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..

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..

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..

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..

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..

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

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..

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..

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..

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..

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?.

Good opportunity to bring Ken in. So, Ken, why don't you start..

Good morning, Tony..

Good morning..

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..

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..

Very good, guys. Thank you..

Thank you, Tony..

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

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?.

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..

Yeah, thanks for that, and appreciate all the color, Jeff. The follow-up question may be for Dave, and it's digging into mobile and the potential for some of the successful activity with different customers to move into a production ramp. And I'll just use the China market as an example.

So, if we look out at key China selling seasons where the leading players would be developing new product. We've got Golden Week early October, Singles' Day November, Lunar New Year in January-February timeframe, and then May Day further out in mid-2Q.

As you're engaging with your module partners and other players, when does it look like it would be reasonable for investors to expect more of a volume production ramp if we take those selling seasons as a proxy? Thanks, Dave..

Yeah, thanks for your question, Craig. I think the -- and Jeff touched on this, our component customer that we've engaged with, we made some shipments last quarter. And it's into a multiplexer that's going into the China market on a reference design. So, we've seen limited activity right now.

I think everybody is aware obviously the depression state that the China mobile market is in. So, we do not have direct finger on the pulse to the OEMs there. It's something that we have to go through our customer, obviously, to get those visibilities. And so, we're getting updates quarterly on the take rate and traction. So, we'll watch that closely.

It's hard to really give any strong guidance until we start seeing some positive trends in that mobile market in China. The other part is the other engagements we have with the RF front-end module guys is mainly focused on -- I think we've guided in the past, focusing on later year models. And that is one that we've been validating the technology.

We've shipped -- as we've said in previous quarterly calls that we've shipped solutions that have been validated by them, and it's really navigating a strategy of implementing our technology into those modules. So that's still underway. So, the guidance right now has been the outer years when we would see that take rate.

Obviously, as we have better visibility to the platforms of the integrated, we can provide more concrete updates..

And, Craig, let me just add to that, from the mobile segment. I just want emphasize -- reemphasize the quality audit we passed. We actually -- we did continue making shipments to that customer during the June quarter. And also would add our WLP was part of the supply chain.

That's the packaging -- critical packaging for that, that was part of the audit that we passed. And so, we're prepared to ship the pieces from our end. There's been no delay on our end. And that supply chain is working really well.

So I just want to emphasize how we're positioned at least to service that market as we've already demonstrated with shipments the last two quarters..

Yes. So, certainly, it seems like you're executing well on the things that you can control, and it's been very well publicized that the Android market is unusually weak, especially in China. If I could sneak a last one in, Jeff. Nice update on your specific plans with both the CHIPS Act and DOD and you mentioned some milestones.

Are there any intermediate update points that investors could look to, as it relates to potential funding for either source? Thanks for taking all the questions, guys..

Yeah. Thank you, Craig.

So, if you look historically, when -- from the time that we've been notified of an award decision that's -- we have to negotiate a contract and the company's position is until we're under contract, we don't make -- we don't make any public announcements because those have to be negotiated and some of the terms of those have to be worked through.

So, I think we certainly will have an update. We'll provide another update. This being the year end for us, it's kind of a short cycle until we're back on with investors after the September quarter.

So, certainly would think in the early October when we report again that -- excuse me, in the early November timeframe when we report again, I will have -- we'll have an update. And I would not anticipate we'd be under contract before then..

Thank you, Jeff. Thanks, Dave. Thanks, Ken..

Thank you..

Thanks..

Our next question is from the line of Suji Desilva with ROTH MKM. Please proceed with your question..

Hi, Jeff. Hi, Dave, Ken. Congrats on the progress here. So, can you give us a sense the Wi-Fi 7 ramp that's coming? Maybe how to size that opportunity to think about it relative to prior Wi-Fi ramps, perhaps attach rate, penetration metrics, or content per access point device or whatever way to think about it, that would be helpful. Thanks..

Well, let me -- thanks for your comment, Suji, and good morning to you. So, we did mention we delivered two newly developed Wi-Fi filter samples to a tier-1 mobile customer during the quarter. But in terms of the some of the market dynamics, I'll let Dave comment on those for Wi-Fi 7..

Yes. Good morning, Suji. So I think a couple of comments there is, as Ken mentioned earlier that we're releasing a new family of Wi-Fi 6E, Wi-Fi 7 products that are better than previous generation in response but also smaller and form factor.

So, making it more attractive, both from a size and also performance standpoint, particularly for these higher MIMO [count] (ph) architectures. So, the dollar content per system is actually increasing in the Wi-Fi 7, both with the enterprise sector that we're seeing and also with the carrier side.

And I expect the demand to be as same or if not higher in system unit sales. So, overall, the revenue should be increased for Akoustis in these Wi-Fi 7 platforms. Some examples is that the filter count can go up 50%, almost 100% based on the architectures that we're seeing right now and how they're developing.

So, they are fairly complex to previous ones. I think you guys are all aware of the Wi-Fi 7 advantages, particularly this high-band selectivity or what they call MO, multi-link operation, is requiring high performance filters to be able to enable that in the Wi-Fi 7. So this definitely plays in our favor.

And we're keeping a lead as best as we can from a performance technology-wise based on the XBAW technology. So, very bullish about the Wi-Fi 7 market and all the activity is moving in the right direction as far as what we're seeing from customer deployments..

All right. Thanks, Dave, for the color. And then my other question is on the auto market. You mentioned it in the prepared remarks.

Just trying to get a sense of the number of customers you may be engaged with kind of order of magnitude, is it a handful? Is it more than that? And what is the -- are they semi companies, systems companies, module companies, tier-1s or auto OEMs directly? And what's the timing of revenue ramp opportunity there just to level set expectations we are on?.

Suji, I'll take the question. So, I've been actually on the road visiting with some of the automotive customers and I'm pretty excited about the opportunity that it is presenting to us. It will take several years before you see these platforms rolled out. But we're actually -- so example is the wireless battery management system.

We've got three components on reference design with a tier-1 IC manufacturer. And so, we've got good activity going on in Asia, and that is starting to move into Europe and expect some of that pickup in North America. So, we're pretty excited about the opportunities there. And I think we said that we'd be announcing some design wins.

And then, the CV2X, we've got greater than five customers that we've been sampling to and CV2X is starting to pick up activity wise, including in Asia, [DTC] (ph), so toll collection. So, those are things that we're looking at closely.

And then, we've been working with recently some North America OEMs on the automotive side that are more traditional ways of going about building their systems, not using subcontractors, doing it more in-house and see a lot of activity from discrete components, both from the [indiscernible] on oscillators and SAW filters to our BAW technology for TCUs and other spectrum that we're going after.

So there's a lot of activity and we've got greater than five customers that we're selling to into production and obviously -- and tier-1s to smaller companies. But these new opportunities won't really be panning out for another couple of years..

All right. Thanks for the color, Dave. Thanks, team..

Yeah..

Thanks, Suji..

Thank you. At this time, I'll hand the call back to Jeff Shealy for closing remarks..

I want to take the opportunity to thank everyone for your time today. We look forward to speaking with you on our next update call to discuss our current quarter execution against our milestones and future expectations. And with that, I want to wish everybody a very pleasant day. Thank you for your time..

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation..