Akoustis Technologies, Inc. (AKTS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Akoustis Technologies Business Update Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] Replay of the call will be available on the Investor Relations section of the Akoustis website. I'll now turn the call over to Tom Sepenzis, Director of Investor Relations for Akoustis Technologies. Please go ahead, sir.

Thank you, operator, and good morning to everyone on the call. Welcome to this webcast that will discuss the acquisition of a majority interest in RFMi. 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 collaboration -- excuse me, into collaborative or partnering relationships; potential impacts of the COVID-19 pandemic; litigation matters; and guidance regarding expected revenue, product orders and milestones for the current and future fiscal quarters 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. I would now like to turn the call over to Jeff Shealy, Founder and CEO of Akoustis.

Thank you, Tom, and welcome, everyone, to this call to discuss this morning's exciting news. I'm pleased to announce that we are acquiring a majority position in RFMi, a supplier of acoustic wave RF resonator and filter catalog products as well as a growing catalog of crystal resonators, BTOs and ceramic products, which complement Akoustis' growing XBAW RF portfolio. First, I would like to take the opportunity to highlight our rationale for this transaction. Through this majority position, we are opportunistically acquiring an acoustic wave RF resonator and filter catalog business, one which complements Akoustis' XBAW products in 5G mobile, 5G network infrastructure, WiFi and other markets. The RFMi catalog includes hundreds of products across several strategic markets, including communications; automotive and automated driver assistance, or ADAS; medical monitoring and imaging; industrial and IoT and satellite communications. RFMi offers these new sales channels as well as synergistic sales channels in the 5G network infrastructure and WiFi markets. We expect that we will be able to develop new multichip module, or MCM, products that leverage our leading XBAW RF filters and RFMi's RF SAW filters to deliver more value to our customers. RFMi has an impressive list of customers across its markets, and we expect there will be significant cross-selling opportunities. This list includes the marquee names in the automotive, medical, IoT and satellite communications markets. RFMi has access to advanced wafer-level package products, including those made in factories certified to the highest automotive standard, IATF 16949, which can be used to develop discrete and multichip module RF filter products using RF XBAW filter chips for the automotive, medical, 5G mobile and network infrastructure as well as the defense markets. RFMi also delivers legacy ceramic and low temperature co-fired ceramic, or LTCC, filters and diplexers for products that have significant power handling needs such as 5G network infrastructure that cannot easily be met with micro filter technology. We expect that this will complement our early success with XBAW design wins in 5G small cell base stations in band n77 and band n79 as well as our CBRS products, which are currently ramping into production with 2 customers over the next few months. Importantly, from a product and end market perspective, RFMi offers a large number of crystal resonators, oscillators and RF SAW resonators used for timing control products in line with the new XBAW RF timing portfolio we announced last week with our first customer. We expect the RFMi timing portfolio will prove to be a significant addition to our combined catalog for this strategic market over the next 12 to 24 months. Overall, RFMi offers a low cost, low CapEx, fabulous business model with synergistic supply chain operations. The acquisition is an opportunistic bolt-on RF filter business, which is immediately accretive to Akoustis financials from a cash flow perspective. The business is driven by an exceptional team, including strong and experienced technical, marketing and engineering professionals that I am pleased to welcome to the Akoustis family. At this time, we expect revenue contribution of approximately $0.5 million to $1 million in the December quarter from this acquisition, depending on any negative impacts from the ongoing supply chain issues in the tech industry. We expect that our new partnership with TST will be productive and Akoustis will retain the option of acquiring the remaining 49% of RFMi through our fiscal 2022. With that, I would like to open up the call for questions from the investment community. Operator, please go ahead with your first question.

[Operator Instructions] Our first question comes from the line of Harsh Kumar with Piper Sandler.

First of all, congratulations. It sounds like a great deal. Jeff, you talked about product opportunity. I was wondering if for investors and folks like us, could you maybe outline what the market opportunity is in terms of dollars? In other words, what can this acquisition and the products that get for you as you think about it in terms of the markets in dollars? And then I had a follow-up as well, and then I'll get back in line.

Okay. Harsh, well, good morning to you and thanks for your comments. Regarding market opportunity and products, I'm going to loop in Dave here who's joined us, and I'll let him take that question.

