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spk01: mute to prevent any background noise after the speaker's prepared remarks there will be a question and answer session if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question press the pound key please be advised that today's conference is being recorded i would now like to turn the call over to brett perry of shelton group investor relations brett please go ahead
spk07: Good afternoon and welcome to Transform's fourth quarter business update conference call. Joining us today from Transform are Mario Rivas, Chief Executive Officer, Premit Parikh, Co-Founder and Chief Operating Officer, and Cameron McClay, Chief Financial Officer. Before we begin, I'd like to point out that there's a slide presentation associated with today's call, which management will be referencing during the conference call. These slides can be accessed through the webcast link in the investor relations section of Transform's website, where they will also be posted and available as a linked PDF document. Additionally, during the course of this call, the company may make forward-looking statements regarding the company's financial position, strategy and plans, future operations, specific end markets, and other areas of discussion. It's not possible for the company or management to predict all risks, nor can the company assess the potential impact of all factors on its business or the extent to which any factors or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. In light of these risks, uncertainties, and assumptions, the forward-looking statements discussed during this call may not occur and actual results could differ materially and adversely from those anticipated or implied. Any projections as to the company's future performance represent management's estimates as of today, March 9th, 2021. Neither the company nor any person assumes responsibility for the accuracy or completeness of the forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform such statements to actual results or to changes in the company's expectations. For more detailed information on risks associated with the company's business, we refer you to the risk factors described in Transforms S1 and other subsequent filings with the SEC. With that said, it's now my pleasure to turn the call over to Transforms CEO, Mario Rivas. Mario, please go ahead.
spk03: Thank you, Brett. Welcome to everyone on today's call, and thank you very much for joining us. Fourth quarter marked a strong finish to a successful year, and we continue to make significant progress on our product development, decide wind momentum, and go-to-market initiatives. Despite the challenges associated with the COVID-19 pandemic, we remain closely engaged with our strategic partners, and continue to fully support both new and existing customers throughout 2020. We continue to drive increased adoption of our disruptive GaN technology across targeted applications in fast charging adapters, data centers, crypto mining, as well as electric vehicles. We successfully completed a 15 million private placement in support of future growth as we ramp volume shipments against a healthy backlog and growing number of design wins. Additionally, we continue to expand the depth and expertise of our board with the recent appointment of Katharina McFarland. Going to the key investment highlights, Transform with its global semiconductor presence continues to lead the GAN revolution with the highest performance, highest reliability GAN devices for high voltage power conversion applications. The largest market opportunities for GAN are electric vehicles and 5G. Transform integrated business approach ensures a smooth commercial ramp in a variety of markets, from the consumer power adapters to automotive applications, from high-volume products to the highest levels of quality and reliability. Transform's GAN technology received validation from our partners, customers, and the United States Department of Defense through their Office of Naval Research. This integrated business approach, backed by one of the industry's largest IP portfolios, with over 1,000 patents, recently was valued in excess of $200 million. And it has yielded the industry's first JEDEC and AAC-Q101 qualified GAN fed. To continue to ensure this GAN revolution, Transform deploys its unique vertically integrated business approach that leverages the industry's most experienced GAN engineering team at every development stage. design, fabrication, device, and application support. Transform is dedicated to educating and supporting customers interested in developing with high-voltage GAN to continue the progress of power devices along Moore's Law. And it's powered by more than 300 years of GAN experience. With this introduction, allow me to pass the call to Premier Baric to walk through the development over the past few months.
