Akoustis Technologies, Inc. (AKTS) on Q2 2022 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to the Akoustis Technologies Fiscal 2022 Second 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. A replay of the call will be available on the Investor Relations section of the Akoustis website.
Tom Sepenzis: Thank you, operator, and good morning to everyone on the call. Welcome to Akoustis second quarter fiscal 2022 conference call. We are joined today by our Founder and CEO, Jeff Shealy; Interim 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, operations, costs, plans and objectives, including the timing and prospects of product development and customer orders, our expectations regarding achieving design wins from current and future customers, the possibility of entering into collaborative or partnering relationships, potential impacts of the COVID-19 pandemic, litigation matters, guidance regarding expected revenue, product orders and milestones for the current and future fiscal quarters, and expectations regarding the integration of acquired business operations are forward-looking statements. Such forward-looking statements are predictions based on the company’s expectations as of today, and are subject to numerous risks and uncertainties. The company and our management team assume no obligations to update any forward-looking statements made on today’s call. Our SEC filings mention important factors that could cause actual results to differ materially. Please refer to our latest Form 10-K 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 2022 second fiscal quarter conference call. Akoustis made tremendous progress during the December quarter as we increased the number of customers in production fivefold and grew our revenue over 90% sequentially. We were able to accomplish this despite the ongoing headwinds in the macro environment driven by COVID-19 and the associated supply chain semiconductor shortages. We delivered record revenue of $3.7 million in the quarter and we remain confident that we will see continued sequential revenue growth for the foreseeable future. Currently, we expect that given our growing customer activity in WiFi, 5G mobile, 5G infrastructure and other markets, revenues for our current third fiscal quarter ending March 31, 2022, will increase by more than 25%. Our WiFi business continues to gain traction, as we are adding new customers in both WiFi 6 and WiFi 6E. Our first WiFi 6 customer is leveraging our leading 5.2 gigahertz and 5.6 gigahertz tandem coexistence filter solution, and we entered production with a second WiFi 6 customer in the December quarter. We also ramped production with our first 3 WiFi 6E customers during the December quarter as our 5.5 gigahertz and 6.5 gigahertz coexistence filter solutions are in the final stages of qualification and entering full production release. We were excited to announce this morning, 5 additional WiFi design wins, most of which will enter production in the first half of the current calendar year, and we expect additional design wins moving forward. I’m also pleased to announce that we expect four of our WiFi 6E XBAW filter products to be fully qualified and be released into production in the current March quarter and for additional WiFi 6E XBAW filter products are expected to be qualified and released into production in the June quarter. Additionally, we continue to advance the progress of our WiFi 6E diplexer, which we are currently developing for one of the largest PC chipset makers in the world. The first design of this new diplexer was shipped to this Fortune 100 customer in December, and we received positive feedback on that design. The initial performance of the diplexer performed well and enabled the customer to characterize in their system, providing valuable technical feedback for next design iteration. We remain on schedule for commercialization of this extremely exciting product. We attribute our surge in recent design wins to the fact that we delivered the first WiFi 6E BAW filter solution to market and have the most extensive WiFi 6E BAW filter portfolio to satisfy the enormous challenges of wide bandwidth and high frequency operation within the 5 to 7 gigahertz spectrum. To summarize our recent WiFi activity, we now have more than 12 commercialized XBAW WiFi filters, 8 for WiFi 6E and 4 for WiFi 6. As of today, we have announced a total of 12 design wins, up from 5 design wins at the end of last quarter. Furthermore, we expect to see additional WiFi filter wins throughout the current calendar year. And lastly, we are well into the development of our first XBAW diplexer, which would allow us to enter the PC market, another very substantial market opportunity in both unit volume and revenue. Moving on to 5G mobile. December was another exceptional quarter on numerous fronts for our 5G mobile initiatives. We doubled the number of customers from two to four in the quarter, including adding a multibillion-dollar tier-1 module maker as well as a tier-2 module maker that is focused on the Asian handset market. Our new tier-1 mobile customer is designing multiple 5G filters and plans to use our XBAW technology to deliver multiple best-in-class 5G mobile modules in challenging bands above 2 gigahertz for using cutting-edge 5G smartphones and other devices. We are currently helping the customer develop initial samples of the filter and we expect to deliver filter samples in the next quarter. If the performance of the filter meets the customer expectations, we expect to establish a foundry arrangement with the customer targeting production ramp in the second half of calendar 2023. Our other new tier-2 5G mobile customer is a rapidly growing RF module maker that has had great success in 4G handsets targeting the Asian market and plans to use our XBAW filters to design and sell 4G, 5G RF modules as 5G grows worldwide. We have started developing an initial filter for this customer and expect that a successful design could lead to multiple additional filter designs over the next year. During the December quarter, we continued to move forward with our two previously existing 5G mobile customers as well. We received favorable technical feedback from our first tier-1 RF component customer on the first of two filters that we are designing and expect to ship samples of the second filter to this customer by the end of the current quarter. We remain