Lightwave Logic, Inc. (LWLG) Earnings Call Transcript & Summary

Good morning. This is Michael Lebby. Today, I'm going to give the Lightwave Logic management review. It is the 14th of May 2020. This is the safe harbor slide. It talks about forward-looking statements and risks. One of the interesting things about the slide is at the bottom. I do have a great bar and a great buy in all of the slides, the takeaway summary of what the slide actually says. This is the agenda. So first of all, we will talk about COVID-19 and its effect on the business, talk a little bit about the financial status and directions for Lightwave. The market and business strategy will be next. And we'll then go into the product development plan, follow that with Investor Relations and then summarize. This will be a similar format to the ASM management presentation that I gave in 2019. So now I'm going to give an update on the coronavirus, otherwise known as COVID-19. As we move to Slide 5, I'm going to talk about the COVID-19 impact on operations. And as we can see from the slide, the overall impact to company operations was significant in late March to roughly at the end of April, where the facility was mostly closed. During that time, the fabrication equipment was maintained, equipment as updated and the equipment was serviced, so it was a good opportunity to do that. Critical operations did continue through the end of April, but we also continued stability and viability testing using remote monitoring, i.e., monitoring the testing from outside the plant. The majority of our employees did work from home during that period. We did achieve some good things during the work-from-home period. We had excellent team building via the use of video with town hall meetings and technology team meetings. We did file 4 patents with new inventions being drawn up in materials and devices. We did quite a bit of extensive chemistry and device simulation modeling of both the materials and the modulators. And we did review fabrication procedures, we did do data analysis and satellite while working from home. And we continued interaction engagement partners and potential customers via video. Having said this, there is still significant risk and uncertainty with COVID-19. We have to say that operations could cease any time if there was a flare-up. So we've implemented pretty extensive house checks at work, but we remain vigilant and we hope we don't have to close the facility. I am now going to talk about the financial aspects of Lightwave Logic. On Slide #7. This is the PPP loan. It's a forgivable loan that we received from the federal government. PPP stands with payroll protection plan. We actually applied for that loan in April, and the loan was approved during the first round of PPP funding, which is on the 15th of April. We actually received the funds 9 days afterwards. And the funds will be utilized through the 19th of June, and that is 56 days. And so we actually moved fairly quickly for systems and operations during the closure period of the company. In terms of the Lightwave Logic overview, we have a very strong balance sheet. We have financing facility in place with Lincoln Park Capital. And on this slide, you can see on the lower left-hand side, a photograph of our headquarters in Colorado. And on the right-hand side, some of the metrics of Lightwave Logic. And the takeaway is that we are Colorado based, and we are well funded. As we go to Slide #9, this is a slide of the uplisting potential for Lightwave Logic. And on the right-hand side is the typical metrics one would see for joining the NASDAQ Capital Market. And things that we can see from the left-hand side of the slide, that will assist Lightwave in upgrading to the NASDAQ market would be revenue partners, customers and products. The key thing here is that we do want to uplist naturally and we want to build shareholder value through high-quality, differentiated and high-performance electro-optic polymer technology. And so the takeaway from this slide is that we love -- we'd love to uplist naturally to the NASDAQ market. And right now, we are focused on building shareholder value. I'll now move to the market and business strategy. As we move to Slide #11, we are now looking at a graph of the photonics market forecast over the next decade, the ranges actually from 2012 but all the way out to 2030. That's 10 years from now. What this graph looks at is the total photonic components forecast growth in the next decade. And as you can see, with a 17% compound annual growth rate, the total photonics components business actually grows to $80 million. And within that market, plotted in blue are the fiber optic transceivers, and they are forecasted to grow to $53 billion over the next decade with a healthy compound annual growth rate. And so the takeaway from this slide is that fiber-optic transceiver growth is strong and is expected to be strong for the next decade. Together with this slide, we can see other market researches on Slide 12. And this has been positioned in terms of growing markets of the supply chain. And on the left-hand side, we can see component suppliers, and it ranges from high-speed optics manufacturers to the right-hand side, which are Internet cloud service providers. And as you look at the green box, as you can see from different market researches, there are some very high numbers and some very large markets, and these markets are growing in both datacom and telecom. As we move to Slide 13, we can see the value chain with sample actors in the marketplace. The range on the left-hand side from optical component suppliers to the right-hand side, which are Internet service providers, ISPs. And you can see some names, some sample actors of companies participate in the various levels of the value chain. The key thing about this slide from a Lightwave Logic perspective is that we have the potential to enter the market in a number of places, which are the 3 boxes on the left but we also have to be able to gain the mind share of the people in the companies on the right, the Internet service providers. But as we can see from the takeaway at the bottom, the dynamics will drive the focus to success in this type of marketplace. And as we move to the next