spk00: Thank you, Mario, and good afternoon, everyone. I will first reiterate some of the exciting market and business opportunities in front of us, as well as the strength of Transform's product portfolio that is opening new doors for us, and give a reminder of our dominating intellectual property, strong manufacturing in place, and then walk you through our recent execution, as well as upcoming priorities. There's nothing more exciting for TGAN than to be addressing two megatrends in semis and tech today, those of EV, electric vehicles, and 5G. And recently, also, our products are being picked up and used in crypto mining power, which we broadly clubbed under the 5G trend shown here. Overall, we are addressing a tremendous market opportunity with GAN for power conversion. a $1.5 billion Gantam, as we call it. This has not changed, and more than doubling in the next several years as the Gantam grows to over $3 billion. This is even without considering the electric vehicle powertrain portion of the EV segment, which we expect to materialize 2025 onwards. In the near term, our revenues today are being derived from power adapters and fast chargers, computing and data center, infrastructure, crypto mining, followed by broad industrial and energy in the near to mid-term, to the very large growth area of automotive electric vehicles and charging in the mid to long-term, all of those associated with strong and growing TAMs. And as many of you are familiar, across this gamut of application, GAN, with its highest intrinsic figure of merit for power conversion, among all the popular practical technologies today, delivers essential benefits of higher efficiency, reduced energy loss, that in turn makes way for compact systems, ability to double power density, reduce size and weight of industrial application. And in case of automotive, this additionally contributes to increased EV range. T-GAN does this reliably with high performance and easy to use products by customers. Next, let's get some insights into each of these segments. Gallium nitride is now firmly establishing itself for adapters and fast chargers as part of the key shift wherein older, lower power multiple chargers are being replaced with higher power single chargers, say 65 watts for example, that can charge multiple devices as well as quick charge new smartphones that are in fact capable of utilizing this full power. Some of the recent trends where the new phones now get shipped without a charger and will be paired with aftermarket charger, we believe actually accelerate the opportunity for GAN and transform. After entering this area recently in late 2019, we have quickly positioned ourselves to win on several funds and have 20 plus design-ins now in progress, some flavors of which are shown here. from 35 watt to 65 watt to 150 watt. Customers are seeking out Transform products for our quality and reliability, ease of use, designability, drivability, and performance. Specific for fast chargers, our die size is actually half that some of the leading suppliers of GaN. Switching frequency, with transformed GaN-based adapters can be two to three times higher, making for an overall smaller electronics, smaller form factor adapter. And performance figure of merit is up to 30% versus some of the other gallium nitride on the market. We are now focusing to expand our efforts in this area with increased number of customers, as well as design and channel partners who see acceleration and lower risk insertion with T-GaN products for their parts in the market. A very solid segment for us has always been the data center and high efficiency power supply in the kilowatt class, an area that was one of the earlier ones we targeted at Transform. Gallium nitride enables titanium class efficiency, which is a power supply manufacturer standard with high power density simultaneously, allowing our customer to translate into not only energy efficiency savings, but also additional system cost savings like total cost of ownership in data centers. Certain regulations like those in the European Union requiring titanium efficiency for certain power supply classes in data servers from January 2023 means our customers plus downstream system integrators are expected to gear up for that say mid 2021 and 2022. Transform is actually one of the few companies with solid higher power GAN products in the industry in standard thermally robust packages required for kilowatt class power. Mind you, these are 20 to 50 times higher power levels than those needed for adapters, for example. The same benefits of 1% higher efficiency, robustness, and higher power reliability that made us viable and the platform of choice for GAN for server power makes us a very nice fit also for power-hungry crypto mining rigs that the power supply running 24-7 has to do a lot of heavy lifting in. One of the largest market opportunities for gallium nitride and transform long-term remains electric vehicles. Here, gallium nitride enables several vectors, smaller, lighter, more efficient power conversion in onboard electronics, with the potential to enable faster charging, higher driving range, and overall cost-efficient inverters and converters. In fact, we have tested our latest Gen 5 gallium nitride devices now that are under development to show more than 25% lower total loss versus silicon carbide FETs and MOSFETs that are now well accepted in this area. Recently, this was also featured in the Bodo's Power Electronics Magazine March issue. In a previous research effort, we have shown onboard chargers, OBCs, are 50% more compact versus their silicon counterparts. Today, in the area of electric vehicles, we are in design-ins for opportunities including onboard chargers and DC-DC converters for auxiliary electronics, as well as DC-to-AC inverters for off-grid power. And our technology has already proven feasibility for powertrain inverters in the 50-kilowatt range. power level with the ability to expand to 100 to 150 kilowatts as we parallel devices and make higher current large area gallium nitride devices with our Gen5 technology. As we look into the future, gallium nitride will be expected to triple inverter power density and become pivotal to widespread growth of electric vehicles, contributing to achievement of several target metrics the industry expects in this area. Shifting gears now to our second vertical, which is our epi