Akoustis Technologies, Inc. (NASDAQ:AKTS) Q3 2023 Earnings Call Transcript May 8, 2023

Operator: Good day, ladies and gentlemen, and welcome to the cTechnologies Fiscal 2020 Third Quarter Conference Call. As a reminder, this conference call is being recorded. At the conclusion of the company’s presentation, Akoustis management will take questions to a question. [Operator Instructions] A replay of the call will be available on the Investor Relations section of the Akoustis website.

Tom Sepenzis: Thank you, operator, and good morning to everyone on the call. Welcome to Akoustis third quarter fiscal 2023 conference call. We are joined today by our Founder and CEO, Jeff Shealy; CFO, Ken Boller; and EVP of Business Development, David Aichele. 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.

Such forward-looking statements are predictions 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-K 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. A reconciliation of these measures to the most directly comparable GAAP measure 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.

Jeff Shealy: Thank you, Tom, and welcome, everyone to our fiscal third quarter conference call. While the broader economic environment remains challenging, Akoustis drove unit and top line growth once again to achieve another quarter of record revenue of $7.4 million, which was within the 20% to 40% growth range we guided to on our last call. We are experiencing interest across our growing product portfolio in all our end markets. WiFi and 5G mobile remain the primary revenue and unit drivers in the March quarter, and we expect this to continue throughout the calendar 2023 as we add new customers and new design wins across both markets. In terms of specific trends during the March quarter, Akoustis had two greater than 10% customers, XBAR-related sales drove the top five customers and seven out of the top 10 customers.

Our top 10 customers made up 59% of revenue, our top 25 customers made up 75% of revenue in terms of regional sales, three out of five and five out of our top 10 customers were Asia-based. Further, we added a 5G mobile customer into our top five customer ranking. And finally, our top two customers in Q3 increased their sequential revenue with Akoustis by 335% and 79%, respectively. Moving on. During our last call, we highlighted several macro challenges that led to broad weakness in our SAW filter business across multiple markets, including automotive, IoT, medical devices, particularly in China and Europe. During the March quarter, we experienced some recovery across each of these markets, although forward visibility in China remains challenging.

Despite persistent economic challenges, we expect to continue top line growth in the June quarter, driven by XBAR unit growth, continued improvement in our SAW filter business and favorable seasonal trends in our wafer service business. We expect to ship additional filters to our first Tier 1 5G mobile customer, and we have entered the U.S. carrier market in WiFi as highlighted in a recent announcement. We expect further growth from our consumer and enterprise class WiFi customers, including HP Aruba. And finally, we continue to execute on our contract business with DARPA as we are involved in multiple projects that are redefining the capabilities of XBAR technology. Furthermore, we continue to expect incremental sequential revenue growth each quarter throughout the calendar year as we execute across multiple markets and our growing product portfolio, which includes Akoustis XBAR solutions, SAW filter, crystal timing products and wafer services.

For the June quarter, our current backlog supports sequential revenue growth in a range of 10% to 20%. We remain focused on driving revenue and unit growth across all our target end markets with a particular emphasis on 5G mobile and infrastructure, WiFi 6 and 7 AP, IoT and automotive applications. As indicated in January, we began shipping high-volume XBAR filter solutions to our first 5G mobile customer in the March quarter. I would now like to take a moment to discuss recent developments involving the Chips and Science Act of 2022. The Chips ACT was signed into law on August 9, 2022, and is designed to boost U.S. competitiveness, innovation and national security. The law aims to infuse investments in domestic semiconductor manufacturing capacity as well as jumpstart, R&D and commercialization of leading-edge nanotechnologies and create new regional high-tech hubs.

The domestic manufacturing program is being implemented by the Department of Commerce, or DOC, R&D investments in nanotechnology and the creation of regional high-tech hubs are being driven by the Department of Defense, or DoD, Akoustis ‘ current activity related to chips includes proposal activity with both DOC and DoD related to programs for domestic semiconductor manufacturing, R&D and commercialization of leading-edge nanotechnology. As of today, we have on DoD proposal, which was submitted during the March quarter with Akoustis as the lead contractor focused on electronic warfare or EW, for defense applications. The proposed 5-year contract, if awarded, has an initial program budget of over $150 million, our proposal incorporates multiple partners, including over 10 industrial and government labs as well as numerous university partners focused on the goal of developing and manufacturing semiconductors into advanced RF modules at our 57-acre campus located in upstate New York.

