Akoustis Technologies, Inc. (NASDAQ:AKTS) Q4 2023 Earnings Call Transcript

Akoustis Technologies, Inc. (NASDAQ:AKTS) Q4 2023 Earnings Call Transcript September 6, 2023

Akoustis Technologies, Inc. beats earnings expectations. Reported EPS is $0.21, expectations were $-0.16.

Operator: Good day, ladies and gentlemen, and welcome to the Akoustis Technologies Fiscal 2023 Fourth 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. [Operator Instructions] A replay of the call will be available on the Investor Relations section of the Akoustis website. I would now like to turn the floor over to Tom Sepenzis.

Tom Sepenzis: Thank you, operator, and good morning to everyone on the call. Welcome to Akoustis’ fourth quarter fiscal 2023 conference call. We are joined today by our Founder and CEO, Jeff Shealy; CFO, Ken Boller; and EVP 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 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 fourth quarter conference call. During the quarter, we were able to deliver our seventh consecutive quarter of record sales, as revenue growth in the June quarter was within our guided range of up 10% to 20% sequentially. This was driven by a 41% sequential growth in filter product revenue with continuing Wi-Fi 6E ramps across the enterprise market, increased activity in service provider and consumer markets, as well as shipments to our tier-1 5G mobile RF component customer for broad sampling of its multiplexer for 5G mobile devices. Additionally, we experienced a rebound in our SAW filter, automotive and timing control business during the June quarter, and expect this business to show further gains moving forward as new products are introduced, which I will describe in greater detail shortly.

During the June quarter, we had two customers that made up greater than 10% of our revenue, XBAW related sales accounted for the top five customers and six out of the top 10 customers. Our top 10 customers made up 63% of our revenue. Our top 25 customers made up 77% of revenue. In terms of regional sales, three out of our top 10 customers were Asia based. Finally, our top two customers in Q4 increased their sequential revenue with Akoustis by 18% and 3%, respectively. We are experiencing the same challenging end market environment that has been noted by many of our customers and industry peers over the past several weeks as high component inventory levels, weak consumer electronics demand, particularly in mobile handsets, and a slower return-to-office implementation have negatively impacted segments of the consumer electronics industry.

This corresponds with a slower-than-expected rebound in the automotive, 5G mobile devices and network infrastructure, and Wi-Fi markets with focus — weakness in both consumer and service provider markets. As a result, we expect revenue for the September quarter to be down approximately 15%. Despite these macro challenges, we continue to receive new design wins and introduce new products that we expect will facilitate substantial revenue growth over the next 24 months. I would now like to take a moment to discuss the recent developments involving the CHIPS and Science Act of 2022. Regarding CHIPS Act funding, 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 includes proposal activity with both the DOC and DOD related programs for domestic semiconductor manufacturing, R&D, and the commercialization of leading-edge nanotechnologies. As of today, we have submitted one DOD proposal with Akoustis as a lead contractor or hub focused on electronic warfare, or EW, for defense applications. The proposed five-year contract, if awarded, has an initial program budget of over $150 million. We currently expect the DOD to announce their award selections by the end of September. Akoustis is seeking to expand its domestic manufacturing footprint, including both semiconductors and advanced packaging at our New York campus, under the DOC CHIPS for America program. We are currently awaiting feedback on our pre-application from the DOC, and we expect to file a final application by the end of the calendar year and expect a program [Technical Difficulty] in calendar year 2024.

We continue to plan our CHIPS application around multiple semiconductor partners which intend to manufacture semiconductor materials, wafers, and/or packaging on our New York manufacturing campus. Next, I would like to discuss several compelling updates in our primary target markets beginning with Wi-Fi. One of our milestones during the June quarter was to deliver two additional Wi-Fi design wins, and we received four new wins, all of which are expected to ramp over the next 12 months. These design wins include high-frequency Wi-Fi 6E and Wi-Fi 7 XBAW filter solutions, as well as 2.4 gigahertz BAW filter solutions. During the June quarter, we began sampling our new 5.6 and 6.6 gigahertz Wi-Fi 6E and Wi-Fi 7 filter solutions to multiple customers.

