And I do want to emphasize the work by the team in the yield category That so it shows size of product, laminate as well as the yields That's going to be driving gross margin going forward.

Speaker 8

Okay. Great, guys. My other question is on the financial side. What's the CapEx budget Maybe the next 12 months, calendar 2024, whatever timeframe you want to use, just to understand how capital intends the next phase is?

Speaker 4

Yes. So we've just completed our 500,000,000 capacity 500,000,000 filters per year capacity expansion And also beefed up some of our back end processing capabilities in this quarter. If you look at our financials, you'll see the footnote disclosure stating about $1,000,000 of spend that is left. However, I would also tell you that we're looking into it and seeing what expenses we can defer We're not due from that angle as well as far as further cost reduction program. But at those, if you look at our footnote, it's a little over

Speaker 5

And Suji, let me add to that, that tool capacity Expansion, those tools are predominantly installed and running. We had deferred on some of the labor as We've been able to make strides in yields and that's put some of the labor component that's driving Some of that cost of goods, let's push some of that out and that's part of what Ken's Referencing in terms of some of the savings programs. So we've got the tool capacity and can add the labor And bring that trained up, generally speaking, in 1 to 2 quarters.

Speaker 8

Okay. All right. Thanks, guys.

Speaker 5

Thank you.

Operator

Thank you. This concludes our question and answer session. I will now hand the floor back to management for closing remarks.

Speaker 5

Thank you, operator, and thank you all for your time today. We look forward to speaking with you during our next update call Thank you again and wish everybody a wonderful week. Thank you.

Operator

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Akoustis Technologies Q1 2024
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