on track to deliver qualified parts for production ramp by the end of calendar 2022. And finally, we received additional feedback from our first RF front-end module customer after signing a foundry agreement last year. This customer has decided to redesign the first filter, which we expect will happen during the first half of the current calendar year, but expect to remain ready for production ramp by the end of calendar 2022. The redesign is driven by changes in the customer filter specifications and does not involve changes in our XBAW technology. In fact, we expect that this customer may wish to expand our agreement and design multiple other new filters for WiFi applications. We expect to have more to tell you on that subject in the near term. As we mentioned on our last quarterly update call, we are bringing the production of wafer-level packages, or WLP, in-house. We have determined that we can produce better products with superior cost characteristics in our New York facility than can be sourced from an alternative outside supplier. We continue to work towards the design lock of our new advanced packages with full WLP process qualification expected to follow later this calendar year. While this is a bit later than our initial target of March, it is in time for our previously targeted delivery of 5G mobile products in the second half of the current calendar year. We believe bringing the WLP process in-house will enhance substantially our ability to control the quality, cost and customization of our advanced packages. To summarize our 5G mobile activity, we doubled the number of customer engagements from two to four in the December quarter. We have multiple customer-funded XBAW filters in design. Our customers’ engagement include a Tier 1 RF component company that we are developing two XBAW for, a second Tier 1 RF front-end module maker that is developing filters with our XBAW resonators for 5G handsets, a Tier 2 RF front-end module maker, which has signed a foundry agreement with us for the development of one XBAW filter, and a second Tier 2 front-end module maker that we are currently developing one filter for, with the expectation of additional filters for 4G, 5G mobile if the first is accepted. We shipped 5G mobile samples to our first Tier 1 RF component customer in December. Our signed foundry customer is redesigning its initial filter design, and we expect it will expand the number of filters it wants us to manufacture, with news on that front expected in the near term. And finally, we are currently migrating the manufacturing supply chain of WLP into our New York fab, which we expect will have design locked and be available for qualified production in calendar 2022. And now, I would like to discuss our infrastructure business highlights. As we announced at the end of last quarter, we plan to enter production with our first Citizens Broadband Radio Service, or CBRS customer in the recently completed December quarter, and with our second CBRS customer in the current quarter. We expect to enter production with fully qualified product, with both of our CBRS customers by either the end of the current March quarter or early in the next quarter ending June 30, 2022. We continue to work towards the introduction of the first samples of a new breakthrough material that offers both leading BAW micro filter power handling capability, as well as the ability to cover wide bandwidths for macro base stations and other applications that require high power. We are extremely excited about this new material science, and we’ll update you further as we get closer to introducing filters, leveraging this innovative technology. Lastly, we continue to develop a new XBAW filter for the new 3.8 gigahertz U.S. 5G spectrum that was auctioned at the end of last year. We have made significant progress on the development of this filter and expect to complete our first design iteration and provide samples by the end of the current quarter. To summarize our 5G network infrastructure activity, we have four completed 5G network infrastructure XBAW filters, three for 5G small cell base stations and one for CBRS. To date, we have announced three design wins in small cell, with our Tier 1 customer and one from a second customer. Additionally, we have received three design wins for CBRS from two leading network infrastructure OEMs. And finally, we have over ten customer engagements, five of which already placed purchase orders. In our other market segment, we recently announced entering the RF timing and frequency market with our leading XBAW resonators. We are working with a leading maker of timing RF components to develop ultra high-frequency XBAW resonators for use in the customers’ finished devices. The timing RF market represents a significant opportunity for Akoustis in both unit volume and revenue. Our customer is developing products that could be disruptive in the timing RF components market, looking to displace older analog technologies with ultra-low jitter and phase noise devices. We are extremely excited that our leading XBAW resonators can be a part of this groundbreaking opportunity. In our defense contract business, we continued to progress during Q2 on our existing R&D contract with DARPA to further enhance our XBAW PDK. In addition, we submitted a multimillion-dollar contract proposal with DARPA to extend the operating range of our XBAW RF filters up to 18 gigahertz using novel materials and device manufacturing. We have been selected for negotiation for a potential contract award, which is expected later this quarter, assuming successful and timely negotiations. To summarize, our other market segments activity, we had seven completed XBAW filter solutions for the civilian and defense markets. Our ultra high-frequency XBAW resonators are now being used to deliver disruptive digital timing and control products to the broader communications industry. We continue to refine and improve our XBAW PDK driven by the direct-to-phase II contract with DARPA, and we have received notification that we have been selected to negotiate terms for a new multiyear, multimillion-dollar contract with DARPA to scale our XBAW technology up to 18 gigahertz. And we have a total of four customer engagements, two of which have already placed purchase orders or provided NRE revenue. I would now like to hand the call over to Ken to go through our financial highlights.
