POET Technologies Inc. (PTK) Earnings Call Transcript & Summary

Good morning, everyone. And welcome to POET Technologies financial and business update conference call. As a reminder, this conference call is being recorded. And now, I'd like to turn the conference over to Brett Perry, Investor Relations for POET Technologies. Please go ahead.

Thank you, operator, and welcome to everyone participating on today's conference call over the phone and via webcast. I'm Brett Perry, vice president of Shelton Group, POET Technologies investor relation firm. Joining us on today's call is Suresh Venkatesan, POET's chairman and CEO, Vivek Rajgarhia, president and general manager of POET technologies, and Thomas Mika, executive vice president and chief financial officer. As previously mentioned, today's call is being recorded for replay purposes. A link to the webcast replay can be found in the investor relations section of POET's website at www.poet-technologies.com. We've also posted a series of supporting slides in the IR section of the website. However, to avoid any confusion, I want to emphasize that management's prepared remarks are independent of this supporting material and, therefore, the remarks on today's call are not directly tied to specific pages or the order of content in the supporting slide deck. Additionally, for those joining the call over the phone, we will conduct a Q&A session following prepared remarks at which time the operator will provide further instructions. Before turning the call over to management, I'd like to remind listeners to review the safe harbor statements included in POET Technologies, recent press releases and regulatory filings. On today's conference call, managements prepared remarks will include forward-looking statements, and we may make additional forward-looking statements in response to questions. These forward-looking statements involve risks and uncertainties as well as assumptions and expectations as of today, April 27, 2022. The company's actual results may differ materially from those anticipated in any such forward-looking statements, which can be identified by terminology such as "may," "well," "should," "expect," "plans," "anticipates," "beliefs," or "estimates," and other similar expressions. The company assumes no obligation to update or revise forward-looking information or statements except as is required by law. More information about other risks that could cause — that could impact POET's future business and results are set forth in the risk factor section of the company's filings with [indiscernible] in the SEC. And finally, all financial numbers referenced on today's call will be in US dollars unless otherwise stated. It's. Now my pleasure to turn the call over to Dr. Suresh Venkatesan for his opening remarks. Suresh, please go ahead.

