AmpliTech Group, Inc. (NASDAQ:AMPG) Q3 2022 Earnings Call Transcript

AmpliTech Group, Inc. (NASDAQ:AMPG) Q3 2022 Earnings Call Transcript November 14, 2022

AmpliTech Group, Inc. beats earnings expectations. Reported EPS is $0.06, expectations were $-0.02.

Operator: Good day, ladies and gentlemen, and welcome to AmpliTech Group’s 2022 Investor Update Call. 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 call is being recorded. I’d now like to turn the conference call over to AmpliTech’s Director of Corporate Communications, Shan Sawant. Please go ahead.

Shan Sawant: Thank you and thanks everyone for joining today’s call. Today we will review the third quarter and the progress of AmpliTech’s Growth Initiatives and answer investor questions. On the call today, our AmpliTech’s Founder and CEO, Fawad Maqbool; the Company COO, Jorge Flores; and the Company CFO, Louisa Sanfratello. Following initial management comments, we are going to open the call upto investor questions. An archived replay of today’s call will be posted to the news section of AmpliTech’s corporate website. Q3 earnings press release will also be found there. This call is taking place on Monday, November 14, 2022 Remarks that follow and answers to questions including statements the Company believes to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.

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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 disclaimed any obligations to update forward-looking statement, which are made as of today’s date. With that, let me turn the call over to our CEO Fawad Maqbool.

Fawad Maqbool: Thank you, Shan. Good day everyone. We appreciate your joining us on today’s third quarter investor update call. I want to use this time to review some key financial and operational milestones from Q3 ’22, speak on current market conditions and overall communication space, and also provide an update on our two newer ventures MMICs and TGSS. Let’s begin with some key highlights of the third quarter. Revenue increased 415% to $5.4 million, compared to $1.1 million in Q3 ’21. Q3 ’22. Gross profit grew to $2.7 million and over 7-fold increase from the Q3 ’21 gross profit of $314,000. The gross profit margin expanded 193 basis points to 49% compared to 29.7% in the same period last year. Q3 ’22 net income reached $577,000 compared to a Q3 ’21 net loss of $593,000.

That’s a positive swing of approximately $1.2 million. As of September 30, 2022, our cash and equivalence totaled $13.1 million and working capital was $20.2 million, giving us an ample capital to fund all of our strategic growth initiatives. Now operationally, AmpliTech had a successful showing at the annual AOC Electronic Defense Show, achieving positive customer engagement and setting a company record for a number of meetings with new and existing customers. These included many military applications, since we know there was a large effort by the government to update much of the existing obsolete communications infrastructure. We expect this to create demand for our new technology. MMIC chips are now available to our customers for the first time for sampling and small quantities for production.

We have had interests from government and commercial organizations for these MMICs and designing’s are expected to lead to production next year. Finally, TGSS AmpliTech’s fully managed 5G system integrator company, is now operational. Revenue contribution from this division is expected to begin by Q3, 2023 or earlier. I’ll get into more detail on that later on. Now I’d like to add some color to broader market conditions and speak to our revenue guidance for the year. AmpliTech product demand remains strong, as shown by the increased revenue guidance we just issued in our earnings press release. As I mentioned in the third quarter, we reported record quarterly revenue of $5.4 million. Effectively, quintupling our Q3 2021 revenue of $1.1 million, this growth was primarily driven by strong demand for our LNA products and semiconductor packages.

It’s important to note, as per our previous quarter guidance, that despite rising industry material costs, we reported $577,000 of net income, compared to a net loss of $593,000 in Q3 ’21. How do we do this? We optimized our manufacturing process and focused attention and higher margin products to raise our gross profit margins from 29.7% as mentioned in Q3 €˜21 to 49% in Q3 €˜22. Again, that’s an improvement of 193 basis points. We continue to see strong unwavering demand for our products and our increasing revenue guidance for the full year of 2022 to a minimum of $18 million. A $1 million increase from our guidance last quarter, representing a 239% increase over fiscal year 2021 revenues. AmpliTech is also well capitalized for executing our strategic growth initiatives with solid cash reserves of $13 million and the healthy working capital of $20 million, low cash burn and profitable operations, we have no need to raise additional cash at this time.

Now, I would like to speak about the communications infrastructure space today and the opportunities that we see ahead for AmpliTech. As of today, we still find that the communications industry infrastructure is not at the level it needs to be to power next generation technologies. And I’ve mentioned this in the past on previous PR investor calls. In fact, Ookla’s latest 5G network speed test report shows 57 to 116 megabit per second downstream speeds, and eight to 11 megabit per second upstream speeds, from the three major carriers; that just means speed to everyone here on your cell phones and on your laptop and your devices. These are numbers from this quarter, so you can see recently even from these numbers that we’re still not at what we should be, it’s far from the 1-2 GB/S speeds that denotes true 5G, including the 2-5 GB/S speeds required by AR/VR technologies companies like Metaverse.

