AmpliTech Group Q2 2023 Earnings Call Transcript

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Amplitec Group's Quarterly Investor Update Call, where the company will discuss its 2nd quarter 2023 financial results. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's conference is being recorded. I would now like to turn the call over to Amplitec's Director of IR, Sean Sawant.

Speaker 1

Thanks everyone for joining today's call to review the progress of Ampletech's growth initiatives and to answer investor questions. On the call today are Enthtech's Founder and CEO, Fawad MacPul the company's COO, Jorge Flores and the company's CFO, Luis San Fratello. Following initial management comments, we will open the call to investor questions. An archived replay of today's call will be posted to the IR section of Amplifex Zacks corporate website and this call is taking place on Tuesday, August 15, 2023. Remarks that follow and answers to questions, including statements that The company believes to be forward looking within the means of the Private Securities Litigation Reform Act of 1995.

Speaker 1

These forward looking statements generally include Words such as anticipate, believe, expect or words of similar importance. Likewise, statements that describe future plans, objectives or goals are also forward looking. These forward looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among others, matters that the company has described in its press releases and in its filings with the SEC. Except as described in these filings, the company disclaims any obligation to update forward looking statements, which are made at today's date.

Speaker 1

With that, let me turn the call over to our CEO, Vlad McCool.

Speaker 2

Good afternoon, ladies and gentlemen. Thanks for joining our Q2 2023 review call today. Today, we'll reflect on our performance In the Q2 of 2023, I'll discuss the company's growth outlook and market opportunities. The Q2, we reported a revenue of $4,100,000 and a gross profit of $1,900,000 Translating to an increased and record gross profit margin of 47%, despite facing inflationary pressures. Sales from our core Lomoid Amplifier business grew by 23%.

Speaker 2

However, our semiconductor distribution sales saw a dip primarily due to the softening of international demand, which is evident in the broader semiconductor sector as well. With respect to this sector to rebound nicely, we are already seeing strengthening signs in the semi industry overall. Our Q2 loss stood at about $508,000 This can be attributed to our ongoing investments in research and development for new products, Including new 5 gs wireless infrastructure products, NIMIC designs, our R and D initiatives totaled over Nearly $700,000 for this quarter and $1,200,000 for the 6 months ended June 30, 2023. We're confident that the investments we've been making in the new products will generate higher returns and profitability for the company when they are introduced to the market in 2024. They are designed not to be not only cutting edge, but also light touch labor.

Speaker 2

Light touch labor means less labor intensive, which is the source of most of our expenses in the products made here in the USA. And it will be supported by Our new automated quoting and other capabilities of the new multifunction CRM system that we implemented. Financially, our position remains robust. As of June 30, our cash and liquid marketable securities totaled 9,300,000 In addition to $2,500,000 in receivables, working capital stood at $16,700,000 at quarterend. We're confident that these balances will provide us with the capital necessary to support our current strategic growth initiatives.

Speaker 2

The surge in L and A sales and demand underscores the market's recognition of our product value and the strong competitive advantage with clear differentiators that position us for continued growth. Most of the growth in this quarter was from our SATCOM clients, We'll utilize our super load on these amplifiers enabling their systems to achieve unmatched performance levels. Amplitech's offerings enhance overall SATCOM systems including satellites, earth stations, gateways, transponders. This ensures signals traveling farther, connections are more dependable and systems run more efficiently. Considering signal performance and bandwidth, effective isotropic radiated power, which is EIRP, Gauge is the signal strength and satellite can transmit to earth.

Speaker 2

For a steady connection, if an amplifier introduces excessive noise, The EIRP requiring escalates. For instance, direct to home services might necessitate EIRPs between 50 to 5 gigabytes w. That's a measure of power of wattage for transparent reception. Therefore, most importantly, if you minimize system noise, the satellite will use less energy and provide a broader coverage area. This is a key parameter for satellites since size and weight are critical for cost and reliability in every system, especially all the new LEOs and MEOs that are being launched for the Internet and Sky.

Speaker 2

In terms of reliability, the junction temperature of a device, Ligand amplifier is pivotal. Exceeding this amplifier temperature can result in malfunction. A study conducted by NASA's Jet Propulsion Labs indicated that for every 10 degrees rise in operating temperature, The life expectancy of a standard electronic component may plummet by 50%. Our amplifiers facilitate The transmission of identical signals at much cooler temperatures leading to longer system lifetime and a higher mean time between failures. This is also a very key parameter that differentiates us from our competitors.

