Akoustis Technologies, Inc.
Q4 2019 Earnings Call Transcript

Published: 26 Aug 2019

[Operator:]

Good day, ladies and gentlemen and welcome to the Akoustis Technologies Business Update Conference Call. As a reminder, this conference call is being recorded. At the conclusion of the Company's presentation, Akoustis’ management will take questions. [Operator Instructions] A replay of the call will be available on the Investor Relations section of the Akoustis website.I’ll now turn the call over to Tom Sepenzis, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

[Tom Sepenzis:]

Thank you, operator, and good morning to everyone on the call. Welcome to Akoustis fourth quarter fiscal 2019 business update conference call.We are joined today by our Founder and CEO, Jeff Shealy; Interim CFO, Ken Boller and VP of Business Development, Dave 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 during this conference call including statements regarding our strategies, operations, cost, plans, and objectives, estimates of market size, and guidance regarding expected revenue for the current fiscal quarter 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 obligations 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 filed with the SEC to get a better understanding of those risks and uncertainties.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 fourth fiscal quarter and year-end business update call. The June quarter capped an exciting fiscal year for Akoustis as we continue our transition from an R&D focused company to a commercial manufacturing company. With the recent design lock of our 5.6 gigahertz WiFi filter that we announced in July, we enter FY20 with the world’s first tandem 5 gigahertz WiFi BAW micro-filter solution, paving a path into high-volume filter market, with the goal of delivering significant revenue growth over the next 12 months and beyond.We also took a significant step towards penetrating the mobile handset market, as we received our first 5G development order and delivered samples to a multi-billion dollar Tier 1 wireless telecommunications company that is a global leader in the handset industry. The mobile handset market is our largest potential BAW filter market opportunity by both unit volume and revenue. Given the performance of this first 5G mobile filter, our Tier 1 customer responded earlier this quarter with a new order to develop two additional 5G filters in the ultra-high band spectrum. To be clear, all three filters target the performance and form factor for the 5G handset market.With respect to the call today, I have organized my comments into five sections

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Anthony Stoss with Craig-Hallum Capital Group. Please proceed with your question.

[Anthony Stoss:]

Good morning, guys. Congrats on the continued progress. Jeff, maybe can you shed a little bit light, now the 5.6 gigahertz is locked down. The interest from the WiFi customers is that larger interest more on the combined solution and in tandem with the 5.2 or is it still a combination of that plus discreet? And then, secondly, your commentary regarding additional large mobile potential customers, any kind of timeframes you can throw around it? I know the Tier 1 telecommunications or renounced customer; I think you're hopeful to kind of ramp production late in 2020. Any timeframes with those would be helpful. Thank you.

[Jeff Shealy:]

Good morning, Tony, and thanks for your questions. Regarding the 5.6, it is locked, we announced that in July. And as we said in the prepared comments, we've got as far as out to at least 10 customers. And in a moment, I'll have David kind of comment on the reception of that. The interest is on the combined solution as we've been vocal on the 5.2 and the 5.6 are bundled in these routers, and if you tear open a router and take a look at one, you can see the DR filter technology currently occupies the 5.2 and the 5.6 slots and in the triband architectures that we've looked at. So, I'll have Dave comment on that in a minute.In terms of additional large mobile, we’ve had engagements on the Tier 2 front and ongoing engagements on the Tier 1 front, which I'll let Dave outline. Regarding timeframe, what we have stated is what we're aligning to is really late 2020 type horizon. And with that, let me let Dave comment. And if I missed any part of your question, please welcome to follow up. But, Dave go ahead.

[Dave Aichele:]

Hi, Tony. This is Dave Aichele. So a recent trip through northern California and through Asia, sampling latest 5.6, very positive reception from the WiFi OEMs and ODMs. And I think as Jeff highlighted and you made a comment on, the preference is to have the tandem solution because they don't want a hybrid approach where they have mixed technology with the BAW filter and the DR filter. So, the reception is very positive. It's now timing on identifying platforms that we can start getting the design win. I mean, we gave visibility to one or two that are moving forward in that path and that will continue to accelerate with time. So, we're just going to continue to support their customer base with that. And we’re targeting to have this fully qualifiable by the end of this quarter, to meet obviously production ramps that we’re highlighting, first half and next year.With regard to the mobile market, also had a opportunity, we've stayed engaged with some of the Tier 1s looking at technology and then new visibility within the Tier 2 China market, where there's some discrete opportunities with particularly the 5G bands that are getting deployed there. So, we're working on the technology to be able to support the Tier 2 with WLP. And also the good thing is some of the frequencies that are targeting are already ones that we've got in development. So, from a filter solution standpoint, our plan is to be able to sample and support obviously some of the architectures that we’d be targeting towards later half of next year.

