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

Greetings, and welcome to the Lightwave Logic Special Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, it is now my pleasure to introduce Ryan Coleman with Investor Relations. Ryan, you may begin.

Thank you, operator, and good afternoon, everyone. Thanks for joining us today for this special call. I'm joined on today's call by Lightwave Logic's Chief Executive Officer, Yves LeMaitre. Please note that this call is in listen-only mode for the duration of the call, and that a replay will be posted to the company's website shortly after the conclusion of this call. During the call, Yves will discuss the market opportunity for electro-optic polymers, their competitive position versus legacy technologies, the company's go-to-market approach and strategy and the company's recent announcement with Polariton Technologies. We will then move to a moderated Q&A session. Some of the matters we'll discuss on this call, including statements and our business outlook are forward-looking. As such, this call speaks only as of today, March 13, 2025. Such statements may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The matters discussed on this call are subject to known and unknown risks and uncertainties and these risks and uncertainties could cause actual future operating results to differ materially from those expressed in the call. A more detailed description of the risks our company faced is more fully described by the company under the caption Risk Factors included in our most recent Form 10-K and 10-Q. As always, Lightwave Logic assumes no obligation to update the information presented on this conference call. Any time-sensitive information no longer be accurate at the time of replay listening or transcript reading. With that, I'll now turn the call over to Yves.