Ken Boller: Thank you, Jeff. For the second quarter ended December 31, 2021, the company reported revenue of $3. 7 million, which is an increase of 96% over the prior quarter ending September 30, 2021. On a GAAP basis, operating loss was $15.2 million for December quarter, mainly driven by revenue of $3.7 million, offset by labor costs of $9.2 million, depreciation of $1.6 million and other operational costs totaling $8 million. As a result, GAAP net loss per share was $0.29. On a non-GAAP basis, operating loss was $12. 3 million and non-GAAP net loss per share was $0.21. 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 spend for Q2 was $7.1 million compared to $5.7 million in the prior quarter, mostly related to the continued capacity expansion and equipment redundancy in the company’s New York fab. Cash used in operating activities in Q2 was $10.8 million, down from $12.7 million in the prior quarter, mainly due to certain year-end payments in the prior quarter. The company exited the December quarter with $67.5 million of cash and cash equivalents versus $75.7 million at the end of the previous quarter. During the December quarter, the company raised $13.4 million in cash through additional at-the-market equity financing at an average price of approximately $7.04 per share. In the March quarter, we expect multiple new WiFi 6E and network infrastructure customers to ramp production, and therefore, we expect to see record revenue, up more than 25% sequentially from the December quarter. Based upon our growing backlog of design wins, we anticipate that top line growth will continue in the June quarter and beyond. I will now turn the call back over to Jeff to discuss our second fiscal quarter performance and future milestones.
Jeff Shealy: Thank you, Ken. I’m pleased to report that our view of the March quarter remains positive despite the ongoing semiconductor supply shortages and supply chain issues that are impacting the broader industry. Our momentum continues to grow, driven by WiFi 6, WiFi 6E, 5G mobile, 5G infrastructure and our other markets. We expect to ramp production from five customers to more than eight customers by the end of the current quarter, with additional customer design wins expected across all our markets as calendar 2022 progresses. In the March quarter, we expect to generate revenue from each of our business segments, including 5G mobile, WiFi, 5G network infrastructure and our other market segment. We continue to strive towards executing on our targeted milestones and we’ll continue to keep you informed of our progress. Our anticipated March 2022 milestones include: in WiFi, first, we expect to ramp multiple WiFi 6 and WiFi 6E customers. We expect to exit the quarter with four fully qualified WiFi 6E filters and we expect to iterate a second design of our new WiFi 6E diplexer to our Tier 1 PC chipset customer. For 5G mobile, we plan to deliver in spec filters and ship our second filter design utilizing our new WLP process to our first Tier 1 RF component customer. And we expect to iterate the original filter design for our first Tier 2 RF front-end module customer and receive a purchase order for two additional filters for development. And we are currently supporting our new Tier 1 mobile customer developing initial samples of their first XBAW filter, and we expect to deliver filter samples in the next quarter. Next, in our 5G Network Infrastructure segment, we expect to release our CBRS design and began production ramp with two customers, and we expect to deliver a 3.7 to 3.98 gigahertz C-band 5G filter for the U.S. market and expect to sample with multiple Tier 1 customers for both small cell and DAS AAS base station equipment. And finally, in our Other Market segment, we expect to ship a new XBAW filter design to our existing defense customer and receive a new volume production order on the 3.8 gigahertz filter product and we expect to complete negotiations on a potential award for a new multiyear, multimillion-dollar proposal from DARPA. In conclusion, we believe the market opportunity for our patented high-frequency XBAW filters is substantial. We now have 56 issued patents and 93 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 thank our employees for their hard work, passion and dedication throughout this past calendar year, particularly during the ongoing pandemic, as our team has kept the momentum going on our R&D, which has led to multiple design wins across the WiFi, 5G network infrastructure and defense markets. We have also experienced exceptional momentum in the 5G mobile market, driven by our leadership in filters that operate above 3 gigahertz and our new and expanding wafer-level packaging 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.