Thank you, Brett. Good morning and welcome to all of those participating on today's conference call. We appreciate you joining us and for your interest and support. Our company has been trading on the NASDAQ for about 6 weeks now, and we expect that some of you participating in today's call are relatively new to POET's story. So I would like to take a few minutes to review the company's history and our current business strategy. Although we've been public for 15 years, as the company's CEO since the middle of 2015, I still think of POET as a startup. Coming from a long career in the semiconductor industry, during which I introduced many new technologies to the market for the first time, I looked carefully at the technology that the company had at that time and determined that we needed a new direction. But I earnestly believed, based on my experience and the requirements of the market, that the core mission of the company around integrated photonics was correct. The combination of devices into smaller, more integrated designs really has been the basis of advance in semiconductor technology for the past 50 years. With stunning amounts of innovation bringing countless services and capabilities to our modern lives, with the emergence of cloud data centers providing information and entertainment to our TVs, cell phones, and smart devices, the demand for more data at lower cost has driven growth and innovation across many aspects of data communications, technology, and services. But one area that has lagged well behind others is the way that photonic sub-assemblies, what we call engines, are built. They've got limited integration and come with a very high cost of both capital and labor. So we identified that as a problem that needed a new solution. However, to succeed in a space with large companies spending billions on technology development, a new startup such as ours must create a truly disruptive product that will compete, not just with what others are producing today, but with products grounded in technology that will continue to be competitive far into the future. As I've always said, competitive differentiation is good; sustained competitive differentiation is the key. And that's what we're after here at POET. So in 2018, we adopted the strategy of hybrid photonics integration that we're following today, based on our invention of the Silicon based POET Optical Interposer, which is a completely new and innovative way to combine electronic and photonic devices into a single chip-scale package produced entirely at wafer scale with standard semiconductor capital equipment. After 2 years of platform technology development, we transitioned to product development in 2020. And we have just in the past few months delivered first fully functional samples of our optical engines to customers. In the photonics world, this is an extremely short time to develop products. The gestation period is usually 3 years or more. We validated the platform first at 100 gig as a proof of concept with a systematic development path to extend the capabilities to higher speeds and higher data rates. I'm pleased to say that the products that we delivered and recently demonstrated live at the optical fiber conference made a strong positive impression on several of the largest and most well-known companies in the data communications and telecommunications industry. This year's OFC was really our first opportunity to get face to face with customers, where they had a chance to physically, face to face, see our optical engines and operations. We have not have this chance before due to COVID and all of the other restrictions. So it was extremely gratifying to see the response we got and to get the visceral reaction from the customers on what it is that we had accomplished. On a personal level, it was extremely gratifying for me to see the reaction many industry leaders had. They had positive things to say about what we had accomplished in terms of size, scope, and performance. I now believe that in the Datacom telecom space, we have a technology platform that has the potential to gain a significant share of the market for optical engines at 400, 800 gig nodes while opportunistically serving the 100 gig, 200 gig markets as well. And because of the size and level of integration that others had not even conceived of matching, to subsequently take these nodes and deliver pluggable optic solutions for 1.6 terabytes per second, 3.2, and even 6.4 terabytes per second in a single chip-scale form factor. The simplicity of the architecture of the Optical Interposer, the bandwidth density, and the energy efficiency, the flexibility of the design for different formats and applications, and the ease with which module makers, network equipment suppliers, and data center operators can utilize the Optical Interposer all point to an opportunity for POET to become a de facto integration standard in the photonics industry. Opportunities for the company in the data communications and telecommunications market are large, but they are outstripped by the potential size and growth in other areas in which the fundamental features of the Optical Interposer can be applied: 5g networks, AI accelerator, and other photonics computing and computing chips — communication and computing chips, automotive LIDAR, wearables. These are all areas that we