Thank you, Ryan, and thank you to those who have joined this call since our last call on January 9. We have received questions looking for clarity on some of the initiatives we discussed that day, such as where exactly we play in the value chain or revised go-to-market strategy and the status of product development and customer engagement. We'd like to take the opportunity on this call to provide more details on these matters and better articulate where our efforts will be focused going forward. To begin, I think it is important that we better identify our target market and the size of the opportunity accessible to Lightwave Logic. In their recent earnings call, NVIDIA announced that the data center part of their revenues is expected to reach USD 115 billion for fiscal year 2025. And it represented 88% of their total sales with a 5-year CAGR of 108%. This AI-driven explosion in data center compute and networking infrastructure is creating unprecedented demand for high-speed optical interconnect. For the first time in 2025, the market for optical transceiver is expected to exceed USD 20 billion with a major part of the growth coming from AI SuperCluster optics, doubling in number of units year-over-year and expected to approach $5 billion in annual sales. The last couple of years have seen the demand explosion created by AI training, generating and inference models and its impact on scaling compute and networking infrastructure. This market is not stopping here. The introduction of accelerated computing in traditional data centers and the emergence of AI factories are forcing hyperscalers and enterprises alike to rethink their network architectures, resulting in more optics and faster optics. This is where Lightwave Logic comes in, helping the AI network scale in bandwidth and number of ports, while optimizing power and latency with every optical link being stretched to deliver the next order of modulation bandwidth. It all started at 10 gigabits per second per lane, then 25, then 50. Now AI and data center are primarily using 100 gigabits per second per lane, with transceivers using 8 parallel lanes to achieve 800 gigabits per second. The industry is already planning to aggressively deploy 200 gigabits per second per lane at the end of 2025 with the production ramp in 2026. This will enable 1.6 terabits per second transceivers of 8 lanes at 200 gigabits. Next is 400 gigabits per second per lane to build 3.2 terabit optical [ links ] with a likely volume deployment starting in 2028. So it does not stop at 200 gigabits per second per lane. And with every new generation, the EO polymer material from Lightwave Logic becomes a more critical component of this road map, 400 gigabits per second and beyond. According to LightCounting, a leading market research firm for optics, the number of high-speed transceivers and co-packaged optics units sold will approach 20 million units in 2025 or an addressable market of $7 billion. To be clear, these numbers only include the units where the modulator speed is 100 gigabits per second or higher. These numbers are expected to grow to 38 million units or approximately $10 billion in sales in 2027. This is the primary market we are targeting at Lightwave Logic, and where we expect technology to deliver superior performance, lower power and easier integration in silicon. To help size this opportunity, it is important to understand that every single article transceivers from 10 gigabits per second to 3.2 terabits per second includes 1 or multiple modulators. These modulators come in various forms and flavors. They can be integrated within a laser like for example, indium phosphide EML. They can be stand-alone components like with lithium niobate or they can be integrated into silicon chips, which seem to be the preferred industry solution for the future as it lends itself better to integration with electronics. Our internal estimate is that the modulator portion of the transceiver ranges from 10% to 25% of the total value depending on the level of integration provided. We estimate that this equates to a total serviceable market in 2027 of between $1 billion and $2.5 billion. We believe that our new go-to-market strategy leaves us well positioned to capture a meaningful share of this opportunity as we open up access to our technology toolkit and get our materials into the hands of potential partners for design wins in 2025 and 2026. Stepping back, it is important to understand the broader ecosystem, the value chain and where we come into play. Transceivers are the packaged optical modules at data centers and AI companies buy to interconnect their systems. Each new generation of transceiver increases speed from 800 gigabits per second today to 1.6 terabit next year and eventually 3.2 terabits. Historically, these transceivers were built using discrete components, such as the laser, the modulator, the receiver and multiple electronic circuits. This was the original plan for Lightwave Logic to supply such components or devices either packaged or as a simple chip or PIC. Throughout last year, it became clear to us in our discussion with target customers that the new architectures had to be much more tightly integrated and that the time of discrete components have passed. Our customers want optical chips that can be easily integrated together, co-packaged with electronics and preferably using a silicon photonic platform to reduce size, power and cost while benefiting from the major investment by the semiconductor industry over the last 40 years. The good old model of telecom transceivers using separate discrete modulators did not scale and had to quickly adapt to deal with the tens of millions of units required by the AI and data center market. Multiple major semiconductor and optical players decided to invest in designing and manufacturing a next-generation photonic integrated circuits or PICs, combining on the same chip, the most advanced functions, including the laser, the modulator and the receiver. This trend was started by Intel but now includes dozens of companies in North America, Europe, Israel and Asia. At West Lightwave Logic, we changed our plan and decided to refocus our efforts at delivering our unique polymer materials to these companies developing such integrated silicon photonic chips. By adopting this strategy, we significantly reduced our market adoption risk as we can focus on resources and investment on the fundamental differentiator for Lightwave Logic, designing the best chromophores to turn our electro-optic polymer platform in the highest-performing modulator. We can now partner with the best-in-class silicon photonic design houses to incorporate our chromophores into their PICs. The silicon photonics PICs today are reaching their performance limits and are strangling to handle the scale-up of high-speed optical interconnect. We will work with PIC designers to integrate new polymers into their platform helping them unlock the gate to higher speed and lower power consumption. We also collaborate with foundries to ensure our materials can be processed at scale. Our public partnership with AMF is an example of this, demonstrating that polymers can now be integrated into silicon fabs with relative ease. I am confident that this adjustment in strategy will allow us to move faster and allow us to get our materials in the hands of more and more potential partners to help accelerate commercialization. This shift in positioning