slide, this is Slide 14, and this actually reviews our competitive advantages in the marketplace. We have at Lightwave the technology suite that addresses the major pain points facing these types of network operators. And I've tried to distill this down to 3 main areas. The first one is energy savings. We at Lightwave can reduce the network energy costs. We have very low power modulated devices that work on very low voltage, and this saves the network operators' energy costs. We can actually allow the network operators to operate faster networks because of our polymer material. And the fact that they can switch line very, very quickly, we can actually enable very fast switching in the network. And lastly, on the right-hand side of this slide, we have an engineering advantage. We have a platform, a technology platform that is polymer-based that is unique and a different unit, and it will allow us the flexibility to design to actually help the network operators get past the networks and energy segments. And so we see our technology addresses some of the 3 major customer pain points that occur in the field. We use proprietary electro-optic polymer technology at Lightwave Logic. We started with fiber communications, but we do know our technology can be extended to more applications. We already know that our technology of using internally engineered organic polymer materials uses less power and increases data throughput for the existing network infrastructure and future architectures of the network. Current applications are clearly in fiber optics today with very high-performance speeds and low voltage, future applications would be integrated solutions, multichannel modulators for higher aggregate speeds and even noncommunication type applications in the marketplace. In general, our polymers enable faster devices and lower power solutions today. And on Slide 16, we sort of summarized the uniqueness of Lightwave Logic and our differentiation in the marketplace. In a phrase, we have radical innovation with our partners. We have faster devices, and we have devices that actually are lower power which saves energy. Lower cost, we have easy fabrication techniques to make these devices. And these polymers are stable and robust. And as we go through extensive stability and reliability testing. And so the takeaway here, radical innovation, is essential for the final communications market. And as we move to Slide 17, we can see here our core competencies in the field and our color to those core competencies is orange. The first one at the top, because we are historically and have great experience and expertise in polymer materials, are Chromophores are crafted for high electro-optic activity paired with host polymers chosen for the balance of stability and performance. And this is something that we feel we are unique at. We also have core competencies in our markets in the demonstration modulated chips. These are designed for internal and customer technology valuation. And to put those chips into a pigtailed, high-speed designed package, evaluation package, these are also designed for customer and technology evaluation. And in grade, what we're showing here is that, yes, we would like to partner with transceiver module manufacturers and different types of external partner applications for the EO polymers. And I've written here, 1D, 2D, and 3D. And yes, this is 1-dimensional, 2-dimensional, and 3-dimensional applications for EO polymers. And so the way we see ourselves is that we have a very strong core competencies in Lightwave Logic that are differentiated. As we move to Slide 18, this is a slide showing the typical actors you would find in data center operations and data center operators. And these are the needs of these data center operators. And as you go across the analysis of these folks, and what they ask for is rapid increases in the data rate. They innovate themselves at the network architecture level. They try when they design their architectures to simplify their systems. They use the white box model. And you can see at the bottom of this graph defined what a white box is. The innovation for all these players comes from the component module level. In fact, in response, system vendors want modules with faster chips and lower-power solutions. We know at Lightwave Logic that the polymers have these merits. And so the polymers, the materials and device innovations are needed in data centers and systems as they get architectured over the next decade. And in fact, in order to protect our technology platform, we are now building a robust patent portfolio. As of today, we have over 50 issued patents in the USPTO and some of these are fundamental materials and device patents that include chemistry materials and devices. And as you can see from the 8 boxes on Slide 19, the technology focus areas, including materials and chemistry, optical devices, optical packaging, photonic integration. And we have patents, domestic USPTO. We have international patents. We have new filings that continue all the time, and we have patent applications that continue. So we believe we have a powerful patent portfolio for our technology platform. And we also believe that gives us freedom of manufacturing. As we move to Slide 20, I apologize that the wording for these patents might be a little small to read. But I've put on the patents that we've had issued in our last year. And you can see, we have a number of patents that we have issued in the last year that have -- that support our movement, our position in the marketplace, where inventions that cover co-packaging of modulator raise integrated modulator photonic circuits, high-volume, low-cost thematic packaging, integrated laser modulators, circuits and designs, BGA packaging for polymers, direct derived, low-power modulators that are directly driven from CMOS, saving the customer actually from purchasing driver chips, advanced modulator PIC designs and wave guide coupling of modulators. These are our issued patents over the last 12 months, and this, to me, is a very aggressive growth of an invention patent portfolio. And we've actually supported this with recent patent application publications. This is on the next slide. As we go to Slide 21, we can see here that