believe represent fertile ground for products based on our technology, but we have to walk before we can run. So let's review where the company currently is on our product development roadmap. At our annual general meeting in October last year, in [indiscernible] posted on our website, we outlined a roadmap in which our initial products: 100 gig CWDM4, LR4, and 200 gig FR4 would be moving from alpha to beta during the first half of this year. I'm pleased to say that despite intermittent shutdowns related to COVID-19 in both our Singapore and our Shenzhen lab, those milestones are intact. We delivered our final LR4 designs to our leading customer and expect to be shipping beta samples to our other customers in May. It was exciting to see our leading LR4 customer announce future availability of their products based on our solutions at the OFC. It speaks to increasing levels of confidence in the technology and our ability to execute to the roadmap. A critical and pivotal next step in our product roadmap is 400 gig, as it is the speed that is ramping up today in data centers. And it is a basic building block of future 800 gig architectures. We have executed flawlessly on the 400 gig RX engine, being one of the few companies that demonstrated hybrid silicon photonics based integrated [receive] solutions at 400 gig at the OFC. We will also be developing this year a version of the 400 gig receive engine with an integrated hybrid transimpedance amplifier, which will also mark our first product with full optics electronics hybrid integration. The 400 gig transmit solution has been a challenge, however, given third-party delays in the delivery of key components, particularly the modulator. Nevertheless, we are actively working to mitigate this risk by pursuing alternate modulator sources in North America and Europe, and even designing our platform to be external modulator free through the inclusion of advance high-speed lasers that are being introduced to the market now. Delivering 400 gig FR4 transmit and receive optical engines in both alpha and beta versions are key milestones for the company and will be important entry points for POET this large and growing segment of the transceiver market. Long term payoff is in the way we can scale the speed of these devices because of the small size of the Interposer Platform. We're the only company today that can place 2 complete 400 gig FR4 optical engines into a single QSFP module for a 2 x 400 gig or an equivalent of an 800 gig market. Beyond that, we can architect 4 400 gig engines into a 1.6 terabyte per second module or [chiplet]. In fact, we already have designs for up to 6.4 terabytes per second, with a staggering 20 gigabits per second per square millimeter of real estate. This is almost 10 x the bandwidth density of alternate solutions we've seen. Data versions of our Light Bar products should also be available in the second half of this year as planned. These are potentially large- volume products as both module makers and network equipment operators use remote light sources that allow for thermal management and ease of laser replacement. We're applying the light designs of our Light Bar in our products going to Celestial AI, a designer of AI accelerator chips, and others in an addressable market that the market research firm [OMDIA] projects at larger than 70 billion in 2025. When this market takes off — and it will, it's really a question of when — the volumes in this market are greater than 10 x larger than the highest Datacom volumes we see today. Clearly servicing such volumes requires wafer-scale engine assembly, which is exactly what POET does. There is no way such a market can be served using conventional integration techniques that are being used in the market today. What also makes this market so interesting for us is that for each of these chips — whether they're accelerator chips or communication chips, or optical computing chips — they all need their own light source. It's a 1: 1 attach rate, and it spells a tremendous opportunity for POET. In summary, based on what we observed at the OFC, we believe that there are significant and sustainable advantages of our hybrid silicon photonic solutions in terms of size, complexity, and energy efficiency relative to the alternatives. We believe that the entire industry needs and is looking for a means to combine best in breed components onto a small, flexible, easy to understand, easy to use, energy efficient platform with built-in features like multiplexing on other component integrations, including scalability for generations of devices. We believe you already have that platform. We call it the POET Optical Interposer. As a further testament to the increasing awareness and traction of our solution, we've been invited to make presentations at the PIC conference in Brussels in June. At the ECOC conference in Basel in September. Our paper entitled "A Wafer-Scale Hybrid Integration Platform for Co-Packaged Photonics Using a CMOS Based Optical Interposer" was also accepted for publication at the VLSI Technology Symposium, which is a peer referred premier conference for CMOs technologies in the world and a conference with historically low acceptance rates. I'll turn it over to Vivek, POET's president and general manager to describe why we believe that OFC was such a milestone event for POET.