aligns us with where we create the most value. Successful materials companies like DuPont with Teflon or Corning with Gorilla Glass focus on supplying the foundational technology for industry-wide transformation. As discussed earlier, even by operating at the materials level, the serviceable market remains very large, and time to market is most critical to deliver value to our shareholders. We also believe that our inherent cost structure and manufacturing yields will be superior to competitive solutions, allowing us to enjoy above industry average gross margin in a high-volume production. EO polymers are at the heart of the next revolution in AI networking by positioning ourselves as the materials leader, we will be able to maximize our impact and accelerate industry adoption. The fundamental bottleneck when dealing with the challenge of scaling is the reliance on legacy solutions and materials that are incompatible with higher signaling rates. Traditional modulators, materials like silicon, indium phosphide and lithium niobate are hitting performance limits. This has forced companies to use complex electronics like Digit DSPs to compensate for these limitations, adding power consumption and cost. The challenge with silicon photonic is that it relies on external materials for critical functions, lasers using the indium phosphide, receivers use germanium and modulators are struggling to scale beyond 100 gigabits per second per lane. The industry needs better material for modulators that enable 200G, 400G and eventually 1 terabit per second per lane without excessive power consumption. The window for a new material is wide open. And the industry consensus is that the future is likely to be based on the combination of silicon and hybrid materials, delivering the best performance at the right cost and low power. Silicon organic hybrid platforms are being designed to incorporate materials such as EO polymer, thin-film lithium niobate or indium phosphide. The fundamental electro-optic characteristics of EO polymer and ease of integration into CMOS foundries give us an edge against alternative technologies, bulkier, costly and harder to integrate in silicon when compared to polymer. Polymers have inherent advantages of our platforms based on crystalline materials and can deliver better electro-optic response as demonstrated by our partnership with Polariton Technologies. As an example of our new strategy and proof of our unique value to customers, I'd like to take a moment to discuss our recent announcement with Polariton. Earlier this week, we announced an important expansion of our business and technical partnerships to accelerate the introduction of 400 gigabits per second per lane and beyond for AI and data center optical links. As many of you will know, we first announced our partnership with Polariton Technologies last year to demonstrate a package device with over 110 gigahertz super high bandwidth electro-optic polymer modulators also using Polariton's plasmonic modulator device that contained our chromophores manufactured in Denver, Colorado. Since then, both companies realize the need to bring forward disruptive solutions and that time was of the essence. Together, we are moving beyond the material licensing and prototype building phase to the joint development of business partnerships and leading products. The unique combination of Lightwave Logic, high-performance electro-optic polymer materials with Polariton's plasmonic circuits will address the inherent bandwidth and form factor bottlenecks of traditional materials that we just discussed, including indium phosphide, silicon and thin-film lithium diobate in order to accommodate ultra-high bandwidth. The ability to modulate the optical signal at 400 gigabits per second and beyond is critical to achieve bandwidth of 3.2 terabits per second and 6.4 terabits per second in the future. Polariton in partnership with ETH Zurich, just published a fascinating paper showcasing state-of-the-art plasmonic modulators that achieve an electro-optic bandwidth extending into the terahertz range. Only through the combination of revolutionary materials such as chromophores and Polariton's plasmonic structures, can such results be achieved. Polariton has developed broadband products with like with logic electro-optic polymers that are available for sampling with select customers. We are excited about this partnership and look at it as an excellent example of how future customer relationships and how we intend to supply our materials into the AI ecosystem. The major worldwide Optical conference, OFC, will coincide with my first 100 days on the job, and I'm happy to report that we have already lined up many of the major potential customers for technical and commercial meetings at the show. As you realize, although the end users of our materials remains the same, our new go-to-market strategy requires us to engage with a different set of direct customers. Since my first day on the job, I have immediately approached the new potential customers, so we don't miss a bit in our commercial progress. Customer response has been overwhelmingly positive but we need to move fast. Every morning, our team starts the day with one primary goal in mind, get our polymer deployed in real life optical links as soon as possible. Step one is to convince customers that our polymers are indeed superior to alternative technologies. Most of our customers have our physics experts already convinced about the technology potential. However, they want to make sure that our materials will sustain performance over time and through challenging operating conditions. As a result, we continue to work on and expand our reliability and materials qualification activities. Step two, is to explain and educate customers about how to use our material and integrate them into silicon photonics chips and foundries. This requires us to supply our process development kit or PDK, as well as technical and application support during the PIC design and validation phase. Once the product design is complete, step three, is to work with the customer to test and qualify the final product. During that step, we also validate that the chosen silicon foundry partner is capable and ready to build the final product. Finally, step four will consist of ramping up production and yield to reach high-volume manufacturing. The form and timing of commercial contracts and agreements very greatly by customers. but they are typically formalized during the first 2 steps. The complete cycle from initial customer engagement to volume production also varies by customer. But a good approximation is 18 to 24 months, depending on the complexity of the program. Our focus is on driving all necessary technical and manufacturing activities to be selected by customers for their new PIC designs in 2025 and 2026, targeting volume ramp in 2027 and 2028. Looking ahead, we plan to remain active with our upcoming participation in both investor and industry events. Next week, we will attend the ROTH Investor Conference on March 17 and 18 in Southern California, where Tom and Jim will conduct one-on-one meetings with investors. Later this month, we will be assigning OFC 2025 in San Francisco from March 30 to April 3. We have also targeted events in the second quarter, which we will update our investors on as appropriate. With that, I would like to turn the call back over to Ryan to moderate our question-and-answer session.