wafer business, an important area for transform aligned with our core material strengths in IP. Central to this is the Navy contract that also helps out our manufacturing scale expansion and enables epi products on silicon, silicon carbide, and sapphire substrates for RF as well as power markets. including some unique types of gallium nitride epiwafers for which only Transform has the core intellectual property. We are looking to segue this also into robust existing commercial RFGAN market, which is poised to grow further with 5G and represents a very meaningful revenue growth target business for us in terms of a pure play epiwafer supplier in this segment. To this end, we have already established a few initial relationships with a couple of commercial epiwafers RFGAN companies. I want to reiterate Transform's industry-leading IP position on PowerGAN, with access to more than 1,000 patents owned by Transform or opportunistically licensed. Spanning the entire gamut of the GAN value chain, from EPI materials to devices to fabrications to packaging to applications, some of our fundamental circuit patents covered the most prevalent use of GaN in application, frankly, independent of the way gallium nitride itself is manufactured. With the growth of gallium nitride market, we believe the significance of this IP will now become even more evident. We have actually quantified this portfolio with Intercom Group IP solutions, a third party IP valuation software, with patent valuation over more than $200 million, and per family patent value well exceeding other GAN competition, assuring both quantity and quality of IP. With that recap, let me now turn our focus to Q4 recent execution in the key areas highlighted as part of our November 2020 business update. First of all, we are pleased to say we have delivered on the 2020 revenue over $11 million per plan and despite CV19 impacts. Notably, we see growth in the adapter fast charger segment, fulfilling our first high-volume order that we discussed last time in Q420 on time, and now securing wins with seven-figure-plus unit orders as we had targeted a few months ago. We have added another large partner customer to expand in Asia for 45-watt to 100-watt plus adapters. We continue to hear from customers that they choose TransformGAN-based designs for our proven quality and reliability and high performance. we are increasingly seeing evidence also that customers can do the same job, the same power level, with actually a smaller gallium nitride device from TGAN versus other gallium nitride manufacturers, again, due to our superior performance. We also added a new customer in the crypto mining area with a PSU, power supply unit, based on our Gen 4 products. The multi-kilowatt power is an area TGAN very uniquely addresses with robust PO247 industry standard packaging uniquely designed to work well with high-speed GAN. These products also allowed a good flow of continued order for our data center customers and giving power supply units where 5 to 10 designs are already released by our customers. Second, we continued solid progress on products. Our Gen 4 products, already commercially released now, from 35 watts to over three kilowatt applications, passed the first automotive qualification demonstration in TO247 package, continuing to underpin the strong quality and reliability of our products across the board. We were very excited to partner with Keysight, obviously a large reputed design and simulation partner, and our four kilowatt totem pole reference design is now available as a virtual power supply design suite within Keysight, speeding up customers' time to market. Our Gen5 products, featuring the lowest RON in a package for 650 volt GAN, exhibit 25% plus better performance versus the latest silicon carbide MOSFETs and FETs. And as a reminder, Gen5 will be key for enabling 10 kilowatt class with a single die and higher power application for electric vehicles. And then the key milestones for our strategic partner activity include Completion of the 1 million, sorry, jumping ahead of myself here, talking about the key partnerships that we did in this quarter is we signed the Yaskawa NRE agreement with the associated product development targets and received the first $1 million of funding. And we continued execution on the Nexperia and Morelli automotive partnerships. Now, upcoming 2021 promises to be a breakout year for Transform. We truly believe that. And we aim to execute on several key objectives for the first half of the year. First of all, we aim to continue and build on this very strong foundation as we finish Q4, are executing in Q1, and look forward to the first half of 2021. I wanted to lay out a few key areas of focus for the next several months. First and foremost, continue the momentum we have in adapter server and mining segments. We need to ramp shipments of our high-volume production orders for adapters, completing the seven-figure plus orders that I mentioned, and work with our customers for the 10-plus adapters with TGAN in the market and double that number of design wins. Ramp shipments of higher-powered Gen 3 and Gen 4 products for mining, servers, gaming, Equally important, we have to do this while managing supply constraints, some of which we actually share along with the rest of the semiconductor industries as well. For example, packaging and simultaneously expanding production capability to gear up to support more than 1 million a month adapter products in the second half of 2021. On the product front, we aim to bring out additional Gen4 product SKUs, allowing for expansion to adapters over 100 watts. Establish new partners to secure at least three new reference design for adapters that showcase TGAN's strong performance in a ready-to-use reference design by customers. And we target the Gen 5 part to be ready for commercial qualification and then subsequent release in the second half of the year. In our second vertical for the AP business, we will look to expanding RFAP sales continuing to grow DoD customers, and adding at least one major new DoD customer in this area, along with advancing the early engagements that we have secured with commercial Gannaro 6 customers. Equally important is continuing to deliver on the objectives of our Navy program with pilot epi wafer products running on our new reactor. And then the upcoming key milestones for the strategic