Thanks, Suresh. Good morning, good afternoon. I would like to add some color to what we experienced at OFC and to review in general our interactions with customers as we pursue our new product introductions, both in standard products and in custom developments for certain customers. Product introductions are all about building momentum. This is especially true with the new technology that customers do not yet fully understand. With our appearance at the virtual OFC in June 2021, where we showed a live demonstration of 2 of our optical engines. This was followed up in September of 2021 with demonstrations of 6 different variations of our optical engines and a talk given by Dr. Mo at the CIOE, or China International Electro-Optics Conference (sic) [Optolectronic Exposition] in September. Most recently, we appeared at the Optical Fiber Conference (sic) [Optical Fiber Communication Conference] in San Diego in mid-March, showing 2 function — fully functional products in the 200 G and 400 G space. They were very different in size and capability than any other products being shown. As some visitors to our booth came back several times, they began to understand what they were seeing: a truly revolutionary approach to device integration in photonics. POET’s challenge is to convince the industry that there is a different way to build photonic devices than the way it has been doing for a few decades, whether invested in conventional assembly with its high capital cost and labor cost, or in photonic integration using silicon photonics, in which some companies have invested tens and hundreds of millions of dollars. Asking customers to step back and view the problem from a different angle often takes a person of exceptional credibility and experience. That's why we are pleased to be joined recently by Raju Kankipati, our new vice president of product line management. I have worked with Raju in previous companies, and I believe he brings to POET experience with deploying innovative components and network equipment in rapidly expanding markets. I believe that as he builds a team out of the Allentown office to service customers globally, he will prove to be a great addition to POET’s management team, complementing our leadership in other locations. As Suresh mentioned, last month's OFC event in San Diego was a watershed moment in the history of POET, with several key players in the industry, becoming aware of POET’s products and solutions, and seeing our optical engines in action for the first time. We conducted live demonstrations of our 200 GFR4 transmit and our 400 GFR4 receive engines. FR4 is a multiplex standard, meaning that we can mix the signals of 4 independent laser generated frequencies into one channel and transmit the mixed signal along a single fiber to quadruple the speed of the [indiscernible] data transmission. When a multiplex signal comes into a receive side of the module on a second fiber, it is filtered or de-multiplexed on the Optical Interposer into the original 4 frequencies. Compared to other 400 G transceivers shown at OFC, which were predominantly built to DR4 standards that require 8 fibers per module compared to our 2. There is a cost difference in the fiber needed, but more importantly using only 2 fibers is a way for data centers to utilize the existing fiber investment more efficiently. POET is the only supplier of a fully integrated [indiscernible] built into the Optical Interposer itself, which lowers the cost and increases the energy efficiency of the device: 2 key competitive advantages for POET’s optical engines. History has shown that when a multiplex version at a particular speed is available, the market usually gravitates to it because of these costs as efficiency factors. Meta, formally known as Facebook, recently began deploying 200 GFR4 modules in their data centers. [Tencent] in China is also deploying 200 GFR4, and Google is deploying 2 x 200 GFR4, followed by 2 x 400 GFR4 as an upgrade path. The market for 200 GFR4 is projected to be several million units over the next 2 to 3 years. Also, because of our small size, roughly 50 millimeter square of silicon, we are able to easily fit 2 of our 200 G optical engines as well as 2 of our 400 G FFR4 optical engines in the compact QSFP double density module. In the weeks following OFC, we have been following up with potential customers and strategic partners in the US, including face to face visits with several companies — a welcome departure from the virtual conference calls over the past year, 2 years due to COVID. The meetings include visits with network equipment suppliers, data center operators, and laser suppliers. They're going very well. And we expect to continue to follow up and to add to our customer list in the coming weeks and months. The customer landscape for POET breaks the are into 2 distinct type of customers: those for what I will call our standard products and those that are new and novel designs that take advantage of the Optical Interposer’s unique features. Our standard products include our 100 G and 200 G CWDM4, LR4, FR4, and 400 G receive optical engines, to which we will add 400 G FR4 4 and DR4 transmit engines later this year. All of these optical engines will be assembled and sold through Super Photonics, our joint venture with Sanan located in Xiamen, China. POET will design and sell our more advanced products beginning with 400 G outside of China and extending to our 800 G 1.6 terabyte products and beyond. Once customers have completed reliability testing using our beta samples, we expect that they will place purchase orders directly with SPX for initial production units. We currently have 3 such customers in China who have committed to using our optical engines, with several more customers in the pipeline, and others asking for more advanced designs. Customers interested in our standard products are looking for a means to grow their market share against large module suppliers. Fiber [indiscernible], for example, is a company that sees POET as a means to both expand market share and adopt a platform that will allow it to offer multiple generations of product at higher speeds. The advanced designs or more custom product sales will be handled by POET. These usually require more design and engineering efforts and expense that is typically covered by the customer in what we call NRE, or non-recurring engineering payments. This type of sale is what is customarily associated with a design win. We have 3 such projects ongoing at POET. Since signing the joint venture with Sanan in October 2020, we have been building Super Photonics company in Xiamen, collocated with Sanan IC. Poet recruited most of the senior staff of SPX, and I am the representative member of the JV board from POET. The company now has 30 personnel and all of the equipment needed for the first production line for the assembly and testing of optical engines. They are actively engaged with our teams in Shenzhen and Singapore as well as in Allentown to produce samples and evaluation boards for the 20 or so companies that have requested samples of a 100 G and 200 G optical engines. They are also refining all of the assembly and the testing steps with the objective of reducing production time, increasing yields, and preparing for production. The building of critical capabilities in Singapore, Allentown, Shenzhen and Super Photonics and aligned with the talent that these hubs provide for semiconductors, photonics, and opto-electronics is paying fruits in an [indiscernible] the industry with the Optical Interposer based solutions. Key milestones for SPX and for POET for the remainder of this year are to deliver beta samples to customers for our 3 contracted advance projects, deliver beta samples on evaluation boards to other potential customers globally, release the products to production and to prepare for ramping volume, and produce the first samples of a 400 G transmit optical engine. We all know the advantages that the POET Optical Interposer brings to the optical transceiver and co-packaged optics markets and are confident that customers are beginning to understand the benefits as well. We are highly motivated with a strong team and expect to grow the company in these markets as well as to other vertical markets like artificial intelligence, accelerator chips, and variables for health monitoring. I'll now turn it over to Tom Mika, board CFO, to review the overall financial business highlights for 2021 and to provide some insights into 2022. Thank you.