Speaker 2

Less failures means longer connectivity And improved signal performance over a period of time. Our low loaded amplifiers are the lowest power dissipating on the market And can help the system be safer, more energy efficient and subsequently more cost efficient. Considering all these points as a whole, This illustrates the value proposition that we bring to our many Fortune 500 customers differentiating ourselves from our competitors. As I mentioned earlier, we have continued to invest for future growth. This is very important to note.

Speaker 2

And we're excited to share that our ongoing R and D project centered around 5 gs O RAN massive MIMO radio units among others Are progressing very well and are on track with our expectations. Through the utilization of massive MIMO, Coupled with beamforming technology, we are enabling a precise and efficient solution for 2 5 gs Category B base station radios. These are the units that go on top of the towers. This breakthrough approach is addressing existing performance limitations, Facilitating support for a larger user base within each cell and enhancing the overall end user experience in densely populated areas. These are city urban areas.

Speaker 2

Our cutting edge 5 gs O RAN radios are also set to showcase our proprietary low noise amplifier 5 gs mimic chips, mimic meaning monolithic microwave integrated circuits. The massive MIMOs require arrays. Arrays require tiny small amplifiers and these are best done in a mimic form. Therefore, our new technology for mimics It's very important to use 5 gs radio development and all sorts of antenna developments. This technology characterized by The low noise figure provides a strong competitive advantage as it will enable an increased coverage range while providing near 1 gigabit per second speed That's 100 times what we have currently.

Speaker 2

As a result, This innovation reduces the requisite number of radios in a true 5 gs network, leading to an opportunity to enhance the return on investment For every deployment site, this is very important for MNOs and private 5 gs networks. We anticipate the receipt of initial prototype units by our AG TTSS division in the 4th year Q4 of this year. As such, we are currently in discussions with mobile network operators, MNOs and many private corporations that are seeking the advantages provided by our New 5 gs, O RAN compliant CAFE radios. The robust investments we have made in these new Technological endeavors are paving the way for the introduction of novel product solutions. This is a Key note.

Speaker 2

We are making this R and D investment for a particular reason. It's to separate us from what exists now and to bring the future Of the 5 gs technology now, which does not exist. We believe that these solutions are poised to elevate the company to new heights when they're introduced and available to the market, which we expect in 2024. We have a lot of interest from current MNOs and customers already who are in discussions. As we move through the Q3 And as a result of our newly implemented CRM and AI engines, we're addressing a surge in request for quotes for our loan wave amplifiers and 5 gs networks.

Speaker 2

We anticipate a portion of these to convert into sales in the coming quarters. We are also continuing our efforts to add NGK product line to our Spectrum division. This is a deal we made last year We add very special microwave package to our Spectrum division, which we expect to complete by the end of our fiscal year 2023. We also expect NGK Electronics RF Microwave packages to start contributing to our top line sales number early in 2020 4, as we roll out our new leading edge products next year, we believe that 2024 will be a transformative and pivotal year for Amplitec and Our CRM now indicates over $85,000,000 of potential opportunities. In closing, we're proud that our product enhanced our clients' entire systems as our commitment remains unwavering to aid our clients in shaping the future of communications.

Speaker 2

Thank you. We'll now open the call for questions. We will now begin

Operator

the question and answer session. And our first question here will come from Jack Vander Aarde with Maxim Group. Please go ahead.

Speaker 3

Okay, great. I appreciate the update and great to hear about the solid pipeline and record gross margins. It's great to see. Fad, I want to start by touching on the core L and A business, because those had a strong revenue quarter for you. It was up 23% year over year it sounds like.

Speaker 3

Just what's the driver behind your core L and A strength? And is this sustainable?

Speaker 2

Well, There's a need or more of a demand for all these, let's say, cloud based systems right now. They're actually ground stations that many companies like ViaSat and CTI and all the big guys are also supplying to Amazon, Google. They're all Creating their own cloud systems. So when they do these cloud systems, they have to communicate from the satellite ground station to the satellites. So that requires the most lowest noise figure amplifiers because range is very critical in all these satellite communications because lots of data is going through this.

