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

Ladies and gentlemen, greetings, and welcome to the Lightwave Logic, Inc. Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Coleman, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Lightwave Logic's update 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. Some of the matters we'll discuss on this call, including statements and our business outlook, are forward-looking, and as such, this call speaks only as of today, July 31, 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 operating results to differ materially from those expressed in the call. A more detailed description of the risks our company faces 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 may 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 all for joining today's call. Let me start by covering recent announcements and press release on our perkinamine polymer reliability and advanced encapsulation technique. We have received a lot of coverage after this press release was issued, a lot of questions, a lot of interest, and we believe it represents a significant milestone for our polymer material. But before I explain some of the details, I thought I should start with a reminder of the challenges that were faced by the organic LED industry. I found this old version of the MIT technology review that said and I quote, organic LED suffer from reliability issues that make them unsuitable for displays. Granted that was a long time ago, but it was at the time referring to the short operational lifespan, the extreme sensitivity to moisture and oxygen that this organic material was facing. And over the last 15, 20 years, the organic LED industry worked really hard at solving those issues. And ultimately, the solution came from a combination of better materials, better design and better encapsulation and moisture barriers. And now you look at where the OLED is today, I mean, it is mainstream. It is everywhere. It is in so many consumer electronics devices, in TVs and even in stringent automotive environment, right? And so the reason I bring this up is that I believe that polymers are on the exact same trajectory. There were really three main challenges that polymers, electro-optic polymers had to overcome. One was temperature. The second was sensitivity to light or photon sensitivity. And the third one was reaction to oxygen. And the way we dealt with this was that for temperature, we designed very unique structures called chromophores. They are really the structures that enable the fast modulation of the light. Those chromophore, we designed them in mind keeping the high temperature performance as a critical parameter. We call that high TG or the high glass transition temperature. That's how we dealt with temperature. For the exposure to photon, it was not really an issue as we were operating in a different frequency, in the near infrared space. But we have done testing, and we published that in the past that shows that our devices can sustain high exposure to photons. And finally, the oxygen protection is really the breakthrough we had over the last year, 1.5 years, where we came up with a very unique process to protect the materials through an encapsulation technique called ALD or atomic layer deposition. So this announcement that we made about the reliability of our material was really significant for our customers. Since I joined the company, it was pretty much always the #1 question I would get from potential customers in order to proceed with what we call the design win process. So we started this -- actually, we started this 85-degree temperature, 85% humidity test, we call the 85-85, sometimes referred to also as part of the GR-468 standard from Telcordia. We started this test on polymers on thin film, right? And they were -- that test, we started based on a Tier 1 telecom customer request in order to show that our material can operate at elevated temperature for a long time, but is also protected from oxygen and moisture exposure. And we did that with our generation-2 encapsulation process, which is the one that we have released a part of our standard PDK. And the results were very, very good. Now that we have demonstrated this and demonstrated the fundamental reliability of our materials, the next step for us is to do reliability on devices. And by devices, we mean either a silicon photonics chips or an optical engine or some packaged devices. This is not something we do on our own. It's something we do with our customers as they ultimately design the final product. So this is kind of our next step on reliability. But we are not stopping there, by the way. Our materials, we are constantly trying to improve not only the materials, but also the process, including encapsulation, but other process steps as well. This is part of our culture of continuous improvement. As part of this press release, we had also announced amazing results with our generation-4 encapsulation process, which is really a major improvement that will benefit future products and bring the robustness of our protection barrier to the level of what the industry calls gold box standards. Essentially, that's a term that was coined for the telecom industry primarily where people were using gold boxes, which are essentially fully automatic enclosures, completely protecting the materials from any outside influence. So the results have been shared with key customers and received very positively, really increasing the customers' confidence, the industry confidence on the readiness of the materials. So reliability was really critical for us in order to ramp and move to the next stage of the company. It's a slide that I have presented in the past that shows that we really moved from technology and materials and R&D development to customer and product phase for the company. And of course, reliability was a critical step for that. It's a great progress, but it's also only one of the steps required, right? We are making steady progress. The focus remains on the execution of the multiple pieces that are required for adoption and volume deployment of electro-optics polymer in the AI connectivity and hyperscale data center space. Now other steps, some of the steps we do in-house, other steps will be done in partnership with customers and foundries. The market is moving extremely fast with huge investment by multibillion dollars semiconductor companies. So it is not just the good old days of optics. Now the semiconductor industry is taking a significant role, and I would even say the lead in integrating photonics into their solutions. We believe this is great news for Lightwave Logic as our technology lends itself to address the challenges of some of the configuration that will happen in the future. One example of this is the emergence of co-packaged optics or CPO. And it is a new trend that is driven by the replacement of copper connectivity with electrical -- with optical technology. This is what's happening, in particular, in one configuration called scale-up, where essentially all the processors within a rack are interconnected today with copper and will gradually move to using photonics links to interconnect them. This is where co-packaged optics come in. Essentially, it requires the electronics, the switch or the ASIC or the GPU to be tightly integrated with the photonic chip. Of course, the market over the next couple of years will still be dominated by what is called scale-out, which is really the interconnection of multiple racks within a