Operator: Thank you. Our first question comes from the line of Anthony Stoss with Craig-Hallum Capital Group. Please proceed with your question.
Anthony Stoss: Good morning, guys. Congrats on the continued progress. Jeff, maybe or Ken, one of you two. On the supply chain shortages, can you quantify the impact to revs in December? And how much you think it will impact March? And then for you, Jeff, you talked about exiting 2021 with five in production designs. Can you venture a guess, at the end of this year, how many – the same thing, how many designs you’ll have in volume production?
Jeff Shealy: Okay. Good morning, Tony, and I appreciate your comments. For the first one on the – in terms of what we expect in terms of exiting this calendar year, with how many in production, I’m going to kick that over to Dave to start.
Dave Aichele: Okay. Good morning, Tony. Thanks for the question. We commented on that we’re out sitting this year or exiting last year going into this year, five customers in production, they’re more weighted towards WiFi 6E. The WiFi 6E activity is still very, very strong, so I think that percentage is going to continue to increase over the next 12 months. So I would say that doubling to 10 customers in production is a reasonable goal. And that’s something that we’re going to continue to push beyond that. I think the main thing is just on the timing of these customers. It typically – cycle time for design activity from start to production release is somewhere in the range of nine to 15 months depending on if it’s an enterprise customer or a consumer retail customer. So it’s dependent on that and depending on obviously, supply chain. What we’ve been seeing also, from the SoC suppliers, is extended lead time, at least with the two major guys. So we’re working within those boundaries, but have a positive belief that will be greater than 10 by the end of the year.
Jeff Shealy: And Tony, on that – and just what we put in the prepared comments, was that we find out being over eight into the March quarter.
Anthony Stoss: Okay. And then, on the component charge, how much it impacted revs for Ken?
Ken Boller: Yes. So given the macro headwinds for both COVID and the supply chain shortages, we’re seeing certain delays in ordering times for both in operating expense items such as laminates. But also, in particular, on the CapEx front, we’re now seeing delays on certain equipment, over a year, up to 15 months in some instances. So certainly, on our part, it takes more planning and more review of the timing and when we need to bring capacity in line and when we need to be fully redundant and those matters. But it certainly causes us more, more long lead time items to invest in our CapEx earlier.
Jeff Shealy: Yes. And Tony, this is Jeff. Just to follow-up on that. As you know, we sell into these WiFi units. Each of those units take a silicon chip and the availability of those silicon chips has been challenging. So I’m not going to speak for the suppliers of those, but that has tended to impact in terms of – we did see some impact of that in the December quarter. And I would call that a general headwind going forward. Again, we don’t control – we can only control what we ship and we have the capacity to ship what we need. However, if you look at our guidance for the March quarter, of 25% sequential, there is some conservatism in that in terms of the availability of those silicon chips. And that’s something that we have to wait when we set up guidance to the investors.
Anthony Stoss: Okay. Thanks, Jeff. And if I could just ask one more for Dave. Any kind of color would be appreciated. When you look at kind of your first WiFi customers, their experience with your solution, how actively are they engaged? How quickly are they coming back for repeat design or additional design wins? Any color, kind of, on – you land a customer and then you expand would be helpful.
Dave Aichele: Yes. Again, good question, Tony. And it’s – I would say, 100% is that they come back. The relationships are very strong with all five customers, and there is multiple programs, and that’s really our goal. We were pretty well distributed across consumer, enterprise and carrier now. And what we want to do is obviously secure them as a customer, customer acquisition and maintain that customer. But the good thing is, is that we’re actually involved in the early architecture now of the designs of their systems, particularly with WiFi 6E and the utilization of the new spectrum. It’s becoming more difficult to develop these filter solutions that will satisfy some of the coexist requirements that they’re thinking about on how they use it for backhaul or obviously, additional notes that you can connect client devices. So right now, we’re 100% maintaining customer acquisition and looking at getting into the new programs. And I think the main thing that these customers recognize is that we were early to market with the technology. Even our first customer that we brought on board, and that we’ve been leading and they expect us to continue to lead and develop solutions that will satisfy the future architecture designs we are working on.