[Jeff Shealy:]

And Tony, this is Jeff again. I just want to piggyback Dave's comment on WiFi and just emphasize, in addition to qualifiable samples by the end of September, we actually have a couple of open orders, which we did emphasize in the script that we plan to ship those this quarter as well. So, its samples and beyond samples and actual shipment are the part. And I think what we have stated there is in excess of 50,000 units is the plan for shipments on a 5.6 this quarter, in the September quarter.

[Anthony Stoss:]

And then, Jeff, if I could squeeze one more question, you're talking about 5x the amount of production you have right now over the next 15 months. Is that half model, half other or how would you kind of parse out, what you expect?

[Jeff Shealy:]

Yes. So, if you look at our -- our model has not changed there. I think we have -- if you look at our business plan moving forward, and as we emphasized in the script, we are focused on ramping WiFi and infrastructure. And so, what we've geared the capacity plan for the factory has been around those two markets with regards to -- we haven't had changed over this past quarter significant increase in activity on mobile, and we’ve been pretty clear what that means in the prepared comments. So, anything -- any upside with regard to capacity requirement would be driven by engagement on the mobile front likely with the strategic partner for the Tier 1.

[Operator:]

Thank you. Our next question comes from the line of Cody Acree with Loop Capital Markets. Please proceed with your question.

[Cody Acree:]

Yes. Congratulations, guys, on the progress and thanks for taking my questions. Let me just follow up on that question, Jeff. So, if you are working at that kind of a ramp pace, to get to that kind of capacity over the next several months and years, what does your CapEx requirement look like? I know you're talking about strategic partner, but what kind of volumes of CapEx are you looking for?

[Jeff Shealy:]

So, the CapEx plan we’ve been driving from, right now -- and I'll get Ken to jump in here. But, we’ve not changed the CapEx plan thus far. And, Ken will share what we have remained in the CapEx over the next 15 months, and then we be happy to -- any follow up you have.

[Ken Boller:]

Good morning, Cody. This is Ken Boller. Just to follow up on that, we have said in the past that we're looking to increase that capacity 5 times from tens of millions of filters to hundreds of millions of filters. In that 15 months, we have approximately $15 million to $17 million of additional CapEx required to meet that capacity.

[Cody Acree:]

Okay…

[Jeff Shealy:]

Go ahead...

[Cody Acree:]

No. Please go ahead.

[Jeff Shealy:]

Okay. So, to be clear, anything on -- any acceleration plans that we’ve been clear what the required some type of strategic engagement and also strategic investments from a partner to push us into an acceleration of that CapEx plan. We’ve been extremely clear that our view is -- we’re not going to straddle the shareholders with a capital expansion without some sort of partnership and agreement in place.

[Cody Acree:]

Great, thank you. And then, just a follow-up is just how should we think about revenue going forward? I guess, 562,000 [ph] this quarter, how much of that is [ph] repeatable, how much of that is actual units that you’ve shipped, that you’re getting paid for, and then, how does that translate in your flat revenue, does this become a baseline or if there is still a lot of volatility in it?

[Jeff Shealy:]

So, from that vantage point, what I have to direct you to is we’ve not filed our 10-K and we felt it’s important to maintain cadence on the investor call. But, as you’re aware, we’ve filing 10-K this quarter. The breakdown to that will be provided in the 10-K there. What I will tell you is that, we have open orders in for filters which include shipping product. We mainly mentioned in the script that we’ve cleared all of the backlog on the 3.8. We also have incremental product orders in the 5.2, which I believe were filled out. And then, the current open orders on the 5.6 which we were clear that those are planned for shipment this quarter. There is also NRE, that’s overlaid there. And you asked, overall how you should think about revenue is -- you see our guidance and we plan on growing our filter revenue quarter-over-quarter. I think, we mentioned in prepared comments, to try to give you some color, we expect that filter revenue to -- filter related revenue to increase by approximately 50% in the September quarter. So, we’re focusing on filters and we’re focusing on additional -- we’re focused on new product introduction and shipments of 5.2 and 5.6, and we’re going to have our first shipment load of 5.6 in the September quarter. Hope that helps.

[Cody Acree:]

Yes. Thank you very much.

[Jeff Shealy:]

Thank you

[Operator:]

Thank you. Our next question comes from the line of Harsh Kumar with Piper Jaffray. Please proceed with your question.

[Matt Farrell:]

Hey, guys. This is Matt Farrell on for Harsh. Congrats on the progress across all fronts. I want to follow up on some of the previous questions. Do you guys have any update on the Company’s path to break even? Given the continued interest across all markets do you see any changes to cost structure in order to rank revenue?