Thanks, Vivek. I would like to take a few moments to review the financial highlights for the year ending December 31, 2021, and to speak to our recent listing on the NASDAQ and our efforts to reach out to both retail and institutional investors. The company recognized a small amount of revenue in 2021, just over $200,000 for non-recurring engineering, which was the first revenue recognized by the company in 3 years. NRE are payments from customers for engineering work to adapt the Optical Interposer for a specific application. In this case, the $200,000 represented a partial payment for architecting 4 of our optical engines into a single module. This customer also placed a purchase order for initial units of optical engines for a combined value of $1.2 million. Overall operating expenses for the year ending December 31, 2021, rose to 17.3 million, an increase of 2.5 million over the prior year, reflecting a large increase in head count to approximately 50 at year end compared to a about 25 as of December 2019. We added to our engineering admin and management teams. Overall cash used in operations for the year was 11.4 million compared to 9.7 million in the prior year. For the first time, we recognized a gain on our contribution of intellectual property to the joint venture and at the same time also recognized our share of the losses. Both the gain and the loss were non-cash charges. On a per-share basis, our net loss was $0.45 cents for the year compared to $0.62 cents loss the prior year, all based on the consolidated share amounts. Our cash burn remained at $1 million per month, which was the same for the prior year. Cash and cash equivalents plus short term investments at year end stood at 21.3 million compared to 6.9 million at the end of last year. We had cash inflows of a combined 28 million with 12 million from the public offering and 16 million of warrant and option exercises. We repaid all outstanding convertible debt of 3.3 million almost entirely through the conversion to equity. The company committed to invest about 1 million in CapEx against which we paid approximately 800,000. We exited the year with one of the strongest balance sheets and liquidity we have ever had with 21.3 million in cash and short-term investments, no debt, and sufficient working capital from more than 14 months of operation. The company continued to invest in patents with 18 of our portfolios specifically related to the Optical Interposer. In addition, we have 21 applications filed and 3 other applications in preparation. In order to reduce a large backlog of recorded patentable ideas, we brought in Dr. Robert Ditizio as VP of intellectual property in December. Bob Ditizio has been working with us as an outside consultant since 2017 on our patents and other intellectual property issues. Subsequent to year end, the company proceeded with a direct listing and began trading on the NASDAQ capital market on March 14, which was preceded by a 10 for 1 consolidation of our shares, which took effect on Monday, February 28. Regarding the recent NASDAQ listing, it's important to note that the benefits, including exposure to a broader investor audience, are not expected to be immediate. The NASDAQ listing itself is not a magic bullet, but it is important for enabling access to our shares by institutional investors in the US as well as internationally. POET’s previous trading on the OTC QX and on the TSX venture exchange restricted many institutions from investing and therefore also from doing the prerequisite due diligence on the company. Institutional investors have large portfolios, which entails doing research and following a lot of different companies in stocks. Unfortunately, they don't buy into a new company simply because it's now listed on the national exchange. However, it does increase their motivation to do more homework on the company, and we anticipate that the benefits of our NASDAQ listing will be realized over time. Regarding the recent trading pattern in POET’s shares, I believe this is largely a byproduct of the change in overall market sentiment, which has gotten significantly more negative over the past several months. With the exception of a small number of mega cap companies, the NASDAQ composite index, and nearly everything in the technology sector and smaller cap has performed poorly since the beginning of the year. In fact, 75% of all NASDAQ stocks are currently trading below their 50-day average, and over 82% of all NASDAQ stocks are trading below their 200-day moving average. Looking at smaller technology listed on NASDAQ, there are numerous companies that are down 30, 40, or more than 50% year to date. During the last week, more than 1000 companies, or over 20% of all NASDAQ listed companies, have set new 52-week loans. While POET management shares in your frustration about the recent stock performance, there are relatively few companies — or stocks that have sustained trading that is counter to the trend of the larger market. We believe the main reason for going to the NASDAQ remains sound with our thesis intact and that we expect the additional opportunity of attracting institutional investors to our stock that were not previously available to us. Any share price gains that we achieve will be longer lasting than those we experienced on either the OT QX or the TSX Venture Exchange. I can assure you that we are, are not expecting our exposure to investors or any increase in our share price to happen on its own. At the beginning of the year in preparation for our direct listing, we began a number of initiatives to reach out to both institutional investors in the US and Canada as well as retail investors in both markets. We substantially increased our media outreach with articles and several key journals, which were distributed through multiple channels. We produced several videos in-house for our YouTube channel, and those were highlighted by at least 2 stock channels. Our engagement with social media increased substantially over last year with double digit increases on key platforms. Our engagement with North Equities multiplied our efforts with direct messages to 35,000 followers and impressions overwhelmingly positive on platforms such as Discord, Telegram, and Twitter. To attract institutional investors, we are also in need of additional sell-side coverage. We are in discussions with the analysts of several prominent banks in the US on what that may take to achieve such coverage. And there has been significant interest expressed based on our recent success at OFC. That completes our prepared remarks, and we will now open the call to questions. For that, I'll turn it over to the operator.