One of the technologies we seek to integrate into our New York campus includes the breakthrough high-frequency XBAR research from our existing DARPA contract. It is worth noting that the program is a competitive process, and we expect the DoD to announce their award selections by mid-summer. Akoustis is active in expanding its domestic manufacturing footprint, including both semiconductors and advanced packaging at our New York campus under the DOC chips for America program. The application is a multistage process, which is outlined clearly in the notice of Funding Opportunity or NOFO, consistent with the published process, Akoustis submitted its statement of interest or SOI, in late March. We are currently in the middle of the pre-application process with full application submissions beginning by the end of this quarter.

In parallel, we are working closely with the local, regional and state government of New York for financial support to include in our application, which is due later this quarter. We expect the chips application to include multiple semiconductor partners, which intend to manufacture semiconductor materials, wafers and or packaging on our campus. As far as magnitude of our DOC application, we plan to propose a project contemplating spending up to approximately twice our current market cap to establish 200-millimeter silicon wafer manufacturing capability as well as a U.S. advanced packaging center. As per the NOFo, a chips award is expected to include a grant refundable investment tax credit, or ITC, and direct loans and loan guarantees. The mix of these components will determine the attractiveness of the DOC ships for America program for our company.

We are aware of the targets in the NOFo and are currently in discovery with the DOC to optimize various components to suit a small-cap company like Akoustis. We believe the DOC wants this program to be successful for all sizes of companies, and they have been very attentive regarding our concerns and requests. We expect to have clarity by our next quarterly investor call. Beyond those two specific programs, we will continue to seek opportunities to leverage this Chips Act program. Next, I would now like to discuss several compelling updates in our primary target markets, beginning with 5G Mobile. During the March quarter, we successfully ramped our first 5G mobile filter product with a Tier 1 RF component customer. This customer has designed a multiplexer using our XBAW technology, which is on a reference design with a Tier 1 chipset maker.

Our customer is currently sampling its multiplexer with multiple Tier 1 and Tier 2 handset OEMs, and we currently expect multiple mobile handset design wins in the next 3 to 6 months. In addition, in the March quarter, we successfully delivered to one of our Tier 1 RF module maker customers, the second of two customer design XBAW filters. We delivered the first filter in the December quarter, and the customer has begun characterization and testing of both XBAW filters for down selection. And finally, we delivered the second iteration of a first XBAW filter sample to our second Tier 1 5G mobile module customer for a module that is expected to ship in late calendar 2025. Looking ahead, our expected milestones for the June quarter in 5G mobile include the successful completion of an on-site quality audit of our New York fab by a Tier 1 mobile device OEM, continued delivery of our high-volume XBAW shipments through our first Tier 1 customer to secure a second XBAW RF filter development order from our first 5G mobile customer for a product that is expected to ramp production in the second half of calendar 2024.

And finally, to deliver two new WiFi 6E XBAW foundry filter products to our Tier 2 5G RF module customer for access points and mobile applications. Next, I would like to discuss our recent developments in the WiFi market. During the March quarter, we completed the development of our new 4 Series 5.6 gigahertz and 6.6 gigahertz WiFi 67 [ph] XBAW filter solutions that enable broader use of the Uni 1 through 4 bands involved in high-frequency Wi-Fi architectures. Furthermore, we ramped initial production volumes with a multibillion-dollar U.S.-based carrier in the cable market. The customer is using our WiFi 6 XBAW filter solutions to deliver last mile connectivity to both the home and business markets. This is one of three carrier-focused WiFi design wins we announced during the December 2022 quarter, and we expect the other two customers to begin shipping in the near term.

We received our first WiFi 7 design win during the March quarter as we announced in our press release on May 3. This customer is a Tier 1 enterprise OEM and has ordered our recently announced 5.5 gigahertz and 6.5 gigahertz XBAW filters and finally, in March, we began a relationship with a new Tier 2 RF module customer for the WiFi access point market. This customer is a growing Asia-based RF module maker that is rapidly becoming a dominant RF player in this region. We have received an order from this new customer for the development of new WiFi 7 XBAW filters for the access point market, which we expect to deliver in the second half of calendar 2023. Looking ahead, our anticipated milestones for our WiFi business in the June quarter include sampling next-generation XBAW filters to Tier 1 enterprise OEM for a new WiFi 7 platform, enabling full utilization of UNI-1 through 4 and UNi5through8 bands.