Jeff Shealy: And Tony, this is Jeff. Let me add just a little more color to what Dave said. It varies by customer, but it’s certainly not uncommon for these customers that have multiple programs. They may have designs going on in multiple sites. So there’s multiple programs that are running in development in parallel. Cycle times of these are typically in the nine to 12 months. So we like this market from that vantage point in terms of overall time to market. And I think, an overall theme which we touched on in the prepared comments in terms of some of the activity we have going on in diplexers. One of the key features of our technology is being able to integrate more than one filter in an integrated module. And I think the first example that’s a diplexer that we have ongoing. So we do have – with these relationships that we’re developing, we’ve been able to also get in on the advanced road map with these customers and looking at more integration opportunities where we could put more of our export content in a single module, which allows us for the fixed cost of the module, which is roughly similar for whether you have one filter or multiple filters in it. Then it allows us to put more content, more features in it. So integration is going to be something that I think investors should expect to see a continued trend from our product line. And we’ll certainly continue supporting our single-band solutions, but certainly, we’re going to go where the customer road maps and the integration opportunities take us.
Anthony Stoss: Thanks for the detail guys.
Jeff Shealy: Thanks Anthony.
Ken Boller: Thanks Anthony.
Operator: Thank you. Our next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question.
Harsh Kumar: Hey guys, first of all, congratulations. It sounds like this is tremendous and exciting things going on at your company. We’re excited about the future. But Jeff, if I may ask a question or two. You talked a lot about – you seem to be getting a lot of 6E design wins, design-ins. Is there a financial difference from your standpoint between the rest of the filters – like the rest of the WiFi filters you do like a 6 versus a 6E from either an ASP or a margin angle? Do you come out ahead in one versus the other scenario? And maybe, you can even talk about your PC product that you’re developing and working with, I think it’s a Fortune 100 company that you mentioned?
Jeff Shealy: Yes. Well, first, Harsh, I appreciate your comments, and thank you. So let me, in terms of the pricing, I’m going to let Dave dive in here on that, and I’ll certainly add some color to it. But he’s the closest to the customers. So let him start.
Dave Aichele: Good morning, Harsh. There’s two advantages that we see engage with WiFi 6E market and where we want to maintain this leadership position. One is that the price is typically greater than 25% higher than what you’d see in the WiFi 6. The WiFi 6 can utilize some of the over incumbent technology, and as you get into WiFi 6E, it’s difficult for that. You’ve heard us mention the DR monoblock type filters and even some of the LTCC guys. So the premium price, we don’t have to be as competitive. We do have a premium in both market segments based on the performance, size, et cetera. The other advantage is the MIMO and multi-user MIMO. So the number of filter utilized in a 6E is typically higher on average than what you see in the WiFi 6 of the dollar content per system has increased. So obviously, we expect more revenue per system. And also, we see the take rate in the market with WiFi 6E really start to take off this year. So we’ve got high expectations for this market segment. With regard to the PC customer and the diplexer that Jeff mentioned before. We’re, I think, in a very unique position here. This is one of our first non-handset mobile customers that the volumes are good, they’re respectable. And when you’re looking at not only PC, there’s other mobile applications besides the handset that we can get involved in, so we are taking a leadership position in developing an acoustic BAW, acoustic wave diplexer that would be utilized in WiFi 6E and also, WiFi 7 as its upcoming, which has some unique requirements. Things like the multi-link operation and using a bulk acoustic wave of technology allows you to develop these high-performance filters with what they call high isolation and also, good rejecting low insertion loss, particularly for these battery-held devices, that you can’t do with other technology. So this is something that it’s going to take a little bit of time for us to get into production on this, but not just with this one customer, it’s with multiple customers.
Jeff Shealy: So Harsh, it’s Jeff. I am just going to add a little more color to that. You had mentioned ASP and margin. I think, as Dave mentioned, the 6E is the premium product from our end. From a margin profile, that’s going to be largely driven by the end-to-end product yield. So we call that logistics yield. And those things, that can be driven by margin on the specification. It can be driven by the laminate costs. It can be driven by the size of the product. So I just want to make sure everybody is aware that we do have cost savings initiatives going on. And from, I think, everybody’s perspective here on this end, it’s important that we get the product to the customer and the quantities that they need to support their program that builds credibility with the customer. But we also are very cognitive of the need for cost savings as we go forward. And also, utilization of the fab, which is going to drive down cost of the wafers as well. So yields, laminate cost, size of product, and then, as I mentioned earlier, just the amount of integration that we can do and functionality we can bring within the module. It’s going to allow us to get higher ASPs at a lower cost point. So integration is certainly one of the paths to profitability. One last thing I wanted to add, Dave touched on the diplexer and the PC product. We recently have had a series of design reviews with that customer, and that development is proceeding as planned. And we’re working with them on the front end on yield expectations as well as making sure we meet their performance requirements. So very good interaction with that customer, and we’re just going to continue that. And then, as a final point I’ll make, just in terms of adding content, as you have mentioned, previously being able to add switch functionality to the module. So there’s more content that we can add to drive up ASPs and that we believe will certainly improve the margin profile of the products going forward.