We see this disconnect as a massive opportunity aligned with our strategic goals. As we build out our product suite, our goal is to improve this overall infrastructure performance and bring it much closer to enabling true 5G. We’re happy to report that our AGMDC design center is now sampling LNA and PA MMIC power amplifiers in chip form to customers. This has been met with great enthusiasm. We now have an assortment of loan noise amplifiers, filters, attenuators, and other components available in ship form or MMIC, and we expect to add more new products by the end of 2022. We are progressing on schedule for the launch of this product line and we reiterate our goal to provide MMIC chips on a COTS or Commercial off-the-shelf bases by Q2, 2023.

We are also continuing the development of our TGSS division, which will offer innovative true 5G O-RAN radios as well as the planning and optimization services required to complete all new 5G installations globally. For those of you that that don’t understand O-RAN and what it means, let me give you an analogy. If people travel overseas or to another country, they need to have to get to use their appliances and adapter; something that converts 110 volts to 220 or 220 to 110; without this conversion, they cannot use their appliance. So using this analogy, O-RAN is something that you need to have 5G in-place and to adapt for 5G, you’ll need this adapter to connect to the older technology. So in essence, without this adapter, you cannot get to 5G.

So AmpliTech is enabling this adapter to work and thus provide the 5G that’s necessary and convert all existing infrastructure to 5G so the old can be converted into the new relatively easily. I hope that makes you understand how important the O-RAN technology is and who would now buy an adapter? I think we all need to buy that. The amplifiers are essential to the 5G communications system. They’re responsible for ensuring the quality of the signal and carrying the data across to an end user. AmpliTech amplifiers feature extremely low noise across a range of frequencies, diffuse minimal data loss, and ultimately provide clear signal that can travel great distances at greater speeds. We believe that by implementing these components into a full 5G open radio unit, which we are building in the next gen open ran architecture; we expect to create a compelling product for our customers.

They should play an essential role in allowing networks to move closer to achieving true 5G performance. In closing, I’d like to congratulate the AmpliTech’s team for their hard work and execution that’s evident in our record third wave — third quarter results. We are thrilled to continue to solve the challenges ahead of us, by building communications infrastructure of tomorrow, today. Now I’ll open the call up for Q&A. Specific questions, we’d be happy to answer.

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Q&A Session

Operator: We will now begin the question-and-answer Session. . Our first question today will come from Eric Beder with SCC Research. Please go ahead.

Eric Beder: Good afternoon. Congratulations on an impressive quarter. Great. When you talk up — could you talk a little bit about Spectrum? You’re almost laughing the anniversary of purchasing that. What do you see as a longer term opportunities there and kind of what do you look at the growth rate going forward in the potential for further profitability at Spectrum?

Jorge Flores: Well, we see continued growth. I mean, we, we have seen continued growth because of the demand, that’s existing and it’s in aligned with all the, all the requirements for 5G and all the requirements for the chips right now as it is. But as these technologies evolve, they’ll still be a continuing demand and we plan on infusing it with our own MMICs as well. So we will actually increase that revenue by scaling it up and joining the production of our MMICs into the stocking capability of spectrum. So therefore they’ll have a value add now. They’ll be able to sell not only the semiconductor packages themselves, but they’ll also be able to sell the MMICs in the packages to the same existing customer base. And that will be an increase in revenue for both companies, for both divisions.

Eric Beder: Wait, could you I know you recently signed an agreement with Meta. Could you talk a little bit about that and where you think that will eventually go in terms of opportunities?

Jorge Flores: Well, we didn’t sign any agreements with Meta. We did join the tip, which is the telecom info project that they have. So we joined them as a participant in providing technology for all this evolving structure, the infrastructure.

Eric Beder: Okay. And last question on Quantum computing, obviously it’s a big piece, it’s growing. You have the right LNAs for that. What about that in terms of going forward in terms of both returns and in terms of revenue for that?

Jorge Flores: Sure. So we do definitely see an increase in the requirements for quantum computing. As I mentioned before, it’s like a hockey stick and we’re at the curve of that hockey stick and we’ve also sent in several demo units to customers, and right now they’re in qualification. We believe we will have a high success rate. So it is really a pivotal year. Actually next year will be a pivotal year because all the demonstrations that have been done this year, we provided hardware to these large users and when they see the comparative results of our products compared to what is out there, then we see a very, very large increase in revenue next year, due to this. I can’t give you any numbers on that, but the total market is obviously in the hundreds of millions.

Eric Beder: All right guys, well, congratulations again in a great quarter and good luck for Q4.

Operator: And our next question will come from Jack Vander Aarde with Maxim Group. Please go ahead.

Jack Vander Aarde: Okay, great. Hey guys great results. Congrats on the strong quarter. Thanks for taking my questions. Fawad, I don’t have too many more right now, but obviously — obviously a strong sales result in the third quarter. And good to see you raise the revenue guidance for the year. Just remind me, seasonally speaking, while the, while the overall opportunity is in the early innings, seasonally speaking, do you expect the fourth quarter to be a little slower than third quarter then?