Secondly, we expect to receive 2 additional WiFi 6E 7 design wins. And finally, we plan to sample our new 5.6 gigahertz and 6.6 gigahertz WiFi 67 XBAW filters to multiple customers during the quarter. I will now discuss our progress in our network infrastructure business. During the March quarter, we continued XBAW filter shipments to our 5G small cell infrastructure customer as well as the U.S. CBRS market. We continue to expect the small cell market to improve in the second half of calendar 2023 and into calendar 2024 as carriers throughout the U.S., Europe and Middle East and Africa begin to deploy sub-5 gigahertz networks due to the increased data demand. We expect carriers to deploy small cells in greater numbers in 5G networks to expand capacity and improve service.

We continue to promote our 5G infrastructure solutions, and I’m pleased to announce today, have successfully secured reference design wins with a leading 5G transceiver OEM or multiple XBAW filters. This reference design is targeting Tier 2 small cell OEMs. During the March quarter, we expected to deliver initial samples of a new 5G band 41 network infrastructure filter. While we completed initial samples, we continue to work on the design to improve both power handling and small signal RF response and plan to ship samples thereafter. We are also expecting to receive a development order for a new 5G n77 filter from a Tier 1 European 5G network infrastructure OEM likely in the current June quarter. Therefore, our milestones for the June quarter are we expect to sample a new band 41 XBAW filter for the U.S. small cell market.

We expect to receive an order for a new 5G n77 XBAW filter for the massive MIMO market. And finally, I would like to provide an update on our defense and other businesses. We made significant strides in our defense and other business segments in the March quarter with the introduction of our new XBAW filter solution that addresses the challenging coexistent requirements of the CV2X spectrum for the automotive market. While we have been involved in the automotive market through our FMI SAW filter catalog components, the introduction of our new BA solution for CV2X should significantly expand our potential TAM in automotive. Our new filter targets the automotive, DSRC-802.11P, high-power systems, telematics and infotainment segments. CV2X operates between 5.855 and 5.925 gigahertz and allows for device to device and device to network connections for multiple applications aiming at providing safe and effective communication in vehicles.

Our new patented filter delivers low insertion loss passband performance and enables high-power handling capabilities that establish long-range connectivity for CV2X applications. We began sampling our new CV2X filter solution with Tier 1 and Tier 2 automotive industry leaders and expect to update the investment community as we receive feedback in the coming months. During the March quarter, we also finished qualification of 1 of 2 timing control resonator solutions for our first timing control customer. We were expecting to qualify both XBAW resonator products, but the customer has asked for a relatively large bandwidth shift in 1 of the 2 resonators. We expect this will be redesigned and qualified quickly. In our Defense contract business, we continue to progress on our existing multiyear, multimillion-dollar contract with DARPA to further enhance our XBAW PDK and scale our XBAW technology up to 18 gigahertz.

We achieved a critical milestone during the March quarter and are making excellent progress towards scaling our technology to 18 gigahertz with an improved figure of merit. The milestone achieved was enabled by our patented single crystal piezoelectric nano materials, which are unique to Akoustis in the BAW filter industry.And finally, during the March quarter, we concluded the acquisition of GDSI which closed on January 1, 2023. The acquisition brings a new cash flow positive service business to Akoustis with 250-plus customers, significant technical expertise in back-end services and alignment with our strategy to leverage the chips Act to create new jobs and reshore core packaging technology from Asia. We have begun integrating GDSI into our systems and corporate structure and look forward to both leveraging their significant knowledge of back-end workflow and provide the resources necessary to grow the business as advanced semiconductor packaging demand increase in the United States as the chips Act drives reshoring of production back to America.

For the June 2023 quarter, our expected milestones in our Defense and other business segment includes the completion and qualification of the second XBAW resonator for our timing control customer. Additionally, we plan to broaden the sampling of our new CV2X filter solution for the automotive market. And finally, we expect to secure $1 million-plus new development order from a Tier 1 defense customer for the development of a switch filter module using our XBAW filter technology. And now I would like to hand the call over to Ken to go through our financial highlights… Speaker 3

Ken Boller: Thank you, Jeff. For the third quarter ended March 31, 2023, the company reported revenue of $7.4 million, which is an increase of more than 25% over the prior quarter ended December 31, 2022, and represents an increase of 160% year-over-year On a GAAP basis, operating loss was $17.3 million for the March quarter, mainly driven by revenue of $7.4 million, offset by labor costs of $11.3 million, depreciation and amortization of $3.1 million and other operational costs totaling $10.3 million. As a result, GAAP net loss per share was $0.23. On a non-GAAP basis, operating loss was $13.2 million and non-GAAP net loss per share was $0.20. Reconciliation of these amounts to the corresponding GAAP measures is available in the press release issued this morning available on the Investors section of our corporate website.

