Rockley Photonics Holdings Limited
Q3 2021 Earnings Call Transcript

Published:

  • Operator:
    Greetings, and welcome to Rockley Photonics Third Quarter 2021 Financial Results. . Please note, this conference is being recorded. I will now turn the conference over to Gwyn Lauber, Vice President of Investor Relations. Thank you. You may begin.
  • Gwyn Lauber:
    Thank you, operator, and welcome, everyone. This is Gwyn Lauber, Vice President, Investor Relations of Rockley Photonics. Today, after the U.S. market closed, we released our results for the third quarter ended September 30, 2021. If you did not receive a copy of the earnings press release, you may obtain it from the Investor Relations section of our website at investors rockleyphotonics.com. With me on today's call are Dr. Andrew Rickman, OBE's Founder and Chief Executive Officer; and Mahesh Karanth, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of Rockley's website. Before I turn the call over to Andrew, I'd like to note that today's discussion will contain forward-looking statements. These forward-looking statements include, but are not limited to, the anticipated features, benefits, scope, focus, status and goals of our platform, technology, products, studies, and partnerships with third parties, our ability to and the timing of bringing our products to market and our development schedules, our strategies, our research and development plans, our customers, our commercial and market opportunities and trends, our debt obligations, our financing agreement with Lincoln Park and our costs and expenses, our cash reserves and financial performance and outlook and factors affecting the foregoing. These forward-looking statements are subject to risks and uncertainties, which may cause actual results to vary materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in our earnings press release and in our filings with the SEC. Any forward-looking statements that are made on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, Rockley reports certain non-GAAP financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation of these GAAP and non-GAAP measures are included in the tables found in the press release. I'll now turn the call over to Andrew.
  • Andrew Rickman:
    Thank you, Gwyn, and thank you all for joining us for our third quarter earnings conference call. Today, I'll briefly walk through our results for the quarter, and then I'll discuss significant progress that we've made since our last earnings call. In the third quarter, we generated revenue of $1.8 million. Our GAAP net loss was $58 million in the third quarter, which includes onetime costs related to our IPO compared to a loss of $30.6 million in the second quarter of 2021. We ended the quarter with $125 million in cash, cash equivalents and investments. Mahesh will provide more detail on our financial results later in the call. Now I'd like to talk about our business. In August, we completed our business combination with SE Health, and began trading on the New York Stock Exchange. Through the process, we raised $168 million which will help us to develop our consumer wearable solution while we work towards its commercialization. We not only strengthened our balance sheet, we also gained increased stature with some of the largest companies in both consumer wearables and medtech. I believe that becoming a public company has already helped accelerate the commercial opportunity for our full spec biomarker centric platform. For those unfamiliar with it, the Rockley spec platform is an end-to-end solution that combines photonic-based hardware optimized biomarker algorithms and cloud-based analytics and AI. It enables clinical and health care research practitioners to integrate more comprehensive noninvasive biomarker measurements in their remote patient monitoring studies. Rockley's proprietary silicon photonics-based later technology significantly expands the range of biomarkers that can be detected and messed continually, and noninvasively be on the capabilities of current LED-based sensors. This expanded range includes key biomarkers like cold body temperature, blood pressure, poly hydration, alcohol, actin and glucose trends, amongst others. These new measurement capabilities have the potential to transform digital health care by providing real-time insight about a variety of health conditions and enabling early detection of multiple disease states. Turning to our product strategy. I am very pleased with the progress that we have made during the quarter in providing our partners with unique solutions, which will power their health and lowness products. Today, we announced new partnerships with 5 global consumer electronics companies, including 4 of the top 10 risk-based wearable companies, strengthening our position in the market by adding some of the most prominent companies in the smartphone and wearables market, 6 of the world's top 10 manufacturers of smartwatches and wrist bands now look to our platform as an important part of their health and wellness strategies. In med tech, we recently signed partnerships with 2 of the world's largest medical device companies. Working with these companies has expanded our development effort for our wearables and end-to-end data analytics solutions. And finally, I'm very excited about our partnership with the California Institute of Technology, or CanTech, because I believe that this program will both add to the development of our platform and will give this partner unique tools that will help them advance the