Harsh Kumar: Hey guys thank you so much for that color. Jeff, for a while, I mean, you always maintain – I’m switching things to the mobile side now. You always maintain – when you ultimately get into mobile in a meaningful way, that you would always do it in some kind of a partnership. And for a while, the last couple of quarters, you didn’t mention that on the call. But today, you took the time to mention it on the call. So I assume you feel good about your Tier 1 activity, customer activity that you got going on enough that you went ahead and mentioned this again, some kind of foundry arrangement. Could you maybe talk about how you’re thinking about this, perhaps?
Jeff Shealy: Yes. Well, thanks. Certainly, thanks for the question. In terms of the mobile market, that is clearly the largest opportunity by both unit volume as well as overall TAM in terms of size of market. So as we put in the prepared comments, we’re moving from – we moved a significant movement last quarter from two to four customers that we mentioned. I think the conversations can continue to emerge with additional customers beyond those that may be in the earlier phases that we’re not ready to talk about. But just in terms of overall posture, in terms of the mobile market, we certainly see that opportunity would require – we talked about 500 million filters in terms of the plant capacity for the fab. At the current stage, we would need to expand that into the billions of filters to really go after a Tier 1. I think we feel pretty good about some Tier 2 opportunities that we have, but a partnership would certainly be one option. And we – while we can’t comment on any conversations that are ongoing. I would say that’s certainly front and center in line. I would also add, as U.S. Congress is currently contemplating their conference bill on CHIPS Act or USICA, whichever version you want to talk about of the bill, we certainly view that as an opportunity to expand capacity that could certainly provide the opportunity for us to scale up from six-inch to eight-inch, which would go back to ability to produce higher margin products that would certainly scale the wafer – scaling the wafer size, and would certainly lead to an improvement of the margin profile on the mobile product. So the important thing is, is we’ve got engagements with multiple customers in mobile. In the prepared comments, we talked about those cycles. We’ve gotten very positive feedback. We’ve mentioned some redesign that’s going on. So I would certainly mention that we’ve got robust activity in – going on in the mobile right now and various conversations over where that can lead. But the important thing is for us to first deliver compelling performance, which we believe we’re in the process of doing. And we think that will lead to the engagements that we’re looking for with an engagement partner. And I think the original thinking in terms of there being more module manufacturers and there aren’t filter suppliers. I think that thesis is still intact, as we’re seeing opportunities for engagement partners that require very high-end filter products. And also, just in by saying some of the mobile customers that we’re talking to also have requirements for WiFi. So we already have a jump start in terms of the product portfolio to support those customer requirements. And so the best thing we can continue to do is continue to expand the portfolio. We completely are convinced that our design and manufacturing business model is the appropriate model to be successful in this market. And we’ve got the capacity and we can support these added engagements as we go forward. So that would just be a summary of kind of our mobile strategy.
Harsh Kumar: I appreciate all the color guys. Thank you so much.
Jeff Shealy: Thank you, Harsh.
Operator: Thank you. Our next question comes from the line of Suji Desilva with ROTH Capital Partners. Please proceed with your question.
Suji Desilva: Hi, Jeff. Good morning and Dave. Congrats on the momentum here. Just to ask on the WiFi, the two design wins that you announced. Can you talk about maybe the size of those opportunities for the new customers relative to the previously announced three? Are they similar sizes? Is there any material differences worth mentioning?
Jeff Shealy: Good morning, Suji. I’ll let Dave – first, thanks for your comments, and I’ll let Dave touch on the opportunities.