[Operator Instructions] Our first question comes from Lisa Thompson with Zacks Investment Research.

Okay. I will just focus a little bit — I mean, you gave so much information, there's hardly anything to ask at this point. But I'm interested in this company that you have a contract with that says you're going to pay $1.2 million. Is that some sort of minimum, or how does that work, and how does the company introduce a product at a trade show and not have even bought the components of the product before the announcement? So there must be something in Q1, correct?

I mean, usually companies have — they make future announcements, availability of capability and so that's what companies do. They introduce a future product. And so in this particular case, that's what was done. Of course, with these customers we've been working for a while — I mean, obviously we've got samples and they're building their designs and their triplets and so on and so forth to go with it. So that is not necessarily different from the norms in the industry. It was just nice for us to see that our solutions are going into products that are then getting announced, and they have to also build their customer base and on that product base. In terms of, I guess, initial — I would say it's NRE plus initial production, right? It doesn't represent what we believe the business is going to be worth. It is just a very initial commitment in terms of dollars, like I don't know if you want to have any additional comment on it.

So as you mentioned, Lisa, when we get into a custom design and product, there's 2 parts to it. One is being compensated for this customization through the NRE, but also most, if not all, our objective and we engage with customers where after developing, designing, and developing the product we expect and the customer expects to go into production. So it's not just a design service, right? So what we usually negotiate — and in this case we did — there's at least an advance PO that once the design is done, we have a PO for products. So that is just an initial, as Vivek mentioned, we would expect that to ramp up as product volumes as our customer gains traction.

Did they happen to say when they announced the product, when they expect it to be available?

So we are working closely with them. It's a very close collaboration, as you can understand, because their product is based on our optical engine. So as we mentioned on our roadmap, we get into production later this year, so that is aligned with their products and getting into — so they do have previous generations of products. This is the next generation. So they have traction at customers; it's getting into that next [indiscernible] generation products, introducing that to their customers. So that's — I think that should give you an idea. Yes.

Okay, great. That helps. And the JV, I guess, Fibercon is supposed to be the first customer to start [indiscernible].

Customer, we were able to announce. As you know, we can — customers are seek — they want to — it's their differentiation of using a next generation platform like ours. So Fibertop is one of them. We are working very closely, making great progress. And we plan Fibertop plans to get into production, also, aligned with our production schedules.

So were they the first, or they're the only ones that you can use their name?

At this time, yes. So we keep asking customers, of course, but at the same time customers value their differentiation in using our engines. They don't want to reveal it to their competitors. So it goes back and forth. But as we get customer acceptance or approval to release names, we would like to do it, especially for our shareholders to understand and realize that we are gaining quite a bit of traction. Just because they're not hearing names doesn't mean we are not getting traction.

Yes. Right. I've had this conversation with Tom. Is there any way that we can tell that your product is inside somebody else's by its specs or something other than ripping it apart and looking for your name stamp for it somewhere?

Yes, that's an interesting question. I mean, there was a case where we were obviously doing a product that is custom, and a third customer or potential customer of theirs had come by [indiscernible] we were doing. And they immediately figured out that we were likely the only way that particular product could have been done. So, I mean, there are certain cues that would suggest that we would be inside the product, but I suppose at some point when the products are actually released, those things will become public and they're readily understood and available. You have to understand the dynamics, and there might be other questions relating to the same topic that I might as well just bring up and answer now, which is we are an integrated optical engine, which means our optical engine comes built in with lasers and [indiscernible] and other components. So we're basically supplanting an existing supply chain associated with these other components when a customer utilizes our engine. So clearly, there's sensitivity associated with that. If, in the case of our hundred gig engines, we're using lasers and photo detectors from Sanan — I mean, these customers are already using other lasers or other photo detectors, then there is a change, and there's sensitivity associated with these kinds of things. So that does erect that kind of sense of, no, we can't until we're all done. It's going to be really hard to get that kind of visibility and transparency out.

Yes. So Lisa, just to add there, as you know, most of our products are going into these MSA form factors, right — multi-source agreements. So from the outside, they all look similar. So except for cases, as Suresh mentioned, where some people can put 2 and 2 together, right — that they could only achieve a certain application or way of doing things by using our engine. So they can put 2 and 2 together. Otherwise from the outside, they all look similar. So it’s difficult to identify that they’re using our engine inside.

Our next question comes from Kevin Dede with H.C. Wainwright.

Maybe just to address Lisa's perspective, you could put a little sticker on the module that says POET inside. Take a page from Intel. Suresh, could — would you mind just reviewing from a high level. You mentioned 3 standard products in contract and 3 custom products in contract. Could you review the timeline to market for those 3, let us know if you have signed agreements there, if there's stipulations around volume, and any details you can share with us publicly, please?