we've had a number of patent application publications with the USPTO. And in similar sort of technology inventions, low-voltage polymer, modulators, and advanced polymer materials and device design, co-packaging. And so again, over the last year, very aggressive positioning in terms of protecting our technology platform. I will now talk about the product development plan. And as we go to Slide 23, I'm looking at the polymer business right there. And clearly, we want to make polymers the key platform for the next-generation optics in the fiber-optic communication market. And our polymer road map addresses the normal route for commercial implementation for the new technology, like what we have. And as you can see from the axes at the bottom, the horizontal axis, today, we're focused on polymer performance, the reliability of polymers and the robustness of polymers. And we're also interacting with customers. We're doing testing and we're doing evaluation. And we're setting the stage to support customer strategy as we move forward. And as you can see from the road map here, as we progress through the reliability, the robustness, and the customer interaction, we will move to customer qualification and customer acceptance, and these are coming. In Slide #24, what I've given is an updated technology road map. And typically, this is the type of technology road map that customers would see because as you interact with potential customers, they want to see where your technology is going, that they buy into a certain technology performance. They want to make sure that the technology actually progresses for them, too. And what we can see on the left-hand side of this is that we have some unique capabilities in the 4 different horizontal strands of our core competencies. The first one on the top is materials. We have unique capability in polymer materials. And you've seen some of the performances of our third-generation PK materials with a recent press release. In the second horizontal line, we have a unique capability in turning those polymer materials into chips, into Mach-Zehnder modulated devices that have very high performance. And then also, you can see in terms of packaging the unique high-speed design, 70 gigahertz type packaging designs for our modulators. And we see that ourselves as unique additive platform to like silicon photonics and indium phosphide for our polymer technology. And so our road map, our technology road map emphasizes our unique value to the industry. And like I showed last year, this is Slide 25, this is our product family. It has not changed. It shows the family of potential modulator products based on a 50-gigabaud device. And you can see here, depending on how you place these devices in the network architecture, you can aggregate up to 400 and 800 gigabits per second. So that's 50G modulators for aggregation to 400- and 800-day rates. As we move to Slide 26, again, I'm using the technology readiness level of scale, the TRL scale, that is -- was derived from the U.S. military a few decades ago. And it's now being used more in commercial business. And what it does is it shows you where you are in terms of your route to maturity in volume. And clearly, we're not at the ideal or the research level of TRL 1 or 2, but we are in the prototyping and piloting phase, which is TRL 5, 6, and 7, and I've depicted that in terms of some simple pictures below showing that we are doing not just one prototype but a number of prototypes. And we are progressing to TRL 5, 6, and 7, and again our goal is to get to TRL 8 or 9. And as we apply the TRL level, color code to this slide, which is Slide 27, that's applying polymers into devices. Live rate was quickly transitioning from a materials chemistry company to an advanced polymer design platform. And you can see our history on the left-hand side and how we progressed on electro-optic polymer materials to very high-performance modulated devices. And in fact, I've just added to the slide in the lower right-hand corner in terms of new advanced materials. We have actually announced last week polymer materials that low loss and high performance at 1310 nanometers, which now means that we have 2 materials, about 1550 nanometers and 1310 nanometers in our portfolio. So our polymer technology platform is actually much, much stronger now. And in Slide 28, this is the data that supports the press release from a week ago. We had 2 major achievements here. This is a historic building block for the company and allows the company to participate at 1310 opportunities with Mach-Zehnder modulators. These are world-class results that now enable short-reach data communications applications within the data center. And this allows us to really address some of the high-volume opportunities there. We've also improved the performance over time of the electro-optic chromophore in terms of R33 for low-power operation, both with 1550-nanometer, as you can see from the orange curve on that graph below as well as 1310, which is the blue curve. And you can see the 1310 has now exceeded 200 pm/v which actually allows extremely low voltage operation with excellent stability at 85 degrees. And you can see the R33 for the 1550 has increased over the last 3 years to now above 165 pm/v and approaching 200 pm/v. and so these performance trends for both 1550 and now 1310 makes us a really interesting technology platform for the data communications as well as the telecommunications market. We do get questions on our facility in Colorado. And as we move to Slide 29, this slide shows the potential capacity for the facility. And the potential capacity is to scale up synthesized polymer materials. And we certainly have that in place. And we also have a fabrication plant at the facility, and we can certainly scale up wafer fabrication as needed. As we look at the potential capacity of wafers and we know each wafer has a number of chips. Each chip uses our polymer materials. We fabricate these wafers in lots. Lot sizes can vary depending on how many wafers are needed. And each week, we run a number of lots through the line. This generates a number of chips per quarter as a metric. And with this, we benchmark ourselves with competitive modulator chip suppliers, like, for