These new parts offer approximately four times size reduction compared to earlier generation parts, and initial feedback has been positive. We have received our first design win for these new filter solutions for a consumer-focused Wi-Fi 6E platform, with a multi-user, multiple-in, multiple-out, or MU-MIMO architecture. We now have multiple catalog in customer Wi-Fi 6E and Wi-Fi 7 XBAW filter solutions that are currently selling in the market. While the overall Wi-Fi market has been impacted over the past 12 months by excess inventory driven by component shortages in 2021 and 2022, and slowing Wi-Fi AP demand post COVID, we do expect improvement in the next six months with normalized inventory levels returning in calendar 2024. With our continuing design win traction, as evidenced by the four new design wins in the June quarter, we expect strong growth in our Wi-Fi business to continue in calendar 2024 and beyond.

This will be driven by our expanding portfolio of catalog Wi-Fi products in the spectrum covering 2.4 gigahertz to 7.1 gigahertz combined with our ability to rapidly deliver customized solutions. Looking ahead, in the September quarter, we expect to receive a design win for next-generation Wi-Fi 7 hardware with a consumer-focused OEM. Further, we also expect to receive a design win for a next-generation Wi-Fi 7 solution with a tier-1 U.S.-based carrier. And finally, we plan to secure design wins for our tier-1 enterprise class customers Wi-Fi 7 suite of routers and access points. Next, I would like to discuss our recent developments in the 5G mobile market. We continue to ship our initial 5G mobile filter to our tier-1 customer in the June quarter.

The customer has been sampling its multiplexer that uses our filter and has been waiting for its chipset reference design partner to launch its baseband into the China market. During the June quarter, our 5G mobile customer brought a tier-1 smartphone tablet OEM to our Canandaigua, New York fab to perform its own quality audit of our facility and manufacturing process. We successfully passed the audit, including two offshore assembly and test locations, further validating our technology and manufacturing capability. This was our first audit by a tier-1 handset OEM. So, this was a major milestone for our company. We delivered two newly developed Wi-Fi 7 filter samples to our tier-2 mobile customer during the June quarter, and we continue to expect these filters to be qualified and ready for production in the first half of calendar 2024.

These two new filters are being developed using our foundry process with the customer creating its own designs using our advance machine learning driven AI product development kit, or PDK. Our customer has decided it would like to make minor changes to the first design, and we expect to begin redesign later this year. Our anticipated milestones for the September quarter include: we expect to receive an order for a 2.4 gigahertz Wi-Fi filter for our tier-2 5G mobile RF front end module making customer. I will now discuss our progress in our network infrastructure business. During the June quarter, we continued XBAW filter shipments to our CBRS customers targeting the U.S. market. We are seeing the 5G open radio access network, or ORAN, market flow along with the broader RAN market as operators take inventory of existing developments.

We do expect the small cell market to improve in calendar 2024, as carriers throughout the U.S., Europe, the Middle East and Africa begin to deploy sub-5 gigahertz networks due to increased data demands. We expect carriers to deploy small cells in greater numbers in 5G networks to expand capacity and improve service. We had several major developments in our network infrastructure business during the June quarter. First, we successfully delivered samples of 7 gigahertz XBAW filters to a tier-1 European 5G network infrastructure OEM. We were also awarded a development order for a new high-band massive MIMO filter design from the same tier-1 OEM aimed at the new 7 gigahertz spectrum for 5G base station applications. For the September quarter, we expect to secure a fourth design win in 5G from a new massive MIMO customer.

