Good day, ladies and gentlemen, and welcome to the Akoustis Technologies Fiscal 2024 First Quarter Conference Call. As a reminder, this conference call is being recorded. At the conclusion of the company 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. Thank you..

Thank you, operator, and good morning to everyone on the call. Welcome to Akoustis' first quarter fiscal 2024 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 an automotive wireless battery management system solution, used in a Tier 1 IC reference design. Also, we plan to complete the qualification of the optimized second XBAW resonator for a key customer in the timing control market.

And we expect to deliver an X-Band BAW filter utilizing Akoustis advanced XP3F technology to a Tier 1 defense customer. And now, I would like to hand the call over to Ken to go through our financial highlights..

Thank you, Jeff. For the first quarter and at September 30, 2023, the company reported revenue of $7 million, which is a decrease of 16% over the prior quarter and at June 30, 2023, but still represents an increase of 26% year-over-year.

On a GAAP basis, operating loss was $21.7 million for the September quarter, driven by revenue of $7 million, offset by labor costs of $9.4 million, depreciation and amortization of $3.2 million, and other operational costs totaling $16.1 million. As a result, GAAP net loss per share was $0.28.

On a non-GAAP basis, operating loss was $19.1 million, and non-GAAP net loss per share was $0.27. CapEx spending for Q1 was $4.2 million, primarily to enhance our backend processing capabilities and complete our New York fab tool capacity to 500 million filters per year.

Cash used in operating activities was $13.1 million, which included approximately $3.4 million of year-end expenses for $9.7 million net. In a December quarter, as indicated in our prior call, we expected revenue to be flat given the broader market weakness along with the associated inventory correction.

We continue to receive design wins and introduce new products that we expect a return to record quarterly revenue in the March quarter of up 18% to 25%. We'll update this guidance during our next quarterly investor call.

On the expense front, over the past several months, we have undertaken significant expense reductions and cost saving measures that we estimate will reduce our operating cash flow burn rate below $8 million for the December quarter.

Given the top line projections, the CHIPS ITC refund, and a full quarter of cost savings, we currently expect operating cash burn to be below $6 million in the March quarter, with operating cash flow break even less than one year away.

The company exited the September quarter with $25.8 million of cash and cash equivalents versus $43.1 million at the end of the previous quarter. I will now turn the call back over to Jeff for his closing comments..

Thank you, Ken. We continue to believe the market opportunity for our patented high-frequency XBAW and XP3F filters is substantial. As of September 25, 2023, we have approximately 200 issued patents and patents pending representing 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.

I want to emphasize to investors that while we have been navigating the challenges to our top line revenue during the first half of our fiscal year, we have aggressively taken steps to reduce operating expenses and achieve cost savings on our products to lower our operating cash burn.

We believe this is prudent in the economic environment that we are facing. Finally, I would like to take the opportunity to thank our employees for their hard work, passion, and dedication in working together to position our company for growth in the quarters ahead. 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 is from the line of Anthony Stoss with Craig Hallam. Please proceed with your questions..

Good morning, guys. Ken, let me start with you.

Can you maybe outline OpEx just for December, and then March R&D and SG&A for each? And then, your comment about expected reach, breakeven in less than a year, what were the new kind of revenue per quarter to reach that breakeven be?.

Good morning, Tony. Yeah. I'll dive into some of those answers for you. So with the expense reductions and cost-saving measures that we've undertaken, in essence, we've cut about 20% of our operating expense. We won't see a full quarter of that until the March quarter, as some of those were undertaken earlier in Q2.

So we'll start to see up to 10% to 20% in December, and then in March 20% savings in OpEx overall. The question on operating cash flow breakeven, we still are projecting that to be within the next 12 months, still within $12 million to $15 million of revenue during that time period. And some of that depends on mix.

We are -- a number of our new products are coming into production during the next two quarters, over a dozen. And those products are of a lower form factor and have lower laminate costs and back-end processing costs.

So we'll start to see not only a reduction in the overall cost from the cost savings plan that we did, but also an introduction of our new parts that are lower back-end in cost and those margins are – were now negative, will turn positive. And then by this time next year, we project to be operating cash flow breakeven..

Got it. And then, as a follow-up, maybe for Jeff.

Just what gives you confidence in the $8.3 million to $8.8 million in March, and then again, ramping from there we get to your $12 million to $15 million? And then, Jeff or Ken again, where would you expect gross margins to kind of exit calendar 2024?.

Good morning, Tony. Jeff here. I think the confidence is coming from what we're seeing. We made in the prepared comments some discussion about what we're seeing in the Wi-Fi channel with inventories, particularly in the Asian market in our Wi-Fi segment clearing. We've seen firsthand some of the evidence of that.