partners Now we come to that, completing the 1 million investment from Morelli, which is per the stated plan, and continuing engagement with Morelli on EV product and systems development. Next, we continue to execute on the Yaskawa-Inari Agreement and the product development to secure the next 0.75 million of funding increment. Then execute on the cooperation agreements with Nexperia, with our long-term cooperation partner, to grow the gallium nitride market, which transforms normally off-product architecture design with special emphasis in automotive. So all in all, I am pleased to say we had a solid quarter, a very solid year, meeting our design win and revenue targets, Gen 4, Gen 5 new product development and rollout, reference design with partners, key government AP and business activity, and meeting the milestone with strategic partners and customers. The platform we have set will serve us well as we look to grow for the rest of the year, keeping the momentum in adapters, chargers, data centers, crypto mining power supplies, epiproducts revenue growth, and automotive EV design and activities. With that, I would like to now hand over to Cameron McCauley, our CFO, who will walk you through financial metrics.
spk02: you Pramit and good afternoon everyone. Let me start today with a recap of our 2020 financial performance including our most recently completed quarter. If you could go to the next slide for me Brett. Thank you. Revenue for both the quarter and year remained in line with our internal plan despite the challenging circumstances. For Q4 our total revenue comprising government and product was slightly over two million dollars. up 4% from Q3 and more than double government and product revenue for the same quarter in 2019. Total revenue for the year was $11.4 million, comprising licensing revenue of $5 million, government revenue of $3.3 million and product of $3.1 million. Focusing more on product revenue, the $3.1 million generated for 2020 is an increase of more than 100% from $1.4 million in 2019, and the company has seen a sequential increase each quarter during the year. We anticipate a continuation of this trend as we move into 2021, driven across several segments, including the consumer space, our epi vertical, and our data center infrastructure markets, now bolstered by crypto mining opportunities, as Prima referenced earlier. Turning to OPEX, total OPEX for 2020 was $24.8 million. This represented an increase in overall spend of 3% relative to the prior year. As mentioned in the previous call, G&A increased due to a number of one-off expenses as we took the company into the public markets, together with increases in non-cash, stock-based comp, insurance and general compliance costs. Much of this was offset by a reduction in our R&D expenditure due to increased government activity absorbing a greater proportion of our spend. Sales and marketing also reduced on an annual basis, the primary driver here being a limitation on travel due to the pandemic. Looking at the quarter, Q4 2020 OPEX was flat to Q3 and 9% lower than the same quarter in 2019, due primarily to lower R&D for the same government contract reasons articulated earlier. Sales and marketing costs were modestly higher in Q4 2020 as we added to our sales and applications team in the quarter to support our revenue ramp and expanding customer base. Overall, Losses per Q4 were 4.7 million or 13 cents per share and 17.9 million and 50 cents per share on an annual basis. Next slide, please, Brett. Turning to the balance sheet, as we touched on in our last call, the company has proactively been addressing efforts for near-term growth capital. And we're pleased to say that we closed on a $15 million private placement transaction during the quarter, adding over $13.5 million to the balance sheet after fees. This enables Kegan to support two key company objectives. Firstly, it will allow us to meet near-term capital requirements to support our ramp. And secondly, it will provide us with a bridge to our ultimate goal of uplisting to NASDAQ later in the year. This raise, together with solid cash management and the receipt of $1 million from Yaskalo with respect to our joint development agreement, allowed us to exit the quarter with over $14.7 million in cash. Other assets and liabilities remained largely stable. Next slide, please, Brett. So turning from the current year to look more at our long-term business model, we are in the process of building a high-growth, cash-generative business. As you know, there are three streams of revenue, licensing, government, and product. As we move into 2021, we will continue to generate revenue from both licensing and government contracts, but this will be supported by what we expect to be significant growth in our product revenue. We are seeing solid traction across several market segments, including consumer, EPI, data centers, infrastructure, and crypto mining. In the longer term, production revenue will form the significant majority of our revenue. We are targeting an annual CAGR between our baseline model of 50% up to 80%, and we're confident that the company can achieve an overall gross margin in the 40% range. With respect to operating margin, we will continue to invest to support all aspects of our core operations. We have very stable structure, and this allows us to translate gross margins into delivering an operating margin that we believe will be 20% plus. From a cash perspective, CapEx will be required to fuel our ongoing production revenue ramp. In the longer term, this CapEx, together with working capital support, will translate into a free cash flow model of 10% plus. Concluding on the next slide, Brett, Transform is a pioneer and leading provider of GAN power conversion devices. We have disruptive technology that provides power conversion solutions across a number of significant growing markets, including EV, 5G, and crypto. We are commercially ramping with solid revenue growth, together with a manufacturing structure in place that can support our long-term expansion. The company has best-in-class technology and the industry's strongest IP position. All of this underpinned by a deep, talented team led by world-renowned GAN experts. This completes our prepared materials and remarks, and we would now like to open the call to any questions. Operator, please proceed with managing the Q&A portion of the call.