Furthermore, we are currently working to engineer new improved samples of our 5G Band 41 and 5G U.S. 3.8 gigahertz network infrastructure filter solutions. We expect to finalize the design and provide samples in the December quarter. And now finally, I would like to provide an update on our defense and other businesses. During the June quarter, we achieved several milestones in our defense and other markets segment. We successfully broadened the sampling of our new automotive CV2X XBAW filter solution to multiple customers, while we have been involved in the automotive market delivering RFMI, SAW filter and crystal components. The introduction of our new XBAW solution for CV2X should significantly expand our potential TAM for the automotive market.

Our new CV2X filter operates between 5.855 and 5.925 gigahertz and allows for device-to-device and device-to-network connections for multiple applications aimed at providing safe and effective communication within vehicles. Our new patented filter delivers low loss performance and enables high power handling capabilities that established long range connectivity for CV2X applications. We also successfully delivered the second of two resonators for the timing control market after our customers asked for wider bandwidth performance earlier in the year. We are now working on qualifying this resonator, and our customer is finalizing the development of its low jitter oscillator product that is aimed at multiple end markets. During the quarter, we were also able to secure a development order for a new millimeter wave XBAW filter for a tier-1 defense customer.

Our biggest success in the defense and other market segment was the introduction of our new XP3F technology which incorporates a new revolutionary multi-layer nanomaterial that incorporates our patented single-crystal piezoelectric material. This new nanomaterial was developed with funding from the Defense Advanced Research Projects Agency, or DARPA, to scale the XBAW technology to frequencies up to 18 gigahertz. The new piezoelectric material stack in the accompanying manufacturing process enables high-Q micro-acoustic [wide bandwidth] (ph) filter solutions that will provide improved coexistence compared to competing high frequency LTCC, IPD, and PCB solutions. We believe the XP3F technology could present Akoustis with significant opportunities in X-Band radar satcom Ku-Band and upcoming 5G/6G FR3 spectrum, and we are receiving significant customer interest in both defense and commercial markets.

For the September quarter, in the defense and other market segments, we are expecting to secure a design win of at least one of the following: crystal oscillator, BAW filter, and/or SAW filter used in automotive wireless battery management systems, or WBMS, solutions, used it in a tier-1 IC reference design, and we also expect to complete the qualification of the second XBAW resonator for a timing control customer. And now, I would like to hand the call over to Ken to go through our financial highlights.

Ken Boller: Thank you, Jeff. For the fourth quarter ended June 30, 2023, the company reported revenue of $8.3 million, which is an increase of more than 13% over the prior quarter ended March 31, 2023 and represents an increase of 60% year-over-year. On a GAAP basis, operating loss was $17.9 million for the June quarter, driven by revenue of $8.3 million, offset by labor costs of $8.6 million, depreciation and amortization of $3.3 million and other operational costs totaling $14.3 million. As a result, GAAP net loss per share was $0.25. On a non-GAAP basis, operating loss was $15 million and non GAAP net loss per share was $15.2 million. 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 Q4 was $1.2 million, a decline from $2.1 million in the prior quarter as we placed in the service the last of our ordered equipment of the company’s New York fab expansion. Cash used in operating activities was $8.7 million, which represents the second quarter in a row of double-digit improvement as operating cash spending is down another 12% from $9.9 million in the prior quarter. The company exited the June quarter with $43.1 million of cash and cash equivalents versus $52.7 million at the end of the previous quarter. In the September quarter, we expect revenue to be down approximately 15% given the broader market weakness along with associated inventory correction. Despite these challenges, we continue to receive design wins and introduce new products that we expect will help us grow our revenue substantially moving forward.

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 provide a brief update on pending litigation matters. With respect to the lawsuit Qorvo filed against Akoustis in Delaware in 2021, work on the case continues. The company continues to develop its defenses and mitigation strategies and intends to proceed in defending itself vigorously against claims asserted by Qorvo. Turning to the patent infringement case filed by Akoustis against Qorvo, in the Eastern District of Texas, Qorvo has filed a motion to dismiss the case as well as a motion to strike Akoustis’ infringement contingents. These motions are typical tactics used by defendants at this early stage of litigation. For example, in its motion to strike, Qorvo argues that Akoustis should be required to provide individual claim charts for each of the 1,015 Qorvo products accused of infringement in the case.