Thank you, Yves. When we announced this call, we invited investors to submit their questions ahead of time. We'd like to thank those of you who took the time to do so. While the number of individual questions received was more than we could adequately address in this format, we've attempted to address as many as possible in our remarks already and selected the ones most frequently asked for the purposes of this discussion. Our first question is how many active negotiations are underway with Tier 1 or Tier 2 partners and what are the current stages of those discussions?

As I said in my prepared remarks, with our refocus on materials, we are now pursuing a new set of customers, primarily silicon photonic design houses. There are more than 30 such companies in the world from multibillion dollar semiconductor and optics players to innovative and VC-funded startup. So they are my primary focus in terms of commercial engagement. In addition, although we might not be direct suppliers to end users such as transceiver manufacturers, AI companies or hyperscalers, meeting with these companies remain critical to us as they are the ones driving the industry road map. So our progress varies by customer from technology evolution, to evaluation, to product design. With the vast majority in the steps one and two of the commercial process that I described earlier in my remarks. In my first quarter with the company, I had productive meetings with executives of more than 20 companies in the ecosystem. I was really happy to see the renewed interest in polymers for next-generation designs. This is what I was hoping for when I took on my new role and I left this meeting feeling that we have our destiny in our hands, but also with the pressure of both time and expectations, despite the long gestation period to get the materials ready, there are still so many believers in polymers in the industry and on this call. Our job at Lightwave Logic is now to turn this unique material into products and commercial successes.

Our second question is the material 100% ready, what further test or validation are needed? And are commercial deals possible before this testing is completed?

Well, first, I'm a strong believer in a philosophy of continuous improvement, what the Japanese called Kaizen. And we will never stop trying to improve all the key aspects of the material specifications to power to size through reliability. But to answer your question, yes, we believe our raw material is ready. However, a critical task remains to make sure that the chromophores deliver the expected performance and reliability when integrated into the customer PIC. This is where most of the work will happen over the next year in partnership with customers and wafer fabs.

Our next question, why is there so little discussion about polymers in the industry? Is this silence concerning? And what does it say about acceptance and market potential?

Well, I'm afraid I will have to respectfully disagree with the statement. I've been talking to some of the most famous and respected industry experts and they all monitor our progress with utmost attention. So as I said earlier, the pressure is on.

Plasmonic appears to be an excellent solution to add more speed, but may be very difficult to scale. Is this problem solved and with scalability issues impair the company's ability to meet expected market demand?

Well, like most disruptive technologies, plasmonic requires some changes in design and process versus traditional established solutions. But the reason why people are excited about it, especially at 400 gigabits per second per lane and beyond is that when you reach these range of frequencies, you cannot solve the bandwidth challenge only with superior optics material like polymer. You also need to have the high-speed RS and electronics to be able to catch up with optics. For many years, been the other way around, optics trying to catch up with electronics. Plasmonic is exciting in that regard, and customers are willing to take chances to break the 400 gigabit per second per lane barrier.

And our last question, do the inherent molecular advantages that enable polymer modulators to be faster, cheaper, use less power and package more compactly compared to alternative technologies become more pronounced as data center speeds move from 800 gigabits per second to 1.6 to 3.2 terabits?

Yes. Thanks for the question. The higher the modulation bandwidth, the more polymer shine. I mean this is the beauty of using organic materials as opposed to crystalline structure like lithium niobate or silicon or silicon nitride. Our material inherently responds better and faster when an electric field is applied to it. The speed at which we can change the refractive index to turn on and off the light is much faster than other materials.

Thank you. With that, I'll turn the call back over to Yves for any closing remarks.

We are fortunate that Lightwave Logic have dedicated, supportive and passionate shareholders. And we are looking forward to meeting some of you live or virtually at our next Annual Shareholder Meeting in May. Thanks to all of you for your many questions and interest in the company.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.