I think most importantly and maybe more importantly is that we have multiple programs that we've been focused on which are ramping in the Q1 calendar year, which is our March quarter, of course. So it's confidence in the transition of some programs in Wi-Fi. We also made -- mention of some transition in our defense and other segment.

We had -- really had a perfect storm the first half of this fiscal year with some of the headwinds in the market with we were wrapping up certain contracts. So that's as well as the, some of the slowdown in the inventory built up in the channel.

So for the March quarter, it's all about new programs in Wi-Fi, which we have high confidence in, as well as the defense and other segments kind of really picking up. And the infrastructure segment's been a little lumpy, but we've seen some signs of an ongoing recovery in that as we head into next year. And Tony, I'll comment on gross margins.

So in the next quarter or 2 by March, we will turn positive margins and then exit our fiscal year above 10% margin..

Okay..

And Tony, I’ll comment on gross margins. To the next quarter or two by March, we will turn positive margins. And then exit our fiscal year, with down 10% and then when we come to the operating cash flow breakeven time period of this time next year. We're projecting it to be 20% to 25% of the positive gross margin.

And some of that, as Jeff just alluded to, is some of our product mix, we're also starting to see more interest in infrastructure and some of our base station products. So those, if you recall, have a very high ASP and very good margin. So that is a piece of the mix that we're talking about when we're going into those time periods in the future..

Great. Very good. Thanks, guys..

Thank you,.

Thank you, Tony. Our next question is from the line of Craig Ellis with B. Riley Securities. Please proceed with your question..

Yeah. Thanks for taking the question, guys. I wanted to follow up on the earlier questions and just better understand the dynamics in March. So it looks like revenue is going to be up about $1.3 million sequentially, led by Wi-Fi followed by defense.

Within Wi-Fi, can you characterize the incremental gains in the consumer part of the market versus the enterprise part of the market for March quarter?.

Hey. Good morning, Craig. Let me pull Dave in and give you kind of what we see on the mix in Wi-Fi. Maybe I'll add some comments thereafter..

Yeah. Good morning, Craig. So it's finally an evenly split between the consumer side and the enterprise side. There's two dynamics that we're seeing. So we've got good traction with Wi-Fi 6E programs that we've done with carrier market that is going to start picking back up. It's gone through this inventory slowdown, so we expect that to pick back up.

Plus, we've got, per the design win announcement we made in this recent call today, is that we've got two consumer programs that we've already seen substantial POs on for our new Wi-Fi 7 products that we launched probably about three -- five months ago.

And then, the other one is, our Tier 1 enterprise customer is going to start ramping and also their previous platform is picking back up. They've had a slowdown probably for the past six months. So we have both of those coming together. Plus, we announced in the call today another enterprise customer that's also going to be planning to ramp.

And both of these enterprise customers have a significant amount of filter content per system. So even though the volume of the system shipping are less than the carrier side, you still get very good dollar content and also total ASP per system. So I think it's going to be a balance between the 22 of them.

We're still focusing on the big box retail side that we don't expect, any real growth contribution probably until the second half of calendar year 2024. So I put an emphasis mainly on the carrier of the enterprise side..

Yeah. That's really helpful, Dave. Thank you. And then the follow-up question is somewhat similar but for the second half of calendar ‘24, first half of fiscal ‘25, guide. If we're getting to cash flow break even at mid-team's revenues, then our revenues are going to basically double through the year.

So can you just help us understand what your assumptions are around mobile's contribution to that ramp and to the extent that it exists.

How much of that is Tier 1 customers versus the Tier 2 that's ramping a little bit in the first half of calendar ‘24 and then beyond mobile just the relative contributions out of Wi-Fi defense, et cetera.? Thank you..

Thank you. Okay, Craig. So, second half of calendar 2024, we see continued increase in transition in Wi-Fi. I think Ken had touched on some of the new products with a more favorable gross margin profile. That's going to be certainly a driver towards a cash flow breakeven.

But it's continued ramp with programs in Wi-Fi, Dave gave some outline of what that looks like in terms of -- some of that mix. I did want to emphasize in these Wi-Fi programs we're moving from programs that we may have eight to 10 type filters in a Wi-Fi 6E to some of these programs.

We have multiple products and up to more than 30 filters of content in the box. So Wi-Fi is a big part of that story. The other part that we're seeing is, we do see a recovery of network infrastructure as we go in the second half of 2024.

We announced this morning a first massive MIMO design win in infrastructure that has, you're talking about in that particular design win, 128 filters in that with significant content in that. And the defense and others segment, which is core and key to us, continued strength there. We have new programs that we've been bidding.