row or between rows in a large building, right? That's still being done using the traditional optical transceiver modules or pluggable modules that are inserted in typically switch or routers. But the fact that this new market comes up for scale-up brings a completely new opportunity for optics. It is an additive market for the photonics technology. And of course, that market requires very unique performance attributes. Of course, the bandwidth needs to go beyond 200 gigabits per second per lane to 400G and beyond. It requires very low power. This is one of the biggest challenge that the industry is facing. We believe that our electro-optic polymer, the perkinamine material offers some of this. And very importantly, it requires also tiny, tiny modulators. The density of the ports you want to be able to fit on what is called the shore line or the external border of the ASIC or the switch or the GPU requires to have really small modulator and size becomes very critical, not only size, but also the ability to do this modulator using integrated technologies such as silicon photonics. So that's where our materials shine even more compared to traditional legacy materials such as lithium niobate or indium phosphide or other 3-5 materials. So of course, we -- in the meantime, we also can address the traditional transceivers module technologies that require also scaling up in terms of bandwidth going to 200 and 400 gigabits per second. So as you can see, we have been extremely busy working with multiple customers. And the way we address these customers is kind of an engagement at multiple levels. On one hand, we engage with what I call them the market makers or industry makers and influencers, a company ultimately, we use these technologies to build either AI factories or very large high-scale hyperscale networks. Those companies, we have to convince them that our solution brings them a significant advantage versus alternative technologies and get them to adopt our technology into their road map. Then we turn into the actual implementation of the products that's where we talk to optical transceiver suppliers or silicon photonics engines, design houses that will implement and work with us to incorporate our materials into their optical engine or into their old solution. And then finally, we also talk to the foundry so that we have an ecosystem that is ready and can enable the deployment and processing of those silicon photonics chip with -- augmented with polymer. At the same time, we also need to be present into the different ecosystems. I've talked about the three big ecosystems that are emerging, and they are somewhat overlapping, but they're also somewhat separate. You have one in Mainland China, driven by a number of geopolitical considerations. There's a huge investment, of course, for AI and AI connectivity in China. There's one in the rest of Asia, primarily very active in Taiwan and in Singapore in particular. And then you have the more traditional Western suppliers from North America, a few in Europe and Israel. So we need to cover all of this. So as you can imagine, we've been very, very busy in terms of our customer and foundry engagement. And although we cannot disclose names and details of specific customer engagement, we wanted to use a few select examples in this call to provide our shareholders with a better understanding of where we stand in our path to design wins. So a good example is a program we have with a Fortune 500 company based in Asia, what we would call a Tier 1 customer. And we started this program a few months ago, and we are now processing their first-generation silicon photonics, 200 gigabits per second per lane test chips at our facility in Denver, Colorado. And we are doing that by adding our perkinamine polymer material to their chips in order to validate the performance and the design of the 200G per lane slot. Upon successful completion of this test, we expect to launch a formal program with them and move to what we call stage 3 in our design win cycle with a transceiver design program using silicon organic hybrid chips. What is also interesting in this program is that we are also working closely with this customer to down select the right silicon foundry to process the silicon photonics chips augmented with EOP in order to be able to produce in high volume with high yields. Another program that we have is a technical program launched with a Tier 1 company in the AI connectivity space to integrate our polymers into a CPO configuration at 400 gigabits per second per lane. This is at early stage, but will likely require some specific tuning of the EOP materials and a fairly stringent reliability qualification campaign. It will also include specific assembly and packaging process development jointly with our customers and their manufacturing partner in order to enable a much tighter integration of the photonic chips with the electrical IC. In parallel, we are also engaged with several silicon photonics design houses, some of them are vertically integrated, meaning that they are designing the entire transceiver module. Some others are focusing solely on the silicon photonic PIC or the optical engine. And those customers include both Tier 1 and new companies either privately or VC funded and aiming to enter the market. The goal for us is to have a mix of customers, both Tier 1 that will give us the credibility and the volume, but also new emerging companies that will be maybe more aggressive in bringing products to market faster. The goal for us is to intercept the 200G per lane opportunities by augmenting their silicon photonics chips and replace the first-generation EML laser-based transceivers and by providing significant power and cost reduction, right? Of course, the goal is not to stop there. We want to continue after these initial programs at 200G and migrate to 400G per lane where we believe our technology will shine even more. So we expect some of these engagements to reach stage 3 over the next few quarters. In addition, we continue to bring in new stage 1 opportunities as acceptance of EOP as a reliable material continue to grow with customers. We recently engaged -- a good example is we recently engaged with a Tier 1 hyperscaler and are planning to ship them prototype samples of our modulators to be evaluated in their lab for the transition to 400 gigabits per second per lane. So as you can see, and although we cannot be specific, I mean, these broad types of engagements and customers give us confidence that the industry is ready to accept electro-optic polymers as a superior alternative to traditional materials. Like many new products, we still have multiple barriers to overcome to close these design wins and prepare for high-volume production, but the momentum is excellent. And we are now spending quality time planning for the scaling of our production and process infrastructure to ramp up production. As part of this planning, we continue, of course, our work to assess and identify the right foundries for both the front end and the back end of line. And we do this in partnership with our customers. So as a result of our technical progress to date, we are reaffirming the expectation to have 3-5 customers at stage 3 by the end of the year of 2025. So to close my comments, I would like to express my deep gratitude to the Lightwave Logic team and in particular, our technical community for the outstanding progress, the hard work and the dedication. With that, I will turn it over to Ryan for the Q&A session.

