BrainChip Holdings Ltd (BRN) Earnings Call Transcript & Summary

Join us for answers to some of the most frequently asked questions put forward by BrainChip shareholders each quarter. This podcast is for both existing investors and potential future investors who are interested in the development of AI.

Welcome to Part 2 of our 2-part podcast interview with BrainChip Chairman, Antonio J. Viana.

One of the things most of our shareholders know about you is that you were previously a president of ARM Holdings, the world's leading technology IP company. Given BrainChip is also a technology IP company, what can you say about the early years of ARM Holdings that could be of interest to our shareholders?

Well, first and foremost, it takes time. It takes time. ARM got started in 1991. It IPO-ed in 1999, and it didn't get its first massively material deal until about '96, '97. This, despite the fact that there were millions of ARM-based processors, or I should say, processor devices in the market since the '80s, thanks to the old BBC Microcomputers. But IP isn't something you just throw out in the industry and hope it sticks. Let me -- I'll come up with a simple analogy. Imagine a car that has the best engine, the best engine imaginable. But the seats are uncomfortable. It only comes with an AM radio. The brakes squeal. They vibrate. Sometimes they don't even work, let's say. The panel displays are not optimized for the driving experience, yada yada yada. When bringing IP to market, there are foundational issues that need to be addressed and sorted in order for your IP to be used and implemented. If your IP is difficult to use or integrate, even if functionally it works, people won't use it. They'll take the idea and they'll figure out some other way to address their problem. So in my analogy, even though that engine might be the best thing, if everything surrounding it doesn't work or it's inefficient or clunky, people will shy away from that. ARM though -- when I look back at my time at ARM, the one thing that I think a lot of people look at is they say, wow, they're the greatest IP company in tech and on the planet, and indeed they are. But when I look back, it's not only are they a standard in terms of their micro architecture, they're a standard in how IP is used and delivered. They have set the expectation in the marketplace of how IP is provided. And at BrainChip, we have to work on this, and we are. The cold reality is that pre-COVID and during COVID, while BrainChip indeed proved our technology, unfortunately, the company did little to build a foundation for potential users in how they utilize and deploy BrainChip technology. And this is clearly something that we're actively correcting. And there's no doubt in the world, ARM is a model for how we need to correct it.

Okay. Thanks, Antonio. Following on from that, let's just clarify the changes that have occurred in BrainChip's business model and explain our transition from an R&D company developing chips to an AI chip design company that sells IP licenses.

Okay. That's another awesome question. So AI will be different for everyone in every industry. The best AI solutions will be those that are tailored and optimized for specific use cases. This is especially true for edge AI where BrainChip sits. A chip-based production AI solution, while it can be effective in certain areas and markets, to us, doesn't seem to be the best approach to scale. Our customers know their markets and offerings way better than we do. So what we need to do at BrainChip is enable our partners to innovate to the best of their ability, and we believe an IP model provides that best path. Now having said that, AI can be achieved through CPUs, GPUs and existing accelerators even if it isn't as efficient as BrainChip's Akida solution, and it's often good enough. But BrainChip solutions can and are enabling even new use cases that our customers haven't even thought of before because of the performance, power and form factors that we offer. And it obviously goes beyond what we're seeing with the existing technology. So we, at BrainChip, have to be agile in how we enable the market to get there and grow our business. And we need multiple paths to market, which is why we have our MetaTF software not just to build models, but to do initial evaluations. We have our chips, our silicon, our test chips, first the AKD1000 and now the 1500, to help our customers bring prototypes and even small volume production devices to the market, and this, while they plan for an optimized SoC using our IP.

Thanks, Antonio. The AGM provided an opportunity for our Board and senior members of our management team to meet our shareholders and engage with them on a personal level. What were the most common questions you received from shareholders? And how did you respond to them?

Well, if I were to rank them, I would say the greatest number of questions centered around 2 areas. One would be changes to our road map, along with our 2.0 and 3.0 product plans; and then the other would be the share price. Regarding the share price, there was a fair amount of explaining that when we were at $1 plus share price, there was a real challenge to figure out how to support and sustain that market cap. We absolutely needed to be honest with the share base and our assessment that our 1.0 was not that offering, and a more robust road map and product offering was needed to support the share price growth moving forward. And then that obviously transition to our explanation of what was going on with the 2.0 and 3.0 road map. So I'd say those questions, Tony, took the lion's share.

And Antonio, at the 2022 AGM, you made the comment, the share price is going to do what the share price is going to do. And since then, the share price has fallen from $1.16 to where it is today. Do you regret making that comment? And if not, what was the point you were making by saying that?