Yes. So we have announced, 2 of the contracts, which are signed contracts, and there is a third one, which is a commitment on both sides, and we are working together. So that is there. In terms of volumes, Kevin, as I mentioned, it is aligned since their products are very much dependent on our engine, and we are also dependent on their schedule of the complete module for release. It’s interdependent. And we expect by — towards the end of the year, those would start production, generally speaking. The standard products are more where either the customer like Fibertop is trying to introduce a product and take share from incumbents, so although they can bring the product out because they will have to win to win business and get the volumes out. But as I mentioned, our interactions with customers and customers clearly understand the objective is to get into product with future volumes. It’s not a design service that we are doing. So that is very well understood. And we expect to be in production with most of these by, towards end of the year.

Kevin, just to clarify, on the advanced projects, all 3 of those have contracts associated with them. On standard products, it doesn't really require a contract until they want to maybe lock in some volume once they've qualified the product and have decided that they're going to introduce and win business from their own customers.

Yes. I do want to mention, Kevin, that even though in — for standard products, there's no contract, but those customers are actively designing their solutions using our engine, which is a big commitment for us, right?

So there's NRE associated in the custom side, but not necessarily on the standard side. Is that the correct assumption?

That that's a good way to look at it, yes.

Can we talk a little bit about supply chain? I know Suresh mentioned a little of this, and I understand the secrecy associated with it, but I'm wondering how you would assess changes in your ability to source product given logistics issues related to COVID or not, [indiscernible] operating or not? Can you give us your perspective on that and how comfortable or whether, or not your level of comfort is improved versus where we were, say, 12 months ago and how you might it looking forward 12 to 24 months? I think they're obviously — looking from the outside, it's really difficult, right, because none of this is necessarily tangible from somebody sitting in San Francisco. But as much as you could share on that logistics side of things and manufacturing, vis à vis China, COVID, logistics, transportation.

Kevin, I think that there are, I mean, there are clearly many issues associated with the supply chain that we are — we continue to face as a company, POET. I mean, just on a broader, grander scale, I should — just so you guys have visibility and I'm sure you do, but at least the appreciation. This prolonged shortage starting with COVID, continuing with COVID, and now with the war, and a whole bunch of things geopolitical, it's been a challenge and a stress on small companies. I mean, this is an environment where big companies get bigger because they have the clout, and the buying power, and everything else. And so all of the initial supplies is targeted for the big guys and for some of us we've got lead time that can be 52 weeks long, in terms of [indiscernible] lead time. So what we've been doing to manage this is to systematically look at where our dependencies are and risk mitigate to the extent that we can. So we are sole sourced at [indiscernible]. So we manage that very, very closely from a relationship perspective so we get what we want. We've got an arrangement where we buy a certain number away for the month. So there's, for them a predictability associated with our orders, and for us there is predictability in the supply. But outside of that, substrate supply, other equipment spare part supply — we're kind of managing a lot of that internally through — frankly, pre-ordering relationships that we have and leveraging that. That said, I should say one area that we did see an issue, and we're now working hard to mitigate our risk there, is the modulator. If you recall, last year we'd announced an agreement with [indiscernible] in China to supply us to with modulators compatible with our platform. And our platform's been ready since January to receive these modulators, but due to their supply chain associated with their boundaries and delays and with the shutdowns in China, they've had some challenges delivering to us. So we do see these impacts and the best we can do is to manage them with dual and triple sources. As of a couple of months ago, we started actively engaging with alternate suppliers for modulators because we see the risks. And so we're trying our best to mitigate ourselves from a schedule perspective. I think we've done exceedingly well relative to what we see, in terms of how people [indiscernible] to us relative to what we've been able to accomplish. Could we have done better? Absolutely. But, to the extent that we have things in our control, we have executed flawlessly. And I think where we've felt challenges is in some interactions with third party suppliers that we've had to deal with.

Thanks, Kevin. We’ve got a couple of other questioners, and we only have a few minutes left, and we'd like to give them an opportunity to ask their questions.

Our next question comes from Tim Savageaux with Northland Capital.