Speaker 2

So the demand has increased in that way. So all these companies they're looking for the best solution possible and we have the best solution in these L and A for your L and A products. So that has increased. We're also picking up a lot of the business from competitors who have failed and do not have that performance. So we see an increase there.

Speaker 2

We will continue to see an increase also due to our new CRM system, which is really Seeking out potential customers potential new customers that we've never had before. So all of these things lead to growth And it will continue to lead to growth in this business.

Speaker 3

Okay, great. Great color there, Fad. Next, most importantly, I really want to dig into the pipeline a bit more. Last quarter, it was around $6,000,000 it sounded like and now you just provided an update. It sounds like it's grown.

Speaker 3

It's over $80,000,000 So maybe just a couple of questions. I'll kind of go 1 by 1. Just what's changed since last quarter that's contributing to that pipeline growth? Are you seeing more RFPs coming from prior trade shows? Are these larger customer orders than you previously thought?

Speaker 3

What's really been the difference there that's driving that increase since last time we spoke?

Speaker 2

Exactly a bit of both. We actually have gotten more RFQ specifically because of the we're turning over a lot more leads From our CRM system. It's finding the key people that are responsible for the technical development of their system. So the satellite operators, they have all the engineers that we need to connect to. They see the performance of our amplifiers, So they see the need right there.

Speaker 2

So part of it is just having a very good AI system, CRM system that finds the right people to connect to that really need our product. So that's one very good reason why we're getting increased RFQ activity. And then closing some of those deals is the next part of it. So all of those deals have to start getting closed and that's why we think that next year is going to be very pivotal for us. It takes time to build this kind of a base, Takes time to digest the $88,000,000 It's growing because every person gives us an actual discussion on what their needs are going to be.

Speaker 2

It's either the number of satellites, number of radio stations, number of radios that they need for their base stations, Services, all and mimic that they're going to need, thousands of mimic in their application, when they get contracts from defense Government or defense or private second tier suppliers, it trickles down to us And the value is there because that's going to increase our sales. So we're going to convert and start to convert all these lease, Which we didn't have before. We started to implement this as we mentioned a couple of quarters ago.

Speaker 3

Fantastic. And yes, just I mean just for a relative context, I mean over $80,000,000 of potential pipeline is that's 4 times larger than your revenue last All together. So, I mean, it's significant increase for sure. Maybe just given for estimates' sake and just near term I know that conversion rates are going to you're going to figure that out. But just in the near term, how does the 3rd and the 4th quarter Of this year kind of look relative to the first half of this year based on where you see things playing out?

Speaker 2

Well, it looks like it's going to be consistent. We're going to still be around $4,000,000 to $5,000,000 per quarter. That's what it looks like right now. But we're going to see obviously an increase in bookings towards the Middle of Q4 or so because we're working on a lot of deals right now that would be booked. But the conversion to revenues will be Really starting in 2024 and our numbers indicate at least 136% growth from the previous year.

Speaker 2

So that's basically just an estimate, but it's based on our actual requirements with customers that have given their requirements. So all these numbers that we have, we have actual numbers that are a result of these customers being very interested. So it's not just a number. And you'll see that when these start converting. That's when you're going to really see that.

Speaker 2

But 2024 is really an important year for us. It's really going to be the year where all of our best laid plans that we've done so far are going to come to fruition. This is what we've been doing. We've been trying to say that from the beginning. When we raised money, we never said we're going to be profitable or great the 1st year or the 2nd year.

Speaker 2

We had a 3 year to 5 year plan. We raised the money. We are building the foundation. We're almost complete now in this year end of this year. And as we complete that, the most important part of it is that in 2024, you'll see that result.

Speaker 2

You'll see the start everything coming together that's going to continue for the next 2 years.

Speaker 3

That's great. And you just you threw out a number there. I don't want to hold you to a specific number, but It sounds like you're pretty confident wherever revenue ends up in 2023, it sounds like you're thinking it's going to more than double next year over 100% growth. Is that a fair okay, that's a fair assessment?

Speaker 2

Okay. That's a fair assessment. Excellent. And then

Speaker 3

just maybe one last question. Just Help us understand maybe just what the types of I want to quantify and just kind of get more context of the pipeline Over $80,000,000 in the pipeline. Can you maybe just quantify or parse that out between what like outline what those opportunities are between 4 gs power upgrades versus your core LNAs versus spectrum business? Just help us understand how it makes sense to your pipeline.