tremendous research that they outtake. Now I'll start with an update on our consumer solutions and some of our key partnerships. As a reminder, in this market, we developed chipsets and modules for large consumer electronics companies who will use our solutions in wearables and handheld devices for the consumer, health and wellness markets. Because of our unique noninvasive biomarker assuming technology, demand for these products is increasing as our partners work to create innovative products that can help them improve the health and well-being with their customers. We have long-standing relationships with several leaders in the consumer electronics space, and we've added the 5 new partners I've discussed a moment ago. We believe that working with these companies will increase our ability to successfully launch our clinical no-risk solution in the health and wellness market and will reduce our reliance on any 1 partner. Next, I'll discuss the medical device market. In this market, companies are focused on improving patients' lives through innovative solutions, and they pursue partnerships with companies who can help them achieve their goals. During the quarter, we announced that we signed a multiyear partnership with 2 of the world's top 10 medical equipment and device manufacturers. We will work with these industry leaders to evaluate and incorporate our next generation of noninvasive biomarker sensing technology into their products, providing them with a complete end-to-end biomarker sensing platform that combines photonics-based hardware, optimized biomarker algorithms and cloud-based analytics and AI. We also believe that these partnerships will accelerate our product development and time lines and will help us identify and advance potential use cases for our technology in mobile devices for remote patient monitoring. I'm also very pleased about our partnership with CalTech. Through this partnership, we hope to add to the development of future health care applications that will use our sensing platform. As part of the agreement, we will collaborate on the development of next-generation solutions that combine advanced sensors with artificial intelligence to enhance insight into health and well-being. Combining sensing and algorithm research, CapEx sensing to intelligence initiative is developing more efficient and intelligent centering systems that align with Rockley's approach to health and wellness monitoring, combining photonics-based sensor technology that state-of-the-art artificial intelligence and data analytics into an end-to-end platform. This partnership intends to focus on a range of projects, including the development of new spectrometer technologies using advanced photonic sensors, which will help us broaden and enhance the health monitoring capabilities of Rockley's platform. The team also intends to explore new applications for cloud-based services, and we'll look to exploit the advanced capabilities of platforms such as Amazon Web Services to advance health care innovation. I also want to update on our ongoing human studies. We have made very good progress for these studies, and we plan to announce the results of our first study next month with others to follow in 2022. Following the tape-out and fab out of our pre-alpha samples of our product. Our studies currently utilize these devices in our noninvested biomarker sensing bands and optimized biomarker algorithms to gather information from our study participants, which then are uploaded to the cloud. As we develop this line of diagnostic knowledge, we will use artificial intelligence and analysis to create the foundation that will provide deep understanding of human health and wellness. We believe our Albert devices are on track and will be utilized in our human studies and available to our partners for their preproduction studies in 2022. Finally, I'd like to take a moment to thank our team for their hard work across all aspects of our full stack solution. The biomarker in human studies require a great deal of effort and the entire Rocky team and our volumes have really stepped up to the task as well. Thank you. All these initiatives create significant opportunity for Rockley and enable us to pursue multiple avenues in parallel. I'm very pleased with the response that we've had from all the markets that we serve and believe that each has the potential to allow us to achieve our goals. Our consumer electronic partnerships are going well. And with the additional partnerships that we have announced, we are now working with the leaders in the consumer, smartphone and wearables markets. I am delighted with the response from our current med tech partners as well as the many other companies who have recently expressed interest in working with. I believe that these med tech partners understand the importance of the work that we are doing, not only to identify individual biomarkers, but also to interpret the data using cloud analytics and AI so that we can provide them with actionable information. Based on the progress that we've made and the response from our markets, I'm very excited about the prospects for our company. We will continue to develop our innovative full stack noninvasive silicon photonics-based solutions, and we are optimistic that the work we are doing today will change the world, and will transform digital health, wellness and health care with actionable insights powered by Rockley. With that, I will turn the call over to Mahesh for detailed review of our financial performance in the quarter. Thank you.