spk01: As a reminder, if you would like to ask a question, you'll need to press star 1 on your telephone. Once again, that is star 1 on your telephone if you wish to ask a question. And your first question comes from the line of Craig Ellis with B. Riley Securities.
spk04: Yeah, thanks for taking the question. And, guys, congratulations on the momentum it seems that you have as you enter 2021. It seems from the commentary that some of the bigger changes over the last three years months or so are the expansion in the charger pipeline. I think three months ago we were looking at 10 design wins and now it sounds like it's 20. And it certainly seems that the crypto mining opportunity has gotten bigger and maybe even eclipsed what it looked like two or three years ago. So what I was hoping you could do is kind of characterize how those two opportunities are evolving and if we are potentially going to see chargers in the range of 1 million units a month in the back half of the year, do you feel that the constraints that are out there in the market would be any limitation on being able to shift to that level of demand?
spk00: Thank you. Thank you, Craig. I will take that question. So, yeah, it's exciting. As you summed it up, the charger pipeline is increasing, so roughly 10-plus to 20-plus design-ins. That we are seeing, and like we said, out of those 20 plus, around 10 is what we are targeting that the adopters will be in the market by say mid-year timeframe roughly. And in the crypto mining also, yes, the industry workhorse products that we have and now through our Gen 4 products, they're being addressed in the sort of the 2 kilowatt, 3 kilowatt power supplies used in crypto mining. So we are preparing. For the capacity across the supply chain, right, as you know, we have some of our own manufacturing. But, yeah, we are definitely gearing up our plans with enough advanced planning. We are confident to gear up and address the $1 million per month capacity for the back-off of the year. That's certainly where we would like to exit the year is shipping around $1 million adapters per month. Good for you. Not adapters, Greg. I know. Gallium nitride products for adapters.
spk04: Right, right. Can you characterize from it some of the customer types or some of the geographies that you're engaging with on the charger side? And then with respect to crypto, I believe you were shipping to a tier one customer there in the past. Is the wind that you have more recently with that same customer or is it a new customer that you're shipping to?
spk00: Yes, so take the crypto first. It's actually the win, that customer continues, and the second win that we talked about is with a new customer, so that is exciting. And in terms of the chargers, as you can expect, adapters, a lot of the customer geography is Asia-centric, but we are also seeing some end push from U.S. We have out of those 20 design-ins, I talk about there are U.S. and European end customers, end users also driving some of those design-ins directly. But it would be fair to say that the majority of those are Asia-based.
spk04: Great. And then lastly for me, before I hop back in the queue, Pramod, I think we've talked about in the past the potential for European energy efficiency standards that are data center-related to be a positive catalyst for for uptake. Clearly nice to see the TGAN participation with Bell Power titanium class offerings. How would you expect demand to play out for those products as we go through 2021? And do you have any visibility yet into 2022 in that part of the market? Thank you.