Speaker 2

Sure. I can touch over these numbers. Basically, they're coming from various different sources. So we have our core L and A business, Basically, the quarter of business and about in 2024 or so, we're going to have a lot of revenue coming from L and A business. Some We're going to have semiconductor materials.

Speaker 2

That's going to go off. The spectrum is growing because of the NGK business that we're adding to it. That's going to be a very good source. And in 2024, we're still going to be about 29% into contribution from Spectrum, Because we continue we expect that to grow, although it declined this year because of the international demand. We said that A couple of quarters ago also that we're going to make up and increase and scale up their business by adding this the new product line NGK, which has about 80% of the world's market for packages for RF microwave packages.

Speaker 2

And that microwave packages feeds right directly into our microwave mimics. So it's working hand in hand. We'll have a 29% of contribution of revenue in 2024 from Spectrum. Our core growth is going to grow as well, but mostly in 2024, the AGT SS division Should start showing revenue because the there's a need for the customers, the MNOs, some large names, I can't really say them right now, but They need these new radios and we're in discussions with almost 7 or 8 different companies That need these 5 gs radios, our radio itself in particular because of the advantages that it offers. And we're in discussions based on sites, the number of sites, the locations.

Speaker 2

We're conservative right now. We're saying the 1st year or so In 2024, we'll have about 10 sites that we will be supplying, then we'll go over 50 sites the following year and maybe 100 sites In the next year, 3rd year. Each one of those sites

Speaker 3

I'll just say, can I jump in

Speaker 2

right there and just ask you 10 sites, what does that mean? What is that kind of opportunity? Sure. So each site would have 3 of our radios in there, Right. So you'll see you've seen all those towers where they have the triangular setup.

Speaker 2

The 3 radios Cover 360 degrees. So where the new radios will go off, 3 radios for each site And each radio is approximately about $10,000 or so. That's just the hardware. And then along with that side, You also have revenue from installation charges. So we have revenues that we charge for installing the entire site, all the radios.

Speaker 2

Then we have revenue monthly revenue that comes from maintenance of all these sites. So all of these are adding up. So total revenue, we are basically around $5,000,000 or so in 2024. That's our estimate from AG just the AGCS, just 5 gs. Fantastic.

Speaker 2

Okay. That's helpful color.

Speaker 3

Yes, and that's helpful. That's very helpful color. And just The pace, maybe it's too early to tell, but just the pace or the speed of which you can execute or achieve those upgrades, like let's say for 10 sites, What's

Speaker 2

how long would that take? So each site installation roughly is around 3 to 4 months. Okay. But we can do several sites in parallel and we're building our team to be able to service that. That's why we're very conservative here.

Speaker 2

Although we may have booked a lot more than doing this 10 site, we may have booked much more than that, because sometimes some sites require maybe 1,000 radios. They want the whole thing and eventually it will take time to cover all those sites. But we're building our force To do all that, but we have also relationships and collaborations that we've set up to help us achieve all this. We're not doing all of this by ourselves. We have partners that do the Hardware, the software, the system integrators that actually go up there and put the radios in.

Speaker 2

So it's all a team effort, Not that simple, but we have all of that planned out and that's why it's taken a while to do, but it will happen All start happening next year. And we also have revenue that we projected from our new products. Our R and D has gone into making lots of new products that are lower cost per unit, but lower labor cost. We've reduced the labor because we've taken our mimics, Our very advanced mimics that no one really has with the low noise figures that we can use in our amplifiers themselves. So that reduces the labor that we put into each That also translates into more profit.

Speaker 2

So every time we lower a cost, there will be more profit per product. And our entire goal, Our strategy and these numbers will show that is to increase our top line, increase our gross margins and go after all the products that have higher gross margins, Which in turn will give us higher bottom line.

Speaker 3

Okay. That's great color. And if I can ask just one more question then I'll hop Back in the queue. Again, it's about the pipeline. I know obviously I respect that some customers in the Potential orders in there want to be kept confidential.

Speaker 3

But can you just maybe give us a sense of how many total customers, like How many individual customers that actually represents in the pipeline? Is it a handful? Is it 12? Is it 30? Is it 50?

Speaker 3

Just to give a sense.

