BrainChip Holdings Ltd (BRN) Earnings Call Transcript & Summary

Welcome to the BrainChip Quarterly Investor Podcast series. My name is Tony Dawe, Director of Global Investor Relations for BrainChip. Each quarter, I compile a list of some of our shareholders' most frequently asked questions and put those questions to a senior member of the BrainChip team. Today, I'll be putting those questions directly to BrainChip's CEO, Sean Hehir. Hi, Sean, and welcome back to the BrainChip Quarterly Investor Podcast and our look-back at the March quarter of 2024.

Thanks, Tony. Glad to be here and glad to talk to our shareholders.

So Sean, let's get straight into it. Earlier this month, you attended the embedded world Conference in Frankfurt, Germany. Can you please provide us with some insights into what happened and how BrainChip was received?

Sure. Let's talk about the conference as a whole first before I talk about BrainChip. It was a great conference. I would put it right up there on equal importance for BrainChip as CES. A lot of our target prospects are at that show. And like CES, it was very hard to not pick up on a very strong theme about AI, and specifically AI at the edge and the edge devices. So that theme is prevalent as you walk the aisles, it's very, very strong. It was also interesting when you look at some of the, let's call them, prospects that we want to sell to, when you look at what they're offering, there's a lot of room for improvement. And that gave us a lot of excitement in thinking about what we can do at BrainChip as we approach these particular targets. Relative to BrainChip, we had tremendous booth traffic. We were a part of our tinyML pavilion, which is a wonderful place to attract a lot of traffic in there. We highlighted a great emotion detection offering demo with our partner, NVISO, and we also talked about our VVDN box, Edge box, and as well as several other demos. We had investors come through. We had some existing prospects that came through in scheduled meetings and a whole group of potential prospects that came through, and we now are very busy with the follow-ups and setting up meetings to pursue those opportunities. So a really powerful event for us at embedded world.

Fantastic. One very notable event occurred on Tuesday, March 5, which was that Akida was launched into space onboard the ANT61 spacecraft. This was clearly a big moment for BrainChip, and several of our shareholders asked me why we didn't release an ASX announcement to mark the event.

Thanks, Tony. That day certainly was a very important and exciting day for BrainChip. Relative to your comment or question about the ASX platform, we are very comfortable we made the right decision. We are always compliant with the guidelines of the ASX, and this particular event did not meet the criteria required for materiality to warrant a stand-alone announcement via the ASX platform. But let's focus more importantly on space since you raised this one here. You talk about the ANT61, but also during this last quarter, there was a blog from Accenture which talks about Akida in space and a press release from the European Space Agency which just highlights what's unique about BrainChip and neuromorphic technology. It's ideal for these environments where you're not going to have a network connectivity to do imprints and you need low-power environments. Space is a wonderful proving ground for our technology. And you'll -- keep your eyes posted, you'll hear more announcements, space, for this. And again, it's a wonderful platform for us to prove for other industries as well.

So Sean, I understand that both Nandan Nayampally and Rob Telson have recently left the company. Would you care to provide some context and explanation as to why?

Let's start with Nandan. Nandan is a well-recognized name in the semiconductor industry, and as such, he's been recruited his entire time while at BrainChip. Finally, an opportunity came across to him that he thought he could add some unique value. And a compensation package was put in front of him that, quite frankly, BrainChip could not match given the guidelines we operate under. Rob is no longer with the company due to unforeseen circumstances. So the question to me as the CEO is: now what do we do? I always look at things like this as an opportunity to get better. And that's how a CEO should look, is take the learnings we've had from the last year or several years, and what skills do we need to get better? And we're out actively recruiting. And I'm highly optimistic that the quality of candidates that we have coming across my desk right now will give us the opportunity to really get even a better set of talent in the company to propel us to the next phase of growth. It's always about what can we do going forward and how do we get better every single day. And that's my job, is to get the very best replacements. Further with that, besides the quality of candidates, we found an outstanding CTO when Peter retired, which again brings me a great degree of confidence that BrainChip is still a very attractive place to work and that we are able to attract the very best talent to work here going forward.

In early March, you and I conducted a series of meetings in Sydney and Melbourne with institutional investors and with proxy advisers. Several shareholders have asked me to explain the significance of the role proxy advisers play in determining the outcome of voting at the AGM. Is it something you'd like to provide a bit of context for?

Sure. Proxy advisers provide advice to institutional investors in how they should vote on key resolutions at an AGM, particularly in areas such as corporate governance, the remuneration and ESG-related matters. They can be very influential in determining the outcome of voting. So it's prudent for BrainChip to engage these proxy advisers ahead of the AGM to gain a clear understanding of any concerns or area improvements they'd like to see us take. Following our 2023 AGM, we received very specific feedback from proxy advisers about our remuneration policies and have put a lot of work into improving our reporting and offering greater transparency around those matters.

Excellent. Many shareholders have asked me for updates on the preorder figures for the Akida Edge box. Are you able to provide an indication of how the presale orders have been progressing? Could you indicate whether these figures are above or below or in line with your expectations?