Thanks, 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 prepared remarks and selected the ones most frequently asked for the purposes of this discussion. Our first question, is the fourth-generation encapsulation ALD a new proprietary revenue option across the photonics and semiconductor industry? How big is the opportunity? And can it be attractive to Samsung, LG and other OLED display companies like Apple?

Well, thanks for the question. I mean this was not the reason for the development of this new encapsulation technique. We did this as part of our philosophy of continuous improvement or what the Japanese like to call Kaizen. As I explained, I mean, the reliability demand on materials will continue to increase, driven by new applications such as this co-packaged optics, CPO and essentially the path towards tighter integration of electronics and photonics. So that's why we are constantly improving our process. Now I'm not ruling out exploring options for using this process in other markets in the future. I think that's a possibility. But I want to be very clear. Our focus is on execution and taking advantage of the large market actionable today and right in front of us with AI connectivity. We have a lot of work to do as part of our productization and commercial engagement, and we cannot take our eyes off the ball.

Our second question is on device-level reliability. Can you clarify whether any of the Telcordia GR-468 tests have been performed on package modulators or full PICs? And if not, when do you expect to begin those tests?

Yes. Good question. I think I covered some of that in my comments, but I think it's worth clarifying that our GR-468 test was performed on raw materials on thin film, right? So these materials were not incorporated on full photonic integrated circuits or PICs, are not integrated in packaged optical engines or package modulators, right? This is the work that we will do in partnership with our customers when they reach stage 3. Actually, we are doing with a customer today who is at stage 3. However, I think it's also important that although we have not done the full reliability test on devices or PICs or modulators, we have done what we call red flag testing on our internally developed PICs in order to build our own confidence that the excellent reliability of the raw materials would then translate into similar results when integrated and packaged. So we will continue to report on our progress there as we go through the design win cycle process.

And on the foundry integration time line, what is the current status of your process design kit release for foundry partners? And are you targeting specific silicon photonics fabs for integration?

So if you remember, we released our PDK earlier this year, I think it was in March. And we actually intend to continue to bring new and improved kits as we -- they become available and we continue to scale and improve our processes. We have already announced AMF, Advanced Micro Foundry in Singapore as our foundry partner and are working with several new foundries to validate their compatibility with our back-end process as well as their front-end process and to performance. We have very specific requirements that we share with them and then we validate essentially their performance to make sure that they can process our material and deliver the right -- not only the right performance, but also the right yield so that we can scale to high volume. We are also evaluating partnering options for the future transition from essentially what is today most of the industry, which is 200-millimeter wafers to 300-millimeter wafers, which is 12-inch. The industry at some point will migrate there. So we want to anticipate that we have the right partners to do that transition.

Can you outline the key technical and commercial milestones that you expect to hit over the next 12 months that would signal readiness for product-level deployment?

Yes. So the design win cycle process we outlined at the Annual Shareholder Meeting, I mean, describes kind of the key steps that need to happen on the path to volume production. I had mentioned that it is 18 to 24 months end-to-end process that is made up of a series and many technical and commercial milestones on the way. Some are directly under our control that we execute inside Lightwave Logic, some are jointly executed with our customers. Some are firmly under the control of our customers where we are simply spectators. Some depend on foundry execution, some are related also to the end user acceptance of our customers' product, right? So all of these pieces have to converge and are required to bring a product to volume production, which basically explains why this end-to-end process can take up to 2 years.

And our last question. What other tests are interested parties looking to see performed, particularly for CPO applications? And if none, is perkinamine CPO ready?

Good question. So as I mentioned in the presentation, I mean, CPO is a very interesting and active opportunity, but it is also very new and still somewhat undefined. It is really one of the first new product architecture driving such a tight convergence of electronics and photonics. So as a result, there are really no standards yet. Multiple options are being evaluated with various proprietary products and new manufacturing processes. So we are actively involved in several projects and believe, as I mentioned earlier, that our materials offer a unique and distinctive advantage, primarily size, power, integration and performance, especially compared to lithium niobate or indium phosphide. But it is a bit early for us to give more specific color on the role we will play in the CPO ecosystem as it is very much being defined as we speak.

Thanks, Yves, and thanks again to everyone who submitted their questions. I'd like to turn the call back over to our operator to conclude today's call.

Thank you. Ladies and gentlemen, the conference of Lightwave Logic, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.