Speaker 2

Well, these are all large customers. So we're not going after consumers right now. So they're basically large MNOs and large corporations that want private five So I would say between 15% or 20% roughly to begin with. And this is not limited to United We're doing global retrofits.

Speaker 3

Got it. That makes a lot of sense. Well, Congrats on the strong momentum and I look forward to watching you guys execute. That's it for me.

Speaker 2

Well, I appreciate it. I know everybody is waiting for the good Fantastic results, but we're working as we have said so. We're going to be doing the milestones Exactly as we have planned. This year was a little bit of downturn, but that's expected to be up and down. But It's all part of building the bigger company, building and changing the face of this corporate company, so that we can be a much broader based Solution

Speaker 4

provider.

Operator

While we assemble our roster, I'd like to turn the call over to Sean Sawan. Please go ahead sir.

Speaker 1

Hey, thanks for the question. Jeff Kobler from Diamond Bridge Capital. I'll be reading off your questions. Okay. So it's a 2 part here.

Speaker 1

I'll start with the first one. So Jeff is asking, did NGK contribute at all to revenue or When will that distribution agreement result in revenue? And what is the materiality of that distribution agreement? George, maybe you might be the best to answer this one?

Speaker 4

Okay. Yes. Up to this point, we are in Full preparation after we inked the deal with them earlier this year. So we are doing a lot of feasibility studies for Customer modifications on their housings. Also Enronka developing marketing campaigns, we are doing website updates, sales staff training.

Speaker 4

And this is also working directly with NGK. So a lot of items have to be in close coordination with their team as well. So all of these preparations, we believe we're going to be closing in by the end of 2023. So we are definitely Going to be able to release the first purchase orders to NGK by the end of the year and we expect deliveries to occur early in 2024. Definitely we believe that we will have meaningful ENJUK sales to occur in 2024.

Speaker 1

Okay. Thanks, George. Following up on these questions, I also see Company mentioned in the past that progressive prospective customers were beta testing mimics. What were the results of those tests?

Speaker 4

Well, we have had like a few companies that have approached us and actually bought Like some smaller quantities of the mimics, they are still they're looking at doing their own in process design At their own factories as well though. We do have visibility into many of their programs, many of their projects. But you know though that the qualification and system design that takes a long cycle. So we are definitely patiently waiting for them to finish their efforts, once they win, we will be designing and then we will be ready to fill any orders that they need.

Speaker 2

This includes base applications. This

Speaker 4

includes base applications.

Speaker 1

Great. And then we can move on to this one on the pipeline, the sales opportunity of $66,000,000 Of course, This has changed since then. When will these contracts be awarded to the winning bidder?

Speaker 4

Well, as so what I was mentioning too though in Orca, we do have conversations with a lot of them. And in many cases though in Orca, we know that If they win, we will win as well. Some of them, we will see in the near term, but some of them are pushing out to the right. It's Also because of the qualification beta testing that they themselves need to do with their own products. So it's very dynamic.

Speaker 4

It's a very dynamic sales funnel that we have, but we do believe and we do expect that to be able to start closing some deals by the end of the year.

Speaker 1

Thanks, Rose. And we have one last question here. So given the weaker market for semis The Spectrum division should investors expect sales to decline year over year for the second half as well?

Speaker 4

Yes. So far though, John, as you've seen in the semiconductor industry, the market is down at least 11% this year. So this definitely has affected our Spectrum division sales. However, though, in order to get the industry economists though, they do believe that this Semiconductor industry is going to be balancing nicely by about 18% in 2024. So we do believe that our Spectrum division It's going to be able to recover some of the lost sales due to the softer demand and we are also doing organic scaling the mobile with the NGK opportunity.

Speaker 1

Thanks for clarifying on those. So with that, that concludes the Q and A I had in my e mail. Joe, I'll turn it back over to you.

Operator

Thank you. And that will also conclude the live Q and A portion for today's call. I will now turn the call back over to Farhad Mekhul for any closing remarks.

Speaker 2

Thank you. Thanks to everyone who joined today's call to hear about the progress we've made and the plan we have to further our company's mission of providing the communication systems of tomorrow and today. We look forward to updating you further on our Q3 financial results call in mid November. Until then, please contact Contact us directly, should you have any questions or wish to schedule a call with management. Our Investor Relations team can be reached

Operator

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.

Earnings Conference Call
AmpliTech Group Q2 2023
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