Tony, they are progressing well, and they are in line with our expectations. But let's be clear what our expectations are. The primary sales model for the Edge box is with and through our partner, VVDN. That's where all the volume sales will occur. What we're doing on our website is putting up for those smaller volumes of people that don't want to buy large quantities. When I say large quantities, 25, 100 or more, which, quite frankly, we are seeing requests for that. We redirect those to VVDN. We don't want to set up the infrastructure to handle those orders; they are set up to do that. We're doing it on our website for a couple of reasons: one, to get a sense of who's buying it; two, to get some voice of the customer from them and feedback about the product and get workloads in for companies that cannot afford larger volumes that are required to buy through VVDN. But it's going well and it's in line with our expectations.

Okay. Thanks, Sean. And late last quarter, the company announced it was raising additional capital with LDA Capital through our put option agreement. Can you confirm how much capital has been raised through that process so far and whether the capital raising remains open or has now closed?

Sure. As I said in the ASX announcement on March 27, the purpose of this latest capital call notice was to ensure we had sufficient funding in place to solidify our go-to-market capabilities by augmenting our machine learning personnel and solution architects, where necessary, to support the market adoption of Akida 2.0 IP offering. We're also bolstering our CTO function by broadening our innovation focus to bring LLMs, ASR, data compression, vital signs, all based off of our TENNs offering to this highly competitive market to give us the competitive advantage in the edge market. The offering still remains open at this particular time.

I've been asked to explain why the company has decided to stop holding retail investor briefings in Australia. Would you like to provide some explanation for that?

Sure. I mean the initial intent was to build relationship with some of our more passionate and long-standing Australian shareholders by the events that were, quite frankly, organized by those shareholders, not by BrainChip. And we did it for a couple of years, and I thought they were effective. However, we received some very strong feedback from investors. We have 45,000 investors that are on our register, and they want to ensure that we had all equal access to all the investors. Henceforth, that's why we've decided to go to the virtual webcast that I did earlier this year, and we will do later in the year as well. Obviously, we want all of our investors to tune into the AGM either physically or virtually as well to get the information they need about the company.

In our last Quarterly Investor Podcast, I asked you about the first strike against the remuneration report that the company picked up at the 2023 AGM. Do you think it's likely that we'll pick up a second strike this year?

Well, it's impossible to know in advance, so we're making prudent and necessary preparations. So in the unlikely event BrainChip does pick up a second strike at this year's AGM, we're able to deal with it quickly and effectively. This is the purpose behind adding provision in the Notice of Meeting for calling a spill resolution at the AGM, if required. Obviously, we hope that situation does not occur, and we believe we've made substantial important changes in our remuneration policies to address the concerns that prompted the first strike in 2023.

Fantastic. Thanks, Sean. Speaking of sales, which we referenced earlier, I know you are personally focused on securing a number of commercial contracts this year. Are you able to provide our shareholders with some insights into the commercial engagement process and how we fare against competitors in that process?

Sure. You are correct, Tony. This is an area where I spent a lot of personal time, which is working with our potential prospects. And as I have shared recently, we are in more and deeper engagements than we ever have in the history of this company, engagements that require very detailed analyses for these large strategic buys from these potential customers, ones where they evaluate not only the core product but look at the model's acceleration, the results. All of this takes time. But it's all going very, very well. We have not lost to any competitor at this point in time. We have seen some small delays, as people need more time to evaluate. And we've also seen some delays where people might even consider making a hard decision based off of seeing what their current products can do in the market. But I believe people who are waiting to make hard decisions won't last very long. And I'm going to bring it back to my opening comments about embedded world. All of the customers that we are serving or attempting to serve are in markets where accelerating is happening. And once one gets out in the market, nobody can sit on the sideline, and it will make all the other companies in that market segment seek acceleration quickly. It's all those factors: the fact that we're in deep engagement, the fact that we're not losing, the fact that the market's moving, leaves me incredibly confident that we will pull some wins across the goal line this year.

And finally, Sean, can you discuss your next visit to Australia?

Sure. As you know, I will be in Australia for our Annual General Meeting, which is in Sydney at 11:00 a.m. on Tuesday, May 21. After that, I will do an interview with Stocks Down Under. And then the following Wednesday, I'll do institutional meetings in Sydney, and institutional meetings in Melbourne on Thursday. Unfortunately, I will not be able to stay in the country that long. I'm off to another country to make more sales calls on my way back to the United States. But I would encourage all of our investors to attend the AGM virtually and, of course, listen in on our next Virtual Investor Podcast.

Thanks, Sean. 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.

Well, thank you for doing this, Tony. And more importantly, I want to thank our shareholders for their interest and their loyalty. I look forward to talking to them all in a couple of weeks in Sydney.

Thank you for listening to Episode 5 of the BrainChip Quarterly Investor Podcast with my guest, BrainChip CEO, Sean Hehir. The next Quarterly Investor Podcast will be released in August 2024. Until then, on behalf of BrainChip, thank you for your support, and have a great day.