Dave Aichele: Good morning, Suji. So it’s – from the engagements that we’ve got with the new customers, there are some that are similar in size to our first customer. And as Jeff mentioned earlier, some of these customers will have multiple programs. So there will be smaller derivatives also as well. And then the new customers that we’re talking this year, I expect to be the same size, if not possibly bigger to our first customer. So it is a spread by the end of the year. As we look at all the design wins that are going to go into manufacturing, you’re probably going to have a handful of applications or programs that will be at the same size as the first customer and then a smattering of smaller programs. So without giving too many specifics, it’s a broad range, but it’s healthy and substantial.
Suji Desilva: Okay. Sounds like a good diversification of the revenue stream there. And then, if you could talk about the mobile foundry customer that redesigned, maybe Jeff, you indicated they redesigned, but that had positive potential implications. Can you just maybe go one click deeper in there and talk about what gives you that sort of positive outlook on that?
Jeff Shealy: Yes. Again, not to pile on Dave here, but he’s sort of the closest to the customer here. So I’ll let him at least lead with the...
Dave Aichele: Yes. I mean this is – just leading on our building on what Jeff mentioned earlier. We’ve got these four customers that we’re engaged with. And the good thing is, is that we’ve added capacity to be able to service the market. We’ve got the WLP coming in-house. And there are also some dynamics going on in the market that are going in our favor, too, with the difficulties of the coexist that LTCC’s can’t service. And then also, the need and access for technology to be competitive if they don’t have all technology. So those are all played in our favor. So the two customers that we mentioned that we believe will go into production by the end of the year. One of them is basically done in design. And basically, the first design worked well. And they’re actually redesigning it based on feedback of their system design or of their fan design. So we delivered everything that we need to deliver. So they’re looking at their full FEM architecture and the performance. So they had to make some tweaks based on the interaction with the active devices in the substrate. So we believe that based on their first success that they’ll have final success with the next design, and the target is to be able to ramp with them by the fourth quarter. Also, with the Tier 1 component manufacturer had very good results with the first design, and actually, planning to do another design, spend with them to finalize the design as well. So both of those guys, timing-wise, we’re pretty bullish that we’ll see something going into production. Hopefully, both the one, but maybe just one. But right now, everything is pointing in the right direction. And then with the other strategics, those are developments that we’re going to continue to nurture to really get to a point of assessing the technology and potential integration into their FEMs.
Jeff Shealy: So Suji, let me – if I could just add to what Dave said. The – just for 100% clarity, we are – we have been producing filters. We’ve been delivering those filters to these customers. They’re integrating them into their platform, which is effectively a module platform, and we’re getting feedback. So if you’re hearing redesign, I would translate that as that they like the performance enough, but certainly from our knowledge of filter designs, you have to have the ability to tweak. And certainly, if you’re doing a module, you have to have the ability to turn knobs on performance. And so our view is a redesign is a positive thing because we’ve got a relatively short cycle time and its confirmation from the customer that they’re interested, they like the performance and – but they need – they want to optimize it in their platform. And then finally, in – the final thing Dave mentioned about just the conversation and the benchmarks with these new customers. That’s the earlier question about – from Harsh on partnerships. So I think that’s where those partnerships tend to get cashed out is once you demonstrate the performance, then that’s when a discussion about capacity as well as production platforms. That’s where you get into the conversation over what the requirements and the capacity are. I would add, take a little liberty and just say we have a very good model of our capacity. We look at that planning over an 18-month horizon and make sure that we have the capacity. We’re also very – pretty much – we’re very on top of the lead times of equipment that are needed to expand that capacity. And so we’ve got a very good operations planning team that is keeping us on top of the planning. So we can bring – we bring that to the conversation with the mobile partners to make sure they understand what capacity we can provide, and when.
Suji Desilva: That’s very helpful insight, Jeff. And then, last question, a quick one perhaps for Ken. Bringing – I’m guessing not really, but bringing WLP in-house, is that a material impact to your CapEx outlook? Thanks.
Ken Boller: Thanks, Suji. I would say in general, no. As far as when we’re looking at the $500 million part expansion project, and redundancy, those were quite a bit much – quite a lot more spend. WLP is much less of a capacity CapEx need for that project.
Jeff Shealy: And Suji let me add to that, just at least a little more color. When we acquired this facility it had multiple fab areas in it. If we had mentioned that we previously had two tenants that were occupying two different spaces in the facility. Because we knew we would need this space, we chose not to renew those tenant leases several years ago. And one of the areas that we call fab 3 is the area where the WLP is being installed – the WLP process is being installed in the fab. So I just want to emphasize that it’s an existing fab area, we did do some more or less restart certification of that facility, but that’s a far cry from having to capitalize the new fab area. So there’s a lot of – we use every square inch of the facility there, and we’ve got a very efficient team that knows the facilities and knows how to start these facilities up as we need it and expand them as we need.