  • Mahesh Karanth:
    Thank you, Andrew, and good afternoon, everyone. I will begin by reviewing our third quarter performance and then I will provide an update on our outlook for the fourth quarter. Turning to our third quarter results. We reported revenue of $1.8 million compared to revenue of $2.2 million in the second quarter. As a reminder, we are in the pre-alpha stage of developing what we believe to be a game-changing technology for the broad health and wellness sector as well as medical device companies that could benefit from our leading technologies. As such, our current revenue is derived from nonrecurring engineering activities, which results in quarter-to-quarter variability. Our third quarter cost of revenue was $3.5 million compared to $4.5 million in the second quarter of 2021. Our non-GAAP Cost of revenue was $3.1 million compared to $4.2 million in Q2 of 2021. As we previously mentioned, our cost of revenue can fluctuate from period to period depending on several factors, including the timing of the completion of project milestones. Moving to operating expenses. We recorded total GAAP operating expenses of $40 million in the third quarter compared to $24.3 million in the prior quarter. GAAP SG&A expenses was $13.6 million compared to $6.7 million in Q2 2021, and GAAP R&D expenses were $26.4 million versus $17.6 million in Q2 2021. The increase in expenses was driven primarily by $14.3 million in onetime transaction-related costs, personnel expenses and public company costs. Total non-GAAP operating expenses for the third quarter was $33.7 million compared to $21.5 million during the second quarter of 2021. Non-GAAP SG&A expenses was $9.4 million compared to $5.8 million in Q2 2021. Non-GAAP R&D expenses totaled $24.3 million in Q3 versus $15.7 million in Q2. We plan to continue to expand our R&D organization as we drive our technology forward to support the many growth opportunities ahead of us. Our R&D efforts are essential to our ability to remain on track for our customers' projected product rollouts. As we scale the business, we expect our expenses to fluctuate as a percentage of revenue per period-to-period, but will generally decrease over the long term. Moving to net income. We recorded a GAAP net loss of $58 million or a loss of $0.54 per share in the third quarter compared to a net loss of $30.6 million or a loss of $0.36 per basic share in Q2 2020. Our non-GAAP net loss was $51.4 million or a loss of $0.48 per share in the third quarter. Adjusted EBITDA, a non-GAAP measure, was a loss of $35.6 million in the third quarter, which compared to the loss of $23.4 million in the second quarter of 2021. Our net cash used in operating activity totaled $37.4 million in Q3 compared to $29.6 million in Q2. The sequential increase was primarily driven by an increase in head count and R&D activities. Turning to our balance sheet. We ended the quarter with cash, cash equivalents and investments of $125 million an increase from $35.4 million on June 30, 2021, prior to the close of our transaction. During the quarter, we retired all of our convertible notes, and we expect to retire our remaining debt obligations of $28.6 million in 2022. Recently, we announced that we signed a financing agreement with Lincoln Park Capital to provide us with an equity line of credit of up to $50 million. This agreement will strengthen our balance sheet and provide us with additional flexibility as we work to commercialize our noninvasive biomarker sensing solutions. Looking ahead, as we previously discussed, we continue to believe that we will generate approximately $27.5 million in revenue in 2021. This guidance includes a significant technical sale in the fourth quarter, and as with similar deals, there is always the chance that the transaction will slip into 2022. In wrapping up my prepared remarks, we are pleased with our performance in the third quarter. We significantly strengthened our balance sheet through the completion of our business transaction with SE Health in August, and we believe we remain well positioned to execute on our road map ahead. I will now turn the call back to the operator to open up the call for questions.
  • Operator:
    . Our first question is from Vivek Arya with Bank of America.
  • Vivek Arya:
    I have a few. So Andrew, for the first one, you mentioned the addition of new consumer electronics partners I was hoping you could give us a little more color. What does that do to the size of the opportunity? When do they start adding to the backlog? When do they start becoming more important to your expectations? And then are they engaging with you exclusively? Or are you part of other engagements that they're also doing?
  • Andrew Rickman:
    Great question, Vivek. Thank you. So obviously, in our set of projections, we had 4 consumer -- customers. And now we have 6 of the top 10 wearables customers, and obviously, additional customers as well. So what that says is that you can look at the numbers and say, okay, this is either an increase to the opportunity or it's significantly derisking the opportunity for us with the significant increase in the number of signed customers and our penetration into the vast majority of the available addressable market in wearables. That's the first thing. Second thing is that what we do with these customers is when they're signed up as we start work with them on the physical design in activities, and that is what we're doing with all of these customers. So what then translates into next year is the process of providing a significant number of units for their qualification process following the detailed design and work that we're doing with them now, which then prepares them for the launch of their products into the consumer market in 2023. So no change there from the plan just significantly more customers than were in the projections, and whichever way you like to look at it, significantly derisking what we say we're going to do.
  • Vivek Arya:
    Got it. And Andrew, on the med tech opportunity, what is the most important product milestone that you need to deliver on to make that happen?