[Jeff Shealy:]

Okay. So, in terms of the Company's path to break even, in terms of the overall revenue requirement to break even, we stay consistent that our breakeven point is $12 million to $15 million per quarter. And in terms of the timing of that, we're not adjusting any long-term guidance to our plan.With regards to cost structure, we've made significant progress in terms of cost structure. We continue -- the capital equipment that we are adding in the factory is production equipment, much of that equipment shortened certain processes, and so that gives us more capacity as well as higher throughput. In the back end, we’ve made significant progress on testing. But, we’re the only or certainly one of very few that do filter testing overseas. And we’ve made significant efforts in terms of high-volume test in overseas packaging, packaging houses. And the fact that we're using overseas packaging houses, we get the benefit of pretty significant volume running through those. So, I would quantify that as being kind of the cost structure progress that we’ve made.

[Matt Farrell:]

Thanks. And then, as a follow-up, more broadly speaking, can you guys just kind of talk about customer conversations in kind of hazy, uncertain current macro environment? Have you seen any major changes in customer behavior or any push-out or delays of any 5G infrastructure or mobile handsets, given kind of just everything that's going on out there? Thanks.

[Jeff Shealy:]

I'll give a kind of a cloud view and then, I'll let Dave jump in here on some specifics. Regarding customer behavior for us, we have had -- we've seen the acceleration in the mobile market that we've outlined pretty clearly and we executed on that. I would say the timeframes that customer requires from us, were a pretty quick term. And I think the follow on activity with that same customer is also as a pretty quick term requirement associated with it. Other behavior that I think from my view is on 5G infrastructure, significant acceleration of locking down design. And beyond that, Dave can give you a little more color.

[Dave Aichele:]

Yes. Hi, Matt. This is Dave Aichele. The customer behavior has all been positive, at least what we're seeing for Akoustis. And I'll touch on four points. One is just on massive MIMO. The massive MIMO, if you look at that architecture requires 32-array, 64-array, so that's putting demands on the supply chain for traditional type filters that were used in macro base stations. So, having a technology that is smaller form factor and able to handle higher power in a semiconductor base is a good opportunity for us; it's just requiring more engineering to look at the system architecture in addition to obviously filter technology to meet that. So, that opportunity is -- the demand from the 5G is actually helping here.In addition to on the small cell, what’s actually -- we're getting a lot of pull from the small cell market, primarily out of China, when you look at the bands that are getting deployed and the amount of investment that's going in the 5G. China market for China Mobile, China Unicom, China Telecom, meeting a coexist, small form factor filter is -- at high volume is a good opportunity for us. And so, we're leveraging the work that we've been doing on the WiFi.And then, on the handset side, we're seeing the new architectures particularly with again the China market requiring a coexist between n79, which is up at 4.9 and also WiFi 5.15 gigahertz. So, there are opportunities for discrete filters in these architectures, these Tier 2 phones. So, these are all customer behaviors that are changed in favor and also the market conditions that are changed in favor of Akoustis, we are leveraging and staying focused on that.

[Operator:]

Thank you. Our next question comes from the line of Suji Desilva with ROTH Capital Partners. Please proceed with your question.

[Suji Desilva:]

Hi, Jeff. Good morning, Jeff, Dave, Ken. Congrats on the progress here. So, on infrastructure revenue line, if you look at kind of in aggregate, for the next 12 months, does it feel like it’s binary around the Tier 1 global program, launching or not launching or are there kind of multiple facets to that it can ramp up there?

[Jeff Shealy:]

Good morning, Suji. And I’m going let Dave jump right into that one.

[Dave Aichele:]

So, the good thing is that we’ve got a Tier 1 that we’ve announced that we're aligned with. And the architecture we're talking about here is more involved. So, we've spent 6 to 9 months working on that and still bullish on that there will be something ramping in second half of next year and expect other Tier 1 architectures to do the same on follow-on. That takes a little bit longer from a development standpoint. But, the near-term opportunity which is accelerating is more for these small cell type deployments in the 5G. And as I mentioned earlier in the other comment is that the bands that we're talking about there, bands that we've already been investing in at 3.5 and at 4.9 or 5 gigahertz. So, these are easier designs, even though my engineering team would obviously want to make sure that they deliver to that spec that we're targeting and the timeframe that we have highlighted, which is first half of next year. So, things are aligning well with us there.

[Jeff Shealy:]

So, I'll piggyback that by saying, it’s -- we don't view the infrastructure as a go, no go with one customer. We're seeing interest on massive MIMO beyond just one customer. We're also seeing on the small cell side, as Dave mentioned amongst multiple customers. And certainly CBRS from the North America standpoint is also -- we've got significant interest there as well.