One key takeaway from these updates is the complexity and evolving nature of Akoustis’ disputes with Qorvo. Although we can provide no assurance as to the outcome of the disputes with Qorvo, Akoustis remains focused on advancing the interests of the company and its shareholders in both cases to obtain the best possible outcome. 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 top-line revenue and unit growth over the next 24 months and beyond, driven by 5G mobile, Wi-Fi, automotive, defense and other markets. During the June quarter, we sampled new products, including our 5.6 gigahertz and 6.6 gigahertz Wi-Fi 6E and 7 filters, as well as our new CV2X filter and introduced a new resonator for the timing control market.

We successfully passed a major milestone with a successful audit at our New York fab facility from one of the largest handset and tablet manufacturers in the world along with our OSAT provider. In conclusion, we believe the market opportunity for our patented high-frequency XBAW and XP3F filters is substantial. As of August 25, 2023, we have 104 issued patents and 108 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 like to once again thank our employees for their hard work, passion, and dedication, which account for [multiple] (ph) wins across the Wi-Fi, 5G networker infrastructure, automotive, and defense markets.

We have 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 packing 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.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question today is from the line of Anthony Stoss with Craig-Hallum. Please proceed with your questions.

Anthony Stoss: Hi, Jeff. Congrats, I guess, on all the activity surrounding in the progress. Three questions I wanted to hear from you today. On the Wi-Fi 7 side, just can you paint a picture when you expect kind of volume revenues? Similar question on the smartphone tablet customer that just passed your audit of your facility. And then I have a follow-up.

Jeff Shealy: Tony, good morning to you. So, as we said, we’ve seen despite the Wi-Fi slowdown that we’re seeing in the carrier and enterprise, we’ve seen a significant pickup in the Wi-Fi 7 activity, which is a real bright spot. So, in terms of the specific customer activity, let me let Dave kind of articulate what’s going on there and also kind of what — while we got him what he sees in the mobile space.

Dave Aichele: So, good morning, Tony. On the Wi-Fi 7, where I see the activity of that picking up is Q2 of next year. We’ve got engagements, both in the carrier sector and also in the enterprise sector. Active designs that are starting development runs, and then, we’ll start working through qualifications later this year. So, I expect Wi-Fi 7, both of those sectors to pick starting Q2 of next year. There’s other activity as well with other customers that may entrail quarter after that. And these are two of our top-tier customers that we deal with right now. On the smartphone tablet, as we highlighted, successful major milestone of passing the audit. And we’ve had multiple tier-1 audits from other market segments. This is the first one we had in the smartphone side.

So, huge accomplishment on the Akoustis side and also with our OSAT provider. So that one, it’s an engagement that we’re going to track and watch. We’ll be able to give better guidance in later quarters as we see obviously traction with this customer.

Jeff Shealy: And Tony, let me add to that. On the mobile front, that’s an area where that’s — in the other segments, we actually engage directly with the OEM. This one is one where we engage with a third party. So, as we previously stated that our part goes into a more complex module, which then has to be — is sold into a reference design, which we previously stated that, that’s targeting the China market. That China market has limited visibility and also some pretty significant headwinds in it, as outlined by others in the space.

Anthony Stoss: Got it. And then, lastly, probably a bigger question. Gross margins remain negative even while revenues have grown. Can you give us a sense of where you expect gross margins to pass over into being positive? What kind of metrics need to get them above 30%? And maybe if you can update us on when you now expect kind of cash flow breakeven on a quarterly basis?

Jeff Shealy: Good opportunity to bring Ken in. So, Ken, why don’t you start.

Ken Boller: Good morning, Tony.

Anthony Stoss: Good morning.