example, folks that do indium phosphide and folks that do lithium niobate. And we certainly have the capacity to be comparable in terms of chips per quarter compared to other players that do indium phosphate and lithium niobate in the business. So our capacity is also based on standard toolkits for competitive cost per volume. So we believe the capacity we have in Colorado is sufficient for our needs right now. In terms of the business model and commercial road map going forward, you can see on the left-hand side, selling components in the lighter orange or brown color, and I've shown that below. In terms of selling components, there is a sample customer engagement process that we follow. Customer signs the NDA prototype specification testing. There's a lot of optimization. There's a limit in some plant, this design verification and that commercial product sales. But there's also 2 other problems to the business model that may come up over next year or 2. One is licensing our technology, and we fully expect there might be interest in licensing our technology platform. And the third one is, we'd also expect that there might be interest in technology, transferring our technology, somebody that not only wants to license something but actually wants to use our techniques to use our designs, our processes in that facility. And both number 2 and number 3 are areas that we are going to watch very, very carefully to see what the interest is from the potential customers as we move forward. And as we go to Slide 31, I showed this slide in last year's management presentation. And what I'd like to say here is in terms of nondisclosure agreements, we have continued to execute NDAs over the last 12 months. And clearly, this is designed to keep information between parties private. It's used in a number of situations with vendors, suppliers, potential customers and, certainly, in our technical meetings and things that occur. Some of the NDAs we're not even allowed to say that we have NDAs in place. And so we have to be very careful. But what I can say for sure is that we've continued to execute a number of NDAs, and our portfolio of NDAs continues to increase with our interactions with the community. In terms of what the market reactions are that we've seen over the last 12 months, as we look through these comments in Slide 32, we can see the need for speed is real, especially for modulated devices. So "looking at technologies going forward, everything gets faster, and modulators are a key challenge." We've also seen a comment. "silicon is limited by the P-N junction speed." We've seen comments that complete buy-in to what the raw speed of polymers. In fact, almost no discussion is taken as a given. In fact, discussions are around the practicalities of how they use polymers in customer premises and customer systems. For example, "are the voltages for push for mode or single-ended drive?" Also, "Can I use my existing bias control scheme as far as voltage and time constraints?" What temperatures are needed to add to my silicon photonics platform in the fab? And so these are practicalities of how to use our polymers in an environment, in a commercial environment. Also, the need for additional material is via hybrid integration is now widely accepted. For example, silicon in the enforcement each of their strengths and weaknesses. It's only going to get harder. We are looking for additional options for hybrid integration onto our existing platform. And so the takeaway from this slide is that the interest continues to be very high. The feedback we receive is excellent, and it's also extremely constructive. So as we look at the report card for last year's 12 months plan, last year, in Slide 33, I said that we would show data to the community in terms of the package modulator, working at 100-gigabaud and less than 3 volts. And the answer is, yes, we've completed that, we've Lightwave's packaging partner. We also said last year the polymer devices that are stable and reliable at 85 degrees C. And yes, data generated and is continuing. In terms of the package prototype for potential partners, I said the product feedback from potential partners of 50-gigabaud. And yes, what have we done in the last year? Yes, we have technical details on that. I also said last year that demonstrated 100-gigabaud package prototype. And I would say, yes, this is in development today. In terms of potential partnering and technical evaluation, yes, that is in progress. And in terms of achieving the specifications for designing phase, yes, that is in development. And so the takeaway from the report card over last year's 12-month plan, we have continued focus on device data and packages for customers. In terms of looking forward for a 12-month plan in 2021, continued data to show the community, continued package prototypes with potential partners and continued potential partnering. So in terms of package modulators, I would say, yes, with potential customers. Polymer modulators are stable and reliable. We will have increased data sets. In terms of packaged prototypes for potential partners, we will have input from potential customers. And in terms of demonstrating package prototype at 100-gigabaud, we will be optimizing that prototype. In terms of potential partnering, in terms of NDAs and further technical evaluation, yes, we will add more NDAs and more engagements with potential customers. And in terms of better specifications for the design increase, we will have much deeper data sets available and so, again, continued focus on device data and packages for customers. As we go to Slide 35, one of the things that's really helped us over the last year is a world-class advisory board. This is a world-class technical advisory board. And you can see here on the left, we have 3 very well-known folks in the field, Craig, Christophe, and Andreas. And you can see they've all worked in very famous companies in the field. But I think on the right-hand side, what we need to look at is what has been the impact for Lightwave Logic of these 3 folks. And certainly, they've given us a lot of input into silicon photonics, device and package design, reliability and modification, customers engagements, telecom and datacom network. They all have, as