Suji Desilva: Okay. Thanks everyone.
Jeff Shealy: Okay. Thank you Suji.
Operator: Thank you. Our next question comes from the line Rick Schafer with Oppenheimer & Co. Please proceed with your question.
Wei Mok: Hi. Good morning. This is Wei Mok on the call for Rick. Thanks for letting me ask a question and congrats on your design win announcements. So you guys continue to expand your sales pipeline from recent announcements in Wi-Fi and mobile. So I was wondering if you can share any color on the sales pipeline. How large is the overall pipeline? And what products do you see leading this pipeline? Thanks.
Jeff Shealy: Good morning, Wei. This is Jeff. I appreciate your kind comments. I’ll let Dave start with the sales pipeline question.
Dave Aichele: Yes, from a product portfolio in the announcement, we basically indicated that we’ve got 12 products and four of those are really Wi-Fi 6, eight of them are Wi-Fi 6E. We will continue to do development on the Wi-Fi 6 products, but at a smaller percentage, and most of the effort is going to go into the Wi-Fi 6E and eventually Wi-Fi 7. So we’re going to continue to invest in there and really with these top coexist requirements, with the transitions that you see with Wi-Fi 6E and the bandwidth requirements. From a pipeline standpoint, we are investing in Asia right now as far as from a sales channel. So adding new heads there to continue to support the accelerated engagements that we’re seeing and this is coming out of all regions, from: Taiwan, China and Korea and also Japan. There’s a lot of activity with the OEMs, which are the original design manufacturers that work with the OEMs, and they support multiple OEM programs. So we have good activity in North America and also in regions of Europe that are also supported out of those Taiwan and China designed locations. So this pipeline will continue to increase. We talk about 12 design wins or 13 design wins that we’re at right now, and I expect it to continue to increase. We’ve got goals that we established of design wins per quarter. Not all of those will go into production. The main thing is just get obviously a product on to every platform and work with customers. We have a lot of customer intimacy to support them through the application engineering and really get that product to its optimal performance so that they want to release that into production. So we’ll continue to focus on Wi-Fi 6E primarily, and Wi-Fi 6 at a smaller percentage.
Jeff Shealy: And Wei, this is Jeff. Let me just add a couple of points. We’re – with the recent acquisition of RFMi; I think we’ve done – team has done a really good job of aligning the sales channels, filling any gaps. So we’re clearing the path, Dave talked about, some of the expansion that we have in Asia, ongoing, so that’s extremely important. And just in terms of the pipeline, just to emphasize, I know we guided sequentially 25% up but if you look at the – with some of the RFMi product revenue being flat to down quarter-over-quarter, you’re then looking at a sequential increase in the core XBAW filter business is going to be up well over 50%. So we think that – and we see that continuing not only for Q3, but we see – we’ve got a pipeline of design wins that really support that continued growth into Q4. So the pipeline – I think we’re getting good feedback on what we’re doing in the sales channel, and that’s leading to design wins, sales funnel and with the sales channels that we have, leading to very nice sequential growth in the XBAW business.
Wei Mok: Great. Thanks for that. So in regards to RFMi, could you frame out how did RFMi contribute to revenues in the December quarter? What products and markets do they come from? Thanks.
Jeff Shealy: Yes. So let me touch on that. So we previously – when we acquired the RFMi business or the 51% majority ownership of it, we gave guidance. They came in above expectations for the December quarter. I think what that tells us is we – initial signs is made a very good acquisition here. And I think the emphasis there is new markets, as well as new sales channel, complementary sales channel and then, also more traction with – with our OSAT suppliers, that’s our overseas assembly and test, was certainly one of them. We’ve picked up additional traction and additional priority. We do expect them to be flat to down for the March quarter and then have some sequential growth in the fourth quarter. So that’s how that plays up. In terms of some additional color, in the queue, we did – if you look at Note Number 7, you can get the additional analysis on RFMi. I think there’s a pretty detailed analysis provided in the filing. So I appreciate the question. Thank you.
Wei Mok: Thank you.
Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Shealy for any final comments.
Jeff Shealy: Thank you, operator, and thank you, everyone for your time today. We look forward to speaking with you during our next update call to discuss the current quarter execution against the milestones we outlined today, as well as future expectations that we set. I wish everybody a happy and safe Monday and thank you for your time and attention.
Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