Ken Boller: For gross margins, we are undertaking a number of initiatives to improve our margins to [switch over] (ph), as you said, to positive. Those are predominantly increasing utilization of our New York fab being one of them as well as decreasing a lot of our back-end costs. Our initial products were larger sizes, mostly 3.5 by 3.5. Our laminate sizes are coming down in size, which dramatically reduces the cost, as well as some cost savings with our providers, the OSATs. And our new products are also much smaller size and much lesser back-end costs associated with those products as they come online. So we expect, as we improve our laminate reductions and other measures and bring on new projects that those margins will come down and you’ll start to see them become positive in the next few quarters.

And then, as you mentioned, operating cash flow breakeven, we expect that to occur in the October of 2024 quarter, still with the same guidance as before when we get to about $15 million to $18 million of revenue per quarter. But also of note, I will say that we’ve seen operating cash flow decline, 12% each quarter for the last two quarters. And we’ve undertaken a number of prudent but necessary cost saving initiatives recently, which include expense controls and aligning our resources to our current customer — to our current business model. So, I expect that operating cash flow to continue to decline and we’re taking measures to make sure that happens. And then margins will improve as we see new products come online.

Jeff Shealy: And Tony, this is Jeff. Just to add to that, I think Ken has previously stated and just to kind of complete the picture, as we transition those gross margins with these cost savings plans, we expect that the time of cash flow breakeven, the gross margins will be in the — roughly the 30% range is what we’re projecting and how we’re modeling it.

Anthony Stoss: Very good, guys. Thank you.

Jeff Shealy: Thank you, Tony.

Operator: Our next question is from the line of Craig Ellis with B. Riley Securities.

Craig Ellis: Yeah, thanks for taking the question, and Jeff and Ken, congratulations on all the customer progress in the most recent quarter. I wanted to follow-up on the color for September revenues down 15% quarter-on-quarter. Can you talk a little bit about the gives and takes by the different product groups for the September quarter? And then, Jeff, can you talk about your confidence that the September quarter would be the bottom in quarterly revenues or the potential for there to be a further decrease out in the fiscal second quarter timeframe ending in December?

Jeff Shealy: Craig, good morning. Thank you for the comments. So, let me just outline, just provide some contrast over what we’re seeing relative to Q4. So, we expect the September quarter, or Q1, to experience the following. We’re seeing some slowdown in mobile and [indiscernible] I mentioned, particularly the carrier and enterprise class offset by the Wi-Fi 7 activity pickup. So, we see that softness in the Wi-Fi for a period of one to two quarters. We are seeing and experiencing a seasonal slowdown in some of the foundry services. We have — as some of — as part of our foundry services, we also connect in some of the R&D government contracts that we have. We’re right in the middle of transitioning from a first or a phase 1 program to a phase 2 program.

So, we’re certainly seeing that hit in the September quarter as we make that transition. I will point to that DARPA program that I’m referring to, we were extremely successful. And I think, out of the seven participants, we hit every milestone the customer put in front of us, related to that P3F technology we were developing. So, we’re very bullish on that approach going forward. And then, finally, also in the Q1 September quarter, we see some lead time and supply chain constraints, particularly in one of our particular Asia OSATs. So those are — that’s really kind of the puts and takes, but that’s really the macro environment that we’re navigating now. In terms of confidence to your second question — in terms of the confidence that September will be a bottom, what we’re projecting is one to two quarters.

We’re seeing, I think, we mentioned in the script, particularly in Wi-Fi, there has been some inventory buildup in the channel, which needs to clear. and we’re projecting one to two quarters. So, I think internally if you look how we model it is, I would say, we’re going to see some softness, certainly in the December quarter that’s probably comparable to what we’re seeing in the September quarter. But then, March quarter begin picking back up with the programs that we’re currently delivering products to. There’s several in the Wi-Fi space, and we see those picking up, and see some nice design wins already coming together for those quarters. So, I think I’ve addressed your question. Any follow-up, please go ahead.