We did announce a second -- support of a second DARPA program there as well as some ramp in the automotive. We've been active in the automotive not only in the battery management, but also in the C-V2X, we've been very active marketing that product as well. You asked about 5G mobile. Our activity there is primarily in the tier 2 market.

I think it's well documented, the headwinds that have been in the China segment. But our activity there that's supporting this is primarily in the tier 2 market.

Anything else you want to add?.

No, I was just going to comment, we're still very excited about the mobile market. We've got a handful of customers that are active. It's just certain dynamics that we're encountering right now. So I agree with Jeff's comment, as most of the revenue increase we'll see in the second half of 2024 is going to be with the tier 2 market.

We hope with the activity that we'll see opportunities, back in with the tier 1 in 2025, 2026. But that's, something that we've got to continue to push with our tier 1 customers that we're engaged with..

That's really helpful, guys. And then lastly for me before I get back in the queue. Ken, my connection was breaking up as you talked about the timing of what I believe was a $4 million ITC refund.

When do you expect to realize that?.

Hey, Craig. So, yeah, so we -- that's actually over an 18 month period, $3.5 million to $4 million, that will be filed with our tax return this year and our tax return next year. And then, it's a projection of when we expect to get a refund from the IRS, how long that may take.

But we would expect the first tranche of that to be roughly about half of that, a little over $1.5 million to $2 million for this upcoming time period and we expect that to occur in the March quarter, March of 2024..

Got it. Thanks, Ken..

Thanks, Craig..

Thank you. Our final question is from the line of Suji Desilva with ROTH MKM. Please proceed with your questions..

Hi, Jeff, Dave, and Ken.

The product cost improvements you talked about in terms of improving the margins and the laminate and so forth, what mix of the products as we go six months to 12 months out will be at that improved cost structure to target getting to break even?.

Good morning, Suji. We'll get both Dave and Ken on that. One from the product and obviously one from the numbers on financial..

Good morning, Suji. So, yeah, there's -- I would say that the mix right now for the next quarter, and quarter and a half is going to be more of the older products.

But as we get the new products profiles ramping, you'll see that transition point probably three quarters out that you will start to see it move through, that the new products will take a higher percentage. And then by the, I guess, 12-month period, I would expect a majority of the products that we're shipping are a good chunk of it.

It's going to be the new platform, the smaller form factor. A lot of the 6E and even the 6 programs are getting replaced, with the 7 at least with the customers that we're targeting. We'll have some legacy products that continue to ship. Some of the enterprise customers, they'll be utilizing these older generation products for two to three years out.

So it's a transition period. It's picked into Ken's models too, as well, that you can touch on..

Yeah. So we, like I said, there's about over a dozen new products that we're introducing over the next three months to nine months and then more to follow after that. And as Dave mentioned, they'll slowly be accepted by the market and be brought into our sales funnel. And as I mentioned earlier, there also -- is the new base station products.

And those have a higher ASP and have a lower cost as well. So we'll start to see that funnel in more and then get to 25% gross margin in that range when we get to this time next year in the December quarter..

And Suji, let me add, this is Jeff, let me add to that really three dynamics that's going on that margin improvement. Dave touched on the size. The laminate has -- our selection of laminate to lower cost laminates is certainly a selection criteria. And I do want to emphasize the work by the team in the yield category.

So that it's those size of product laminate as well as the yields that's going to be driving gross margin going forward..

Okay. Great guys. My other question is on the financial side. What's the CapEx budget expected maybe the next 12 months, calendar ‘24, whatever time frame you want to use, just understand? How capital intends the next phases..

Yeah. So we've just completed our 500 million capacity -- 500 million filters per year capacity expansion and also beefed up some of our back end processing capabilities in this quarter. If you look at our financials, you'll see a footnote disclosure stating about $1 million f spend that is left.

However, I would also tell you that we're looking to, we're looking into it and seeing what expenses we can defer or not do from that angle as well as far as a further cost reduction program. But at most, if you look at our footnote, it's a little over $1 million for the next 12 months..

And, Suji, let me add to that tool capacity expansion. Those tools are predominantly installed and running.

We have deferred on some of the labor, as we've been able to make strides and yields and that's, that’s put some of the labor component that's driving some of that cost of goods, that's pushed some of that out and that's part of what Ken's referencing in terms of some of the savings program.

So we've got the tool capacity and Ken add the labor and bring that trained up, generally speaking, in one or two quarters..

Okay. All right. Thanks, guys..

Thank you..

Thank you. This concludes our question-and-answer session. I'll now hand the floor back to management for closing remarks..

Thank you, operator and thank you all for your time today. We look forward to speaking with you during our next update call to discuss the current quarter execution against our milestones, as well as against future expectations. Thank you again and wish everybody a wonderful week. Thank you..

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