CapEx spending for Q3 was $2.2 million, a decline from $3.2 million in the prior quarter as we placed into service the last of our ordered equipment and near completion of the company’s New York fab expansion. Cash used in operating activities was $9.9 million, which represents the second quarter in a row of double-digit improvement as operating cash spending was down another 12% from $11.2 million in the prior quarter. The company exited the March quarter with $52.7 million of cash and cash equivalents versus $46.6 million at the end of the previous quarter, primarily resulting from net proceeds of $32 million from our secondary offering in January, offset by cash used to fund our recent GDSI acquisition of $13.9 million in operations and CapEx spending.

In the current June quarter, we expect multiple new WiFi 6 and network infrastructure customers to ramp production, and therefore, we expect to see record revenue and continued operating cash flow improvement with revenue up between 10% and 20% sequentially from the March quarter, — and based upon our growing backlog of design wins, we anticipate that robust top line growth will continue into our next fiscal year and beyond. I will now turn the call back over to Jeff for his closing comments.

Jeff Shealy: Thank you, Ken. Before I wrap up the call, I would like to provide a brief update on pending litigation matters. With respect to the lawsuit Qorvo filed against Akoustis and Delaware back in 2021, alleging false advertising, unfair competition and patent infringement. A lot has happened since the lawsuit began in what’s called a claim construction order, the court ruled on the interpretation of some key terms in one of the Qorvo patents as well as the Akoustis patent, which Qorvo claims Akoustis improperly marked on its product data sheet. The company believes the claim construction order was favorable to Akoustis and will ultimately support Akoustis’ position of noninfringement and that its marking of product data sheets was correct.

While Acusis does not believe that Qorvo’s assertion of its patents has any merit, it has developed and delivered to customers and Qorvo’s lawyers, filter samples with designs, which we believe demonstrate that Akoustis products past and present do not infringe the patent asserted by Qorvo. As an added precaution, Akoustis has begun implementing these design updates into new and existing product designs as an appropriate measure to mitigate the potential impact of any adverse ruling in the Qorvo lawsuit. You may be aware that in February 2023, Qorvo filed a second amended complaint, which introduced new allegations against the company, including misappropriation of trade secrets. With respect to these new allegations and the other nonpatent portions of the complaint, based upon the information made available to it, the company believes it has meritorious defenses and plans to defend itself vigorously as disclosed today in our quarterly report on April 20, 2023, Akoustis filed its own patent infringement lawsuit against Qorvo in Federal Court in the Eastern District of Texas.

Akoustis is represented by a highly regarded patent litigation firm McCool Smith. As with all litigation, the company needs to be mindful of any comments it makes regarding this lawsuit, particularly at this early stage. However, our investors should rest assured that the company took this step deliberately after careful due diligence and consideration of potential risks and benefits to the company. And now I would like to finish by stating that notwithstanding a persistent challenging macro environment for the broader semiconductor industry, we are positioned to continue to deliver sequential top line revenue and unit growth for the foreseeable future. During the March quarter, we introduced new products, including our 5.6 and 6.6 gigahertz, Wi-Fi 6 and 7 filters as well as our new CV2X filter, all of which are currently sampling.

And for the first time, we began shipping into the U.S. cable carrier market as well as to the 5G mobile market. During the June quarter, we expect to experience further top line growth as we expand the number of customers in production across each of our major markets. In conclusion, we believe the market opportunity for our patented high-frequency XBAW filters is substantial. As of April 28, we have 89 issued patents and 124 patents pending as we continue to build 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. Finally, I would once again like to thank our employees for their hard work, passion and dedication, which accounts for multiple design wins across the Wi-Fi, 5G network infrastructure and defense markets, — we’ve also experienced exceptional momentum in the 5G mobile market, driven by our industry-leading XBAW filters that operate above 3 gigahertz and our new and expanding wafer-level packaging capabilities.

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.

Q&A Session

Operator: Thank you. We will now conduct a question-and-answer session. [Operator Instructions] And our first question comes from Anthony Stoss with Craig-Hallum Capital Group.

Operator: Our next question comes from Suji Desilva with ROTH

Operator: Our next question comes from Robert Argano with Piper Sandler.

Operator: We are closing our question-and-answer session. Now I would like to turn the floor back over to Jeff Chile for closing comments. Please go ahead. Jeff Shealy I want to take the opportunity to thank everyone for your time today and participation. We look forward to speaking to you during our next update call to discuss the June quarter’s execution against the milestones we shared as well as our future expectations we communicate. Have a great day. Thank you again.

Operator: This concludes today’s conference call. You may now disconnect your lines. Thank you for your participation, and have a great day.+