Harsh, so if you look at the markets that we're currently attacking right now as Akoustis with the XBAW technology has been focused primarily on 5G infrastructure and the WiFi 6 and WiFi 6E. There's some complementary products that the RFMi brand and catalog brings primarily around some of the SAW frequencies that we do not service down at 2.4, and then also some of the higher-powered ceramic devices. So I think that's going to expand the market potential there. But the big potential upside is really what we're looking at for the other market segments, and it's primarily around automotive, which we've got a slide in the deck that highlights a lot of the component levels and where we can complement their product offering is in the V2X, which is up at 5.9 gigahertz. So their channels and their customer base enables us to start working products into that sector. And then the medical is an area that we have not focused on that there is quite a bit of product offering that they currently sell into that market. And they've got, as we mentioned, marquee names that they do business with. And there are synergistic opportunities for us for like the BAN, body area network, which is at 2.4 gigahertz, which gives us a coexist requirement next to WiFi. So it's -- in addition, I think the timing market is relatively new to us, and that's a significant market opportunity, and we'll be pooling numbers together. That is really a combined effort that services -- we're talking hundreds of millions of dollars of new opportunities to us, potentially into the billions. So this is something that we're going to continue to model and really drive a strategy. The good thing is, these guys have a head start in these market segments that we can leverage, and we're looking forward to a fruitful relationship.

Understood. And then for my follow-up, if I can ask, there was some kind of legal noise, chatter, whatever you want to call it, that came out recently. I was curious if you could address, to the extent that you can talk about it, anything? And then also, maybe with this new line that you're getting of timing products and stuff, how does that work relative to your ability -- your factory and your ability to be able to make it? So sorry, 2-part question, kind of mixing up legal stuff with manufacturing.

Yes. So let me take the -- I'll take them in reverse order, if that's okay, and I'll let Dave loop in here. From a new line standpoint, as we said in the prepared comments, this is a fabless business. So while the manufacturing is in place, it's not one we have to disrupt our XBAW manufacturing to continue on. So supply chains are set up. Also, the back-end operations is common with Akoustis. So where they're doing assembly in many cases are the same places we're doing assembly. So we have -- from that aspect, it's quite synergistic. And also, from a third bullet point, I'll add that we will provide RFMi access to our XBAW technology where it may make sense for their developments or integration opportunities. So they certainly have access to the products and/or chips that we can produce out of our New York fab. But Dave, do you want to add anything else?

Yes. Just on the timing side, with the products that they have both in crystal resonators and the BTOs and [ 10 comp ] oscillators and so forth, it's at lower frequencies. And as Jeff highlighted, there's a very strong supply chain that is currently shipping and servicing that market. Where we come in with the XBAW technology is being able to go up higher in frequency, which supports not having to up-convert. And you can go native on these frequencies with the modulation and the bandwidth requirements for some of these new applications in automotive and network infrastructure. And our die are very small. So we can get a large, large quantity on our wafer supply. So it's one that we believe that we can service this market effectively. It's going to be a little bit longer from a development standpoint looking at the customer base, but it presents a really good opportunity growth-wise over the next 5 years.

And Harsh, so this is Jeff again. And I'll address your question regarding new legal matter that you raised. Let me first just make a couple of comments here, and I'll go into a little bit of detail of the matter. First, Akoustis received a copy of the complaint filed by Qorvo on October 4. Our technology is revolutionary and redefining the Akoustis filter space. With engineers that we've hired from all over the world, our team has created breakthrough technologies, including our XBAW technology. We believe the allegations of the complaint have no merits, and we will vigorously respond to them. I founded this company and helped build this team. We've been working for years to bring our customers cutting-edge technologies, and we will not be distracted from that mission, specifically to the allegations of unfair competition. Akoustis is committed to fair and strong competition. Over the years, we have hired 4 Qorvo employees and Qorvo has hired former Akoustis employees. Akoustis has been in this space since 2014 and technical leaders come to Akoustis to create something new. We are dedicated to constantly redefining the boundaries of technology, and there's nothing unfair about hard work and excellent results. Our technologists are dedicated to providing leading-edge products to the market, and it shows in our product portfolio. Next, about the allegations of false advertising, our customers are savvy, educated professionals. We do not sell an off-the-shelf product bought with a click. Customer buying decisions in this space are made by sophisticated businesses after hours of diligence. The suggestion that a legitimate website or a patent reference is false and could mislead one of our customers is simply wrong, and it fails to understand our industry. And finally, regarding any merit to the patent infringement allegations, as I previously stated, we will be vigorously responding to the complaint filed by Qorvo. Based upon work and analysis so far, we believe Akoustis has strong defenses, including invalidity and noninfringement. We're confident in our technology and as well as our IP portfolio and do not believe that these asserted patents are an impediment to our road map and look forward to the prompt closure of this matter by the court. And with that, I'll move on to any further questions.