  • Andrew Rickman:
    So on the med tech area, it's the same technology. It's the same module technology. But what's really exciting is when we took the company public, we really focused attention on the consumer area, which is now obviously rocketed ahead in terms of our engagement with customers. But we weren't explicit about what we were doing in the med tech area other than that we had customer engagement. It's now clear from our continued development and our continued development of the commercial opportunity and the customers that we're working with, which, amongst others, include 2 of the world's leading medical device companies is that we -- these customers all want us to deliver a full stack solution into particularly things like patient remote monitoring. And so what's involved in that is basically everything that we have been developing all the way from the modules going into the wearables into wearables suitable for the health care market as opposed to the consumer market. And there's a difference there. And then the algorithms for the individual biomarkers and then the algorithms in the cloud that process the information longitudinally over time to come up with guidance and insight and diagnosis for patients. So all of that is accelerating very, very rapidly for us. And as we said, it essentially creates another further growth opportunity for us. But what's really different about it is -- well, actually there's not a great deal of difference in terms of what we do. It's really more about customers engaging in the health care area for our entire full stack capability and the need for us to present the solution in a format that's appropriate for the health care market as opposed to the consumer market, and that is the sort of physical implementation into wearable devices that are quite unintrusive, don't do any other functions other than focus on an individual's health, and sit there in the background, continually monitoring and providing the data into the cloud -- into our cloud platform, which we then interface to our customer.
  • Vivek Arya:
    Got it. And maybe one or two for Mahesh, if I may. On the backlog, you mentioned $23 million, if I got that , steady from Q2 to Q3. That still leaves a fair bit of turns business that you will need to execute on for next year. I'm curious how is your level of visibility and confidence around the next handful of quarters versus what you had 90 days ago?
  • Mahesh Karanth:
    Okay. Let's break it into two pieces. For 2021, we have guided $27.5 million. This includes a significant technical sale. And as with similar deals there is always a chance that the transaction will slip into 2022. For the 2022 guidelines at this stage, we feel comfortable. And if there is any other change, we will let you know appropriately.
  • Vivek Arya:
    And just the last one. How are you positioned from a financing perspective? And how should we think about just the use of cash over the next several quarters as you execute to your 2022 plan?
  • Mahesh Karanth:
    As we had said in our last call, we believe we have raised enough funds to take our customer wearable products to commercialization. To supplement other activities, we announced today that we entered into a financial agreement with Lincoln Park Capital, where they will provide us with the option to utilize up to $50 million through an equity line of credit or .
  • Operator:
    Our next question is from Quinn Bolton with Needham & Company.
  • Unidentified Analyst:
    And just wanted to follow up on the Vivek's question. First, on the new consumer electronics customers. I just want to make sure I have this right. I think at the time of the business combination, you had talked about for consumer electronics companies leading to your forecast. Am I right to think now with the 5 additional you're at 9 or did the 5 customers that you talked about on this call include some of those original 4?
  • Andrew Rickman:
    Quinn, yes, good question. Yes, for clarity there, if you recall that we were engaged -- we were signed or engaged with those customers. I didn't mean to say that we had signed them all. What we are now saying that we have signed 6 out of the top 10.
  • Unidentified Analyst:
    Got it. Got it. Okay. And then some questions to the CE customers. Do any of them generate NRE opportunity for you in 2022 or into 2023 as they look to go to production? And second, do any of them require customization that might lead to additional OpEx outside of the original plan that you had put forth?
  • Mahesh Karanth:
    Yes. Quinn, this is Mahesh. On that subject, currently, our focus is to develop a stand-alone product, which we will be able to come to the market. So NRE from this customer is not a focal point. However, there will be some NREs, but I would not expect it to be very material.
  • Unidentified Analyst:
    Got it. Okay. Great. And then it sounds like the outlook for the company to deliver the pre-alpha samples to customers next year so they can conduct their human trials remains on track. So it sort of sounds like those first customer devices likely announced either late 2022, early 2023 with the production ramp in 2023, no change to that timing.
  • Andrew Rickman:
    Yes. That's correct, Quinn. And just to clarify a couple of things. The pre-alpha devices exist today, and we have been providing devices to customers that we would do to tape out and fab out our alpha versions. We've done that now. We've got the first lots come back as expected. And then those alphas will be supplied to customers starting the first half of next year as part of their ongoing evaluation, if you like, and preproduction activities. Then by the middle of next year, the full production version with a few tweaks, which are inevitable will have been taped out and fabbed out by us. And then that will start ramping in Q4. And at that point, we are basically in the design in cycle for the products launching in 2023.