Tony, I absolutely stand by that statement. It's -- it will forever be a guiding mantra for me. I'll never regret telling the truth. You asking me that question kind of puts a smile on my face because I know that line sticks, and I'm actually glad it does. The share price is down because 1.0 is not selling at a scale that supports that market cap. We were trading at that level in the past due to what I'm going to say were past expectations and air. Now that we are where we are, we have to grow back to that level with actual product and developmental support. The company's business plan and our execution and how we're going to market, those are the factors that need to be in play to support the share price, not expectations and air. Performance against our business plan is the best way to support the share price. And as we are successful, the share price will do what the share price does.

Indeed, it will. Looking forward, Antonio, it's clear that the launch of the Akida 2.0 technology platform is a critical milestone for the company. Firstly, as simple as possible, please explain how the Akida 2.0 differs from 1.0 and describe what applications and use cases the second-generation technology is intended to address.

Okay. I think the hardest part to your question there, Tony, is going to be the as-simple-as-possible part, but I'm going to do my best. So here goes. Hopefully, I don't get too deep in the weeds. So Akida's first generation established our neuromorphic foundations and the efficiency benefits as well as learning at the edge. It was ahead of the market when it was first announced, but the good news is that the market is moving rapidly in our direction, especially so around the transition to the edge. This movement by the market is exactly what we expected. However, there's a headwind. And that headwind is software. Software always moves toward more prevalent platforms, which today are traditional and basic CPU platforms. While we have licensees, building platforms and going to market for certain use cases, that killer use case for really broad general-purpose platforms really hasn't emerged yet. So what the second generation of Akida does is that it enables use cases that truly couldn't be done before at the edge. So firstly, 2.0 removed some of the barriers for adoption that our customers raised to us. In particular, with 2.0, we have 8-bit support. With 2.0, we have skip connection support. Our customers were asking for specific things. We have incorporated that into the offering. With the second generation, we have the introduction of TENNs, Temporal Event-based Neural Nets, and an extremely efficient vision transformers which drives much higher definition, higher frame rate vision, video object detection and other such high-end capabilities in much smaller and scalable form factors that just couldn't be done before. And this has a huge and a broad impact. Some examples. Look at the growth in electric vehicles. Every aspect of performance efficiency is a massive point of scrutiny in that market, and that lends very well with respect to our offering. Another example, the ability to do extremely intelligent, implantable or wearable devices while reducing BOM cost, bill of material costs. Next-generation health care is a real challenge, especially when you consider the spiraling cost of health care and how early detection and prevention justifies the investments being made in that market. More capable hearing aids that can last longer and more intelligently adjust the de-noising to different environments are just small examples of what BrainChip and our next-generation edge AI can enable. TENNs not only help drive capability to the edge without connecting to the cloud, but it also addresses another big commercial consideration for the market. Even though you have models at edge devices, the original or present day ones probably need to be trained in the cloud. TENNs can be trained like simpler convolutional neural networks, or you might have heard the term CNNs, and they maintain their accuracy with less training data, therefore, reducing cloud training costs, which is a significant factor in customers' considerations today, and that lends extremely well to BrainChip's value proposition. There's plenty more that we could talk about. But the second generation is about extending our lead and working with industry leaders in enabling new and compelling use cases or scale that wasn't possible before. And this is a main reason, probably the main reason, why we're seeing the highest level of customer engagement that we've ever had.

Fantastic. Thank you, Antonio. The feedback we all received at the AGM was that shareholders wanted more communication from the company. This podcast was one of the initiatives we put in place to provide more communication. As far as the Board is concerned, do you think the company can realistically do more to communicate with shareholders?

So first, before I answer your question, I should say, I'm looking forward to the feedback we're going to get from the shareholders and others on this podcast. And hopefully, this is indeed a vehicle to provide more communication to our shareholders and the market, in general, if this is a vehicle that is well consumed. As for the main part of your question, we're going to look into it, and we're certainly committed to doing more. This message was received loud and clear, especially at the last AGM. We will ramp our IR and marketing activities to drive more messaging to the market. Thinking of this feedback, I should also say here that we added more detail in our recent quarterly report. I know initial feedback has been very positive with respect to the added content that we put in our quarterly report. So obviously, we're going to do more of that. Like I said, I think this IR podcast is an example of addressing the concern. I think I personally need to communicate more, and I will. So again, message received, and we're going to work harder at this. At the same time, I think it's prudent for me to say we're still going to be ultra diligent with respect to what content gets released and when it gets released. Clearly, we don't want to send any wrong or mistimed messages to the market. But upping the communication is something we intend to definitely do.