I wanted to continue to focus on the committed-customer topic here, and I assume we should relate what you've described as the 3 maybe JV based standard product relationships and the 3 POET custom projects with the 6 committed customers that you outline in your funnel slide here. And I guess I had a couple of questions about that, which is, given the size of the pipeline above that, I guess, as we look maybe to the end of this year, where do you see that 6 committed relationships going? Do you have a target for what that might look like in the future? And as an aside, might that include a direct relationship with a cloud operator? And if we look at those current 6 committed relationships, any sense of the market opportunity or revenue opportunity associated with what you have now? And I have a follow up.

So I can address the customer traction here. So Tim, thanks for your question. So the more custom type of designs, we are engaged with certain opportunities and customers, and we do believe a couple of them will pan out towards the end of the year. There are not going to be several opportunities of that type. Also, it's difficult for us to handle many of those. So you can view that as maybe a couple more towards the end of the year. They are more advanced, so they too take longer to get into revenue and things like that, as you can imagine, okay? The others, the more standard, we are continuously expanding our funnel and pipeline, and we have many engagements as we are rolling out samples, getting traction, they're seeing the benefit of the engine in their products. So that could be many more, but it'll not come with NREs. Okay, so that is really the way I would say you can look at it. Does that answer that part of your question, Tim?

Absolutely.

Okay, great. On the revenue, I'll leave it to Tom, our CFO.

We're not really providing guidance on that. I mean, Tim, we’re building our business plan and our business plan shows revenue in the second half from product and initial product revenue, and then ramping in 2023. But we haven't given an indication of scale of that yet, largely because we need more insight into what our customers volumes are expected to be.

Got it. Fair enough. And if I could follow up on the engagement with the NRE — engagement there, which, with what looks to be a pretty sizable, I don't know, switch router, supplier, or what have you. And I was going to ask if what you consider — if you can say anything more about the type of application you might be working on there. I know you've got both LR4 and CWDM4 capability. Typically, LR4, we see on routing and optical transport equipment for shorter reach type interfaces. Although there seems to be some potential to — for applications kind of inside data center switching as well. I wonder if you could provide any more color with — on the direction of that application.

Yes. So with how much we can reveal here, it is a unique application where it's — we mentioned that multiple 4 of these engines in each case is used, so it's, say, 4 x 100 G. And you are right in saying that these are used in core routers and core switches. Yes. So to connect from the core router downstream into the data center. So the top — the end-end customers would be the top core router [indiscernible] switch providers.

Our next question comes from Suji Desilva with ROTH Capital.

I'll try to keep these brief. So and congratulations on all the progress. So, the customers — the 6 that you've talked about, I'm wondering, are these — is this one design ins per customer or are there multiple design ins. I know you have certain bandwidth limitations on number of projects you can handle, but I'm curious, are there multiple design ins per customer, potentially?

So these are presently projects. And some customers, as we mentioned, would have following. So once — it's a platform, right — so once they design our engine, for example, Fibertop for a 100 CWDM, they do have the intention, and so do we, to work with them for 200 G, 400 G? So presently the 6 customer opportunities are —they customer opportunities. Yes, but there is multiple customers. Yes.

I just want to provide one distinction here. I mean, when we say opportunity, I mean, these are customers that are actively designing their products based on our solutions. So there is, I mean, whether it's contracted, committed, engaged, we can use different words, but these are people that are truly designing their product with our engines in mind, with our footprint in mind, with our pad locations in mind. And, and so it's well advanced. I mean, it is not one of those things that we're kind of starting the dialogue.

Okay. Great. And then, another quick question on the modulator supplier delays. What's the time of the alternative solutions here? I know you're working hard to kind of have multiple source.

Yes. There are, I mean, the world of silicon photonics modulators in the 56 [gigabaud] regime is — and there are 2 issues. One is the supply delay, and one is the technical challenge that modulator companies faced. So in the case of [indiscernible] tech, we're dealing with a supply chain challenge. But in the meantime, there have been other customers — other suppliers that have announced availability. So we are actively in dialogue with them to gain access to that supply. I would say about a quarter, within the quarter, we should be in a position to evaluate all connect solutions.

This concludes the question-answer session. I'd like to turn the call back over to management for any closing remarks.

Yes. Thank you. And thanks again everyone for your time this morning. I think Tom, Vivek, and I very much appreciate everyone's continued interest in POET. We really look forward to talking with you and seeing you many of you in person some soon. Have a great day everyone. And thanks again.

This concludes today's conference call. Thank you for joining us today.