  • Unidentified Analyst:
    Understood. And I guess, Mahesh, just sort of on the use of cash, maybe help just bridge for investors. $8 million of cash today, you burned or consumed $37 million in the third quarter. I don't know if you can give us any comments on what you think cash burn or OpEx might look like over the next few quarters. But if you're starting with $125 million and you intend to pay back the $28.6 million of existing debt obligations. It looks like you've got about $100 million of cash outside of that debt repayment to fund operations. And obviously, your cash burn in the third quarter was pretty high. So how should we be thinking about OpEx on a quarterly basis over the next few quarters? Does that come down meaningfully? Does revenue ramp pretty meaningfully to offset that? Just any help you could provide would be much appreciated.
  • Mahesh Karanth:
    Yes. On that front, if you recall, we had provided the guidance for this quarter and for rest of the year. As update, we still feel that the OpEx will be in line with that forecast. So there are a couple of things we are doing to address some of the cash issues. One is this which has come in effective today. So that will be a $50 million amount, which we will raise. And then there are other forms of instruments we are looking at, and we will probably address that in Q1 time frame.
  • Operator:
    . Our next question is from Tristan Gerra with Baird.
  • Tristan Gerra:
    Just following up on the new design wins relative to the sampling. How much of those wins are contingent on basically your company meeting the thresholds that are expected by customers? And you've also said during the Q&A that of the original 4 design wins somewhere signed or others were just engagement. So how much of that is really a hard in that is going to launch as long as you deliver the product versus others that may be engagements with a potential or a strong potential to turn into a design win? And then finally, are you able to quantify kind of the design win revenue funnel is at this point over the next several years?
  • Andrew Rickman:
    Thanks, Christian. So to be clear, that these customers that we're talking about in the total of 6 out of the 10. And of course, there are more than include not included in the 10 million. We are now at the stage with these customers where they're very, very explicit in terms of what they want, that we have agreements in place and our engineering teams are working on together on the activities associated with the specific design in of our solutions into their wearable products. So all of those will just continue. I think universally that we've seen all customers very, very, very keen to have 1 or a number or all of the biomarkers that we're able to deliver with the platform in their products as soon as possible, and they're driving us very hard. Of course, in terms of number of customers, we don't -- in the consumer area, we don't want to be kind of overwhelmed with a long tail. So of course, we're focused on the very, very largest customers and those customers that we believe will take us to significantly higher volume. So that's our approach.
  • Tristan Gerra:
    Great. And then you've we have a sense of the ASPs for the module and for the chip do those ASPs change depending on the marker use or that doesn't matter, and the ASP is solely based on the hardware platform that you're delivering.
  • Andrew Rickman:
    I'll turn that one over to Mahesh but just remember the pro that were dominantly called the basic and the advance. So they do have -- they do themselves have different prices in different levels of biomarkers. But Mahesh?
  • Mahesh Karanth:
    To address your specific question, this was what was initially forecasted and planned by us and that same -- the assumption still holds good. So there is no change to that. It kind of reinforces an assumption.
  • Operator:
    Our next question is from Paul Silverstein with Cowen and Company.
  • Paul Silverstein:
    I've got a number of clarifications of responses to previous questions. First off, Andrew, I just want to make sure. I understand this, the 6 out of 10 consumer customers you're referencing, including the 5 new wins, were any of those polar wins with customers that did not have engagements with you previously? Or is this just going to the next stage with 5 of those existing engagements?
  • Andrew Rickman:
    Paul, yes, I'm just thinking -- I think we were engaged with all of them, but moving them basically from engagements to contract.
  • Paul Silverstein:
    All right. That begs the next question. The difference, when you say that they're going from engagements and contracts, correct me if I'm wrong, but I assume none of these are contractual commitments in the sense that they've given you volume -- committed to volumes that they have to carry through or they have to pay if they don't take it. I assume none of them are at that stage, yet.
  • Andrew Rickman:
    They're not at that stage. But there is financial commitment in a number of those relationships, and they're quite explicit in terms of their process of going to market. And so that involves a certain level of volume required for the qualification process in their products next year, which then leads into the following year's volume. And obviously, what we've been guided by is those individual companies existing position and share of the market in terms of anticipation, and reinforced by what they're saying in terms of what they expect the volumes that they will be demanding in 2023 will be.