[Suji Desilva:]

Okay, great. I appreciate the color, Jeff and Dave. And then, also, can you just recap or cover the wafer level production supplier? I guess, you switched it, right? So, just trying to understand what the benefit is, which were the motivations and does that put you kind of off-schedule, or what’s the benefit kind of the new supplier, or just recap, that would be helpful.

[Jeff Shealy:]

Okay. So, as we stated, let me just kind of summarize that. We did receive mechanical samples from our supplier, in turns out that particular supplier was outsourcing part of the process and there were significant NRE costs with given that outsourced. Those we did not -- we were not pleased with those, long term, and that supplier had agreed to bring that external manufacturing in-house and so we jumped on to that path. In addition, there is a second supplier that’s also overseas, which also gives us a second source overseas, which we’re looking at. In terms of some of the planning of that, we viewed some of the NRE costs were just excessive that were being asked, and we decided that given that the Tier 1 customer that came in has their own packaging source and they specifically design the filters to use their own. It was viewed as less critical near term and we view -- we will have this by the end of the year, and we’ve got parallel paths to address both Tier 2 market -- or excuse me, to address the Tier 2 market and we’ve got a Tier 1 customer who has their own. So, I do view it as a low risk approach. We are managing it based upon data. But I think with any new supply chain, you want to make sure you have a solid supply chain when you’re finished. And I view it largely as just some -- as we’re just making progress towards ultimately a solid supply chain. And we made some decisions associated with that and also had a customer come in that has their own, and that took some of the pressure off of having it near term.

[Suji Desilva:]

Okay. I appreciate the clarification, guys. Thanks.

[Jeff Shealy:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, we have time for one final question. Our last question comes from the line of Rick Schafer with Oppenheimer & Company. Please proceed with your question.

[Wei Mok:]

Hi. Good morning. This is Wei Mok on the call for Rick Schafer. Congrats on the Company’s milestones and the progress made this quarter. So, my question is -- my first question is with regards to the comment that you made when you recapped the first half of this year. You mentioned, if I'm not mistaken, a power chip that you’re making for a massive MIMO opportunity that you should be shipping this product in mid-2020. So, can you tell us more about this product and what’s the market opportunity?

[Jeff Shealy:]

Yes. Hi. Good morning, Wei, and thanks for your questions. The power chip that we referred to is the power filter for the massive MIMO requirement. In terms of how we see that unfolding towards mid-2020, I’ll ask Dave to comment.

[Dave Aichele:]

Yes. This is -- hi Wei, Dave Aichele. This traditional -- again, traditional filters that are used in the macro base stations are large cavity type filters that are fairly expensive and difficult from the manufacturing high volume. So, the new architectures that go into these massive MIMO, where they’re doing an array of 32 and array of 64 and the element of each of the array is smaller. They’re trying to come down to a type of semiconductor micro acoustic filter that can meet the form factor but be produced a high volume from an SMB or surface mount manufacturability and not requiring a hand-tuning.So, the power requirements are in the watts, when you’re looking at the filters, and traditional ball filters are below a watt. So, the advantage with our technology is being able to handle lots of power. So, we're working closely with this OEM to develop the solution, specific for their application as they're looking to change obviously their architecture to accommodate this new type of filter and what that again will enable is a platform that can produce in high volume and potentially the millions per month of demand starting second half of next year. And so, this is what we're focused on. And we’ll provide updates as we make progress.

[Wei Mok:]

Okay, great. Thanks. And so, as far as my second question, I wanted to know a little bit more about your follow-on orders with the wireless customer. How does this follow-on order affect the timeline of when you expect to announce the design win, and what's the strategy you guys are approaching in order to design and do module, [ph] do you see like a strategic partner or do a design directly to a handset OEM?

[Jeff Shealy:]

Let me first answer the last part of your question. I think, Dave had mentioned in his comments that the Tier 2 market has significant discrete requirements near term. And so, the Tier 2 market that we would address directly would be through discrete. But, in terms of the follow-on, you asked about the follow-on, on the Tier 1, we are -- as we did mention -- we did ship those products on the first order rather quickly that's borne on a second follow-on order for two additional filters. We expect those to be delivered I think we said by the end of the calendar year. In terms of how we view that affecting the relationship, we view the best approach is to execute on the business and then we'll let the, any strategic conversation take place and we'll react accordingly. We're not announcing anything in that area today, only that the existence of the orders and that our intent is to execute as we did with the first order, which was successfully deliver the XBAW filter to the customer's requirement as we do with all customers. And we fully take that approach on the current order.

[Operator:]

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Shealy for any final comments.

[Jeff Shealy:]

I’d like to thank everyone for your time today. We're progressing towards our objectives for the September quarter and we plan to update you on further progress as our quarter moves ahead. We look forward to speaking with you during our next update call to discuss the current quarter execution against our milestones and future expectations. With that I'd like to thank everybody again. Good bye.

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.