you can see, an incredible, mature, proven track record, and they have very, very deep technical components. The good news is that we meet regularly to review technical progress and strategy as the company moves forward. I now will talk a little bit on Investor Relations. As we go to Slide 37, these are the typical questions we received during the year. What I've done here is listed most of the questions come up. A number of these questions come up in a similar format. So let me start. The first question, do you have more information on prototype testing. We will have more information and we will release that information in due course. The next question, do you have revenue guidance for 2020? The answer to that question is that we do have internal models, however, we are not ready to provide guidance on a public level as of yet. The next question are we still collecting data and customer feedback. And the answer to that question is absolutely, yes, and this is occurring. And it can turn on a regular basis. The next question. Are the big customers aware of you? And the answer is, yes, we are known, and we are in continued discussions with both big customers, even medium-sized customers, and SMEs, which is small and medium -- small and medium-sized enterprises. The next question. Will a 1-volt modulator be ready this year? What I can say is it's under development. And already in this presentation, I showed an increasing trend of R33 on the materials performance. And so as you can see from the press release last week, we're very excited about our improvement in the R33 factor, which directly relates to low voltage operation. The next question is, is the 1-volt modulator to get for market acceptance. And the answer to that question is 1-volt certainly helped but it's not necessary for acceptance with potential customers. The next question is how does the company plan to attract new investors. And the answer is, we have a very close relationship with the MZ Group, and that has been steady and constant, and we will steadily increase our investor activity as we move forward. It is a very good relationship, and I'm pleased to report that. The next question is what impact has COVID-19 had on testing and performance. To date, we have continued testing, but it could significantly impact us in the near-term, as I've indicated in a slide at the early part of this presentation. A flare-up at the facility could actually close us down. So we are being very, very careful in vigilance. The next question, when will the website be updated. I am pleased to say that this is in progress, and we hope to see an update very soon. Since we move to Slide 38, which is the second slide of the typical questions that we received during the year, the first question on this slide is, are you doing stability and reliability testing. And the answer is, yes, this is a very important part of our development process. The next question is are you reliability testing the latest 1310-nanometer material. And the answer is, yes, material betting is in progress and has been in progress for the last couple of months just to verify the excellent performance we have on this material. And I know I am very excited to be watching this very closely as we go through reliability testing this year. The next question is have we achieved 2,000 hours and 5,000 hours. And the way we can answer this question is that we are certainly running long-term testing in Colorado. The next question is what are your latest Telcordia GR-468 results. And the answer to that question is that we know Telcordia GR-468 defines well-accepted test conditions that we certainly use in our testing. Beyond the Telcordia definitions, we continue to critically review and implement testing appropriate to polymers, polymer materials, and polymer devices. And then the final question, on Slide 38, are you testing BRP, Brazil photonic devices or Lightwave Logic devices? And the answer to that question is that we have fully integrated BRP technology and their platform with the Lightwave technology platform. And in fact, we did this a long time ago. So certainly, we can address some of the technical questions. So as I move to summary, and on Slide 40, the polymer business position is very exciting, extremely exciting from my standpoint. We are focusing on prototyping, engagement, protection in business planning. And what we do see is huge markets with huge data demand, and we've certainly seen this through the coronavirus where everybody is working from home and using more Internet and needing more speed, and we've seen a lot of throttling back, I've seen complaints from folks about the data rates at home have been much slower. So yes, that is going to continue. We have done polymer prototyping, and we feel that is extremely important. Right now we have signed customer NDAs. We've done a lot of customer engagements with potential partners. And so yes, we've continued that. And we've incredibly increased our patent portfolio in terms of inventions, on materials and devices and packages. And so our business plans are advancing our commercial engagement position in the marketplace. So why Lightwave Logic? Why now? Lightwave Logic has polymers that perform better. We have a world-class design team, a world-class facility and a world-class technology platform. We persisted a live wave when others abandoned electro-optic polymers 20 years ago. This has resulted in robust materials, robust devices and a powerful patent portfolio. The market appetite for us has increased over time, and we are positioned very well for our market window. Actually, we see our polymers solving customer headaches and customer pain points. Our polymers are differentiated, and they bring potential competitive advantage to the industry. Our polymers are building blocks, and we can make the Internet faster. We can make the Internet greener and denser. The industry does see the merits of our approach. And so the takeaway from Slide 41, our polymers are the innovation the Internet has been looking for. And as we go to the final slide, Slide #42, this is our Investor Relations, contact the MZ Group of North America. And I would encourage you to talk to them if you have any questions. Thank you very much.