  • Paul Silverstein:
    All right. I just want to make sure I understand what you just said. So they're giving you indications in terms of what their volume expectations are. But when you talk about commitments, the commitments are to volumes for their own internal qualifications. Is that the extent of the commitments to date?
  • Andrew Rickman:
    The commitments there is money involved in a number of those contracts, but the level of commitment is not at the level of all of the units that they will require full qualification. So those POs will come in due course.
  • Paul Silverstein:
    Okay. Then with respect to med tech, the two companies you referenced, does that make for 3 total, including your initial one? Or is the initial one, your investor, one of the 2 that you're referencing?
  • Andrew Rickman:
    We can't name customers specifically, but in terms of that we're engaged with. We have moved from -- sorry, we've moved from the engagement level with 2 of the top 10 to a contractual level. And those relationships are moving very rapidly and an extremely exciting position. Outside the top 10, we already had 1 other customer signed previously. And then the really interesting development, which is reflected by many companies that we're engaged with as well as the ones that we're now contracted with is the desire to -- for Rockley to deliver the complete solution because we have to create the complete solution, a wearable as well as the full stack in order to conduct all of our human trials and in order to provide the reference designs and the algorithms for the consumer market. So moving into the health care market, those devices, they're not they don't tell you the time, you can't phone anybody on them. They don't give you e-mail, but they are exactly what we've discovered the health care market wants the professional health care market. They want a essentially an innocuous device that sits in the background typically not on your typical watch rest, but they're actually better on your dominant risk and don't need to be charged every day. They can charge every week. And sitting there, providing the data continuously into the cloud platform and providing the essentially the APIs for our customers to then extract and utilize and benefit from that data. And that is the model that has now evolved for us over the last couple of months. It's another huge growth opportunity Obviously, we're talking about devices that have a much higher average selling price because we're producing the entire device that they become stickier over time with FDA qualification that's not required for initial health care customer applications. And they provide a more solid platform for us to monetize all of our cloud base.
  • Paul Silverstein:
    Andrew, if I could ask you, I know you went through it earlier, but if I could ask you to revisit commercialization, what is required between now in getting to I apologize again, perhaps I have a misunderstanding, but quint suggested that commercial volumes won't be until '23. And I was under the impression that you all were talking about commercial revenue by the end of '22 was what I thought you initially put out there. Not that the end of '22 and '23 is all that different. So I don't mean to make a big deal out of this. But I would like to understand if anything has changed.
  • Andrew Rickman:
    Nothing has changed, Paul. So the pre-ops that are being used today for all of the algorithm development in all the human trials, and we are shipping product to customer today out of that generation. That is then replaced by what we call the Alpha versions in the first half of next year. That is all on track. When we last spoke, they had taped out now those first batches of the spectrophotometer chip are fabbed out and all of that work is going very well. That generation is used and will be used in a level of volume, typically, customers require about 10,000 units for their qualification process through the course of next year. Then the betas, which are the are going in the end customer launch products in 2023 ramp in Q4. And there's no change to the guidance that we provided there or the guidance in 2023.
  • Paul Silverstein:
    So you'll be selling those products to your customers around the fourth quarter of '22, if all goes according to plan, you'll be booking the revenue, initial volume revenue, commercial volume revenue in the fourth quarter with the ramp throughout '23 as those products sell.
  • Andrew Rickman:
    Yes. And what we -- and so if you look at what's happened, we've gone from a couple of customers and the ones that we're engaged with and using 4 consumer customers to drive our entire revenue projections over the entire period of the model that we put out there to a position now where we have gone to 6 out of the 10 top customers in consumer. Then if you look at the health care area, what we've done there is we be able to cement the opportunity to deliver the entire full stack solution in that area, and we've got demonstrable customer traction in that area. Now how that rolls out and affects things, that is not waiting for anything else. That is actually on the time line of the chips and modules for the consumer market. And so we've not projected any numbers associated with that. But what we're saying is that has now become a very strong opportunity for us where the ASP is obviously much, much higher. And there is no physical socket designing that we are waiting for the 2023 launch of our end customers' products that those customers in the health care area are driving us as fast as possible to start their utilization of the technology on an earlier time frame, which is very, very exciting.
  • Paul Silverstein:
    So Andrew, do you think you could have commercial volume revenue from med tech in '23?
  • Andrew Rickman:
    We will -- within the numbers that we projected, for 2022, there is the opportunity to have med tech sales there. That's really the key message that we've really cemented that opportunity with customer traction with customer contract engagement to start shipping into that market in 2022. When we were -- previously only projected that in anything meaningful in 2025.