Okay. So here's a bit of a Dorothy Dix question. So why do you think now is a good time for someone to invest in BrainChip?

Oh my, because AI is the future. Investment in AI is only just, I think, getting started. And furthermore, edge-based AI is particularly lucrative because of the greenfield of opportunities it offers our potential partners and licensees. If there is an industry to be long on, it's AI. Clearly, I'm biased, but I think BrainChip is extremely well positioned because if you subscribe to the theory that what's going to make AI great is how it's optimized for the specific use cases that each individual potential customer licensee wants to deploy to the market and what technology is going to serve best to allow our licensees to innovate the best, I believe that is BrainChip, and that's why I'm obviously long on this company.

Okay. Thanks, Antonio. My final question relates to the company's disclosure policies and is one that I deal with frequently. Many shareholders ask me why BrainChip doesn't make more announcements via the ASX company announcement platform. Given that it's the Board that decides what is and is not worthy of disclosure via the ASX, I'd like to put you on the spot and ask you to provide some insight into the criteria used by the Board to determine what is and what is not ASX worthy.

Okay. So first and foremost, compliance to ASX listing rules is clearly something we must adhere to. End of story. Full stop. When considering an ASX announcement, the first question we have to ask is, is it worthy to be announced? Is it material? Does it meet the threshold? And is the timing right? As an example, we tend to shy away from NRE or proof-of-concept-type announcements. NRE, meaning nonrecurring engineering or also proof-of-concept announcements. Because a proof-of-concept or an NRE deal doesn't necessarily mean that the evaluation is going to be successful and/or will result in a license. However, if that proof-of-concept NRE deal means some sort of collaborative work is being done that will benefit BrainChip and other licensees down the road, then maybe we announce it. So that's kind of the decision point that we find ourselves in all the time. Every commercial situation is different. And plus, there are confidentiality issues with our partners that we have to be mindful of as well. We can't forward announce anything that they're doing. Allow me to stress that a little bit more. When someone takes a license from us, you have to think about where they are in the design cycle. When someone takes a license from us, most likely, it is way at the front end of the design cycle. And so at best, at best, they're 2 to 3 years out from having a production product in any sort of meaningful volume. So -- and to be honest, they might not even get there. So given those time frames, plus all the other features that they have to work on that they haven't done yet at the time they've taken a license from us, our licensee might want to wait a bit before tipping the market with respect to what technology they're working or what product they'll be producing. And naturally, this impacts how we make announcements to the marketplace. For example, have you heard anyone in the world saying that they're designed into the Galaxy S26 phone or the iPhone 16? I mean, no, you haven't heard that. It's too early. Now I'm pretty confident. I don't think I'm saying anything wrong by saying I'm sure a lot of decisions with respect to those products have already been made, but there's no announcements because they're not tipping the market yet. So there's a lot of nuances and variances, and we spend a great deal of time and effort working on what to release and when. I just want every shareholder to know that we take this extremely seriously and rightfully so. There's a lot of balancing that we have to do here. The Board and the exec team, we are hyper hypersensitive on this. And there's no question that, again, I want to underscore, compliance to the listing rules is obviously first and foremost with us. But I think it's important that everyone understand that there's a lot of factors that come into play when we think about announcements.

Thanks, Antonio. If I may, I know I indicated that was my last question, but I'd like to throw in a little teaser question for you. Are you willing to offer our investors any insights into our prospects in the near future?

Well, I will say this. A couple of times in this podcast, you have heard me say that we've got our highest level of engagement going on right now. Nandan running on the marketing side, Chris on the commercial side, Sean is the CEO, Rob on the ecosystem front, our commercial teams across the board, we are more active than we've ever been. And I will just say that, that is encouraging because any commercial entity will tell you that the deeper your commercial pipeline is and the more customers you're talking to, the better position you're going to be in moving forward for any sort of commercial success. So I'm really excited about the path the company is on.

Thanks, Antonio. It's been a pleasure talking to you today, and I hope your responses to these questions will go some way to satisfying investors' appetite for more information about BrainChip. Thank you for listening to Episode 2 of the BrainChip quarterly investor podcast with my guest, Chairman Antonio J. Viana. The next quarterly investor podcast will be following the release of the September quarter report. Until then, on behalf of BrainChip, thank you for your support, and have a great day.

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