  • Paul Silverstein:
    Understood. But Andrew, I apologize I'm going to push you here. I just want to make sure the difference between commercial volume in pre-commercial volume. You're talking about commercial volume in late '22, '23 for med tech coterminous with our shipment into consumer wearables?
  • Andrew Rickman:
    Exactly.
  • Paul Silverstein:
    So you're 2 years ahead of All right. A final question for me. What, if any, meaningful hurdles remain from a technology standpoint? What are those hurdles and have -- it sounds like from your commentary, just the answer is not, but have there been any glitches of a meaningful nature to date?
  • Andrew Rickman:
    No. Things have rolled out extremely well in terms of the technology. If you recall, the measurement science was well developed by us previously on a benchtop level. And so what's been critical here is the delivery of the benchtop performance in the miniaturized spectrophotometer chip format. And the performance that we're getting from the pre-alpha devices is meeting that requirement. And as we look at our human trials that are going on with those devices, there is an incredible level of excitement. This is both the baseline and the Pro versions, they're incredibly powerful instruments, very powerful instruments. So the insight that we're getting and the things that we're achieving are exceeding our expectations and making us and our partners extremely excited.
  • Paul Silverstein:
    So you're not overly concerned about that? What -- I guess I'm trying to decipher if there's some risk that occurs between now and commercial volume shipment. What, if anything, that could be over the next 12 months?
  • Andrew Rickman:
    Yes. Technological risk is not there. There's -- of course, there's all the usual executional ramp-up associated risk that you would expect that are no different to before and things like making sure that we've got dual sources, making sure that we obviously place purchase order for purchase orders for our various building materials, all of these things happening in the right time frame that we protect ourselves against any kind of problems that might occur in terms of you take something out, you fab it out, and there's a fault. How will that delay you? We have the years we've developed risk mitigation on those kind of issues because they always do occur. They do occur by having what we call lead lots, main lots, backup lots, et cetera, we can make changes. So we've learned a lot in terms of how to make sure these things run to schedule and that we mitigate the inevitable risk, something is -- some design element is overlooked or something like that and that you need to make a change. But that we have the process of mitigating those risks. And we've also -- we're going from a beta design sorry, from an alpha design, which is fabbing out now to a further design a beta design. But we do believe the alpha design will ship to customers and may well be sufficient. So we put another design in cycle major design in cycle in the loop there between now and volume production.
  • Operator:
    Our next question is from Tim Savageaux with Northland Capital Markets.
  • Unidentified Analyst:
    Congrats on all the new customer engagement. And my question was about that and not to beat a dead horse, but just in terms of looking at trying to get a better sense of what progress is incremental here. I think in your previous investor presentation, you talked about -- this is going back to September, I guess, in contracted customers. I think that was all consumer electronics, but -- and then on up the funnel, various stages of negotiation. With the 5 additional consumer customers and the 2 new med techs, do we -- is that 15 now? I guess would be -- my question in terms of contracted customers where there are a few that were maybe along or can you provide us with an update for that contracted figure that you had previously quoted? That's question one. Question 2 is that previous figure seemed to correlate into what you estimated was a 60% market share in terms of these customer share of the smartphone and wearable market. I wonder if there's an update on that market share number as a result of these new wins on the consumer side?
  • Mahesh Karanth:
    Yes. This is Mahesh. Let me kind of -- I think all of you are asking almost the same type of question. So let me clarify certain things. Let's say -- there are 2 things. One is the wearables and the medical device. On the medical device, we have now 4 -- we have 4 customers on the medical device. -- and then 11 in the consumer wearable device companies. So 15.
  • Unidentified Analyst:
    So that's 15. It works. Okay. And then maybe a follow-up on that market share commentary on the consumer side.
  • Andrew Rickman:
    So on that front, just to be clear, Tim, you were looking for market share in wearables or smartphones?
  • Unidentified Analyst:
    Well, you guys had defined it previously, I think, is a combination of both, but you are absolutely welcome to break them down in to separate
  • Andrew Rickman:
    Yes. Breaking it down, what we just announced that prior to the quarter announcement was 6 of the top 10 in the wearables that smart watches and fitness bands. When we look at the smartphone players, there is an overlap there. And I don't have the numbers in front of me, but I think in terms of engagement, it's probably bigger in terms of the smartphone space in terms of the percentage of the market because many of those players are leaders in the smartphone area. And at least one I can think of that isn't in the top 10 in terms of wearables, but it's certainly in the top 10 in terms of phones.
  • Mahesh Karanth:
    See, there are a few players in China wherein especially this customer, Andrew is referring to is one of the top 5 producers of cell phone in the world, but they are aggressively now started getting into the wearable space, and that's the one we signed an MOU recently.
  • Operator:
    We now have a follow-up question. .
  • Unidentified Company Representative:
    . not of the nature of our technology and the power of the technology. As you know, what we are basically delivering something much there today. And that forms the mainstay of, I think, the industry's -- previously, the industry's kind of road map here just simply to continue to improve on the performance of the LED-based solutions, which would, in our view, would never get anywhere near close to the performance that we're able to deliver here. So as we look at all of those customers, it has been a journey for us really to route out with look on every stone and get a relationship with every single customer to figure out whether there was something else there lurking. And we are even more confidence today than we were on the last call, that there isn't something else there. And as we look at this technology, the performance that's delivered by our solution is extraordinary, and that's coming out in terms of the human trials. But it is also stuff that requires an extraordinary amount of long-term development and planning and in a form that we don't see anybody else having even the beginnings of a platform to be able to implement something like this. And then you've got a huge amount of qualification of material science of semiconductor processes of testing procedures, at packaging and assembly, all of these things take many, many years to get perfected and to get ready for the ramp that we have in front of us. And so yes, our customers are telling us explicitly that they do not have an alternative to this.
  • Unidentified Analyst:
    And Andrew, just to be clear, are these customers indicating to you that they plan to totally displace in all of their form factors, the current state-of-the-art LED technology were there siphotonics-based solution? Or are they going to mix and match for low end, they'll maintain LED and they'll only use you in certain devices? Or again, are they planning to displace -- shift over their entire lineup.
  • Andrew Rickman:
    Well, the LED technologies that exist today, which we actually include in our module as well, are good for primarily measuring heart rate, heart rate variability. Typically, devices have accelerometers, motion sensors in them. That's what we do as well. And then the 2 LED solution for pulse oximetry for blood oxygen measurement. Now those technologies today that is not in the infrared range that we're operating. So they still remain good to measure those particular parameters. It's the infrared and very broad infrared spectral range that we add on top of all of that, that opens up all of these additional biomarkers. So in terms of will they -- the customers essentially are not abandoning the existing LED technology that delivers those particular biomarkers. They're adding the IR biomarkers that are technology advances deliver. And our customers have the opportunity to actually either take the IR element of what we do, which is the principal value of it, or a complete module with the IR and the existing LEDs for the heart rate and the blood oxygen. Now one could think about extending the LED technology into other areas, but we don't see that happening. So it sort of stays where it is but the IR technology builds dramatically on top of it, adding all these additional biomarkers.
  • Operator:
    And we have another follow-up question from Quinn Bolton with Needham & Company .
  • Unidentified Analyst:
    Just wanted to ask on a sort of supply chain check. If customers intend to go to volume production or receive volume production devices from you in the fourth quarter, can you walk us through sort of your lead times and when those customers would have to place those production orders, given how tight the supply chain has become, would they need to place orders in Q1 or Q2? Or are your lead times still relatively short that those production orders could be placed as late as Q3 of next year?
  • Andrew Rickman:
    Well, we're taking the position in terms of the supply chain and the bill of materials to make sure that we are in a position to meet our volume projections in that period. so customers could place orders on all of the time frames that you've indicated and still be satisfied.
  • Unidentified Analyst:
    So you're sort of placing those orders or holding that production capacity at your manufacturing partners in advance of those orders to provide some flexibility on the timing of customer orders.
  • Andrew Rickman:
    Exactly.
  • Unidentified Analyst:
    And is that contractual? Are you effectively obligated to take that production capacity from those foundries?
  • Andrew Rickman:
    Yes. Yes. We would be contractually obliged. But in terms of the cost of that, it's not a significant cost to us.
  • Operator:
    We have reached the end of our question-and-answer session. I would like to turn the conference back over to Andrew for closing remarks.
  • Andrew Rickman:
    Well, thank you very much, everybody. I really appreciate the questions, and we're really excited about the progress of the company. It really exceeded our expectations and we're looking forward to updating you further in our next quarter earnings conference call. Have a good day, everybody.
  • Operator:
    Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

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