spk00: Thanks, Craig. So right now in the data center, it's kind of a steady demand that we are seeing with Bell Power and some others. Like I said in the remark, the fact that the January 2023 standards, what we predict is that the back half of the year, the second half of 2021 is where we'll start to see increased traction because then that will allow towards the end of 2021 and 2022 for our customers and their downstream customers to get ready for those 2023 January standards.
spk01: Thank you. Your next question comes from the line of Richard Shannon with Craig Hallam.
spk05: Well, hi, guys. Thanks for taking my questions as well. Maybe my first question would be regarding your backlog. You said it was healthy entering the year. Maybe you can elaborate, even quantify, maybe compare to last quarter's, and then give us a sense of what you think that means for the first quarter, even the year, quantitative, qualitatively, growth-wise, just kind of putting comments or numbers to that would be great, please.
spk02: Well, let me start with what we see for the first half of the year, I think, Richard. I mean, I think we've seen, as I mentioned, good traction throughout the course of the year. And the backlog, whilst not getting into the specifics, I would say is the highest it's been for the company. And that has us feeling confident. I think that as we look into the first half of the year, that we'll continue to see revenue growth in production and continue to successfully look to meet our numbers. And I think, just to expand briefly, the backlog is certainly consumer is a part of that, but we're also seeing some other areas, as Pramit referenced, where we're starting to see increased traction, which is very positive.
spk05: Okay, great. Following up on the fast charger adapter market here, just want to be clear here, Pramit, are these 20 design wins or design ends in process? Just want to be clear on that.
spk00: Yeah, the design-ins-in process, the 20 design, 20 is the design-ins-in process up from 10 next time. And then out of that, we expect 10 at least to be design-ins and adapters on the market by middle of the year.
spk05: By middle of the year, okay. And did I hear you correctly in that these designs are all at the 65-watt level and below, or are there some above there?
spk00: No, both. So there are 65 watts. There are some above 100 watts, 120 watts, 150 watts. There are some below 35 to 40 watt range. So 65 watt, as you can imagine, is the median. But there are, yes, both above and below.
spk05: OK. uh okay fair enough then um that's you're jumping over the epi wafer business i think on the last call you talked about kind of a top-down approach thinking about the revenue potential here next year of about 10 million dollars would anything over the last uh three to four months here change your your thought process and how to think about that sorry say that again please richard can you repeat that sure in your epi wave In your EpiWafer business, on their last conference call, you talked about a revenue potential, thinking about it in a top-down perspective, being kind of a $10 million bogey for next year. Is there anything that would help you change that number, increase, decrease, or how would you think about it differently?
spk00: Yeah, so to recap, the 10 million was – the way the 10 million was, if you look at the market of the RF gallium nitride, that was kind of a top-down potential, kind of so-called the GAN-TAM. As you can see, let me just – the total market, right, the total RF market is, say, RF GAN market around in 2022 would be $1 billion. And out of that, the epi portion is about 15% to 20%. making the EPI portion of the RF market to be around, say, $150, $200 million. And then what we have said is, as a GAN TAM for our EPI, we could target, say, 5% of that market, relatively speaking, in that timeframe. So we want to grow towards that, and certainly EPI is a meaningful revenue contributor to that, but we have not said that we will do 10 million of EPI revenue in next years. We just quantified the market out of the, say, $150 to $200 million epi portion attributable market of RF gallium nitride. Transform can seek to address around 5% of that market.
spk05: Okay. Is there any way to understand? I think your language in your last conference call is about executing towards that. Have you had the progress you've made in the last quarter? Is that making you think that that's an achievable number?
spk00: Yes, we can certainly move towards that, yes. So we have, like I alluded in this call earlier, we actually are excited. We have two new engagements with commercial RF EPICAN players. These are all in early stages. One of them we have actually secured a pilot early pilot order, and that we hope to then engage in development with them.
spk05: Okay, great. Good to hear about that. My last question, I guess maybe more for Cameron. You talked about your uplisting on the NASDAQ, I think targeting maybe as early as July. What are the things that you needed to get that done? How many of those are under your control? And are you still expecting to be able to get that done in July or soon thereafter?
spk02: Yeah, I think I'll start with the timeline. We're still working towards that timeline, Richard. That's absolutely true. There's a lot of different components to it, as I'm sure you understand, and we're looking to make sure from a corporate governance standpoint that we can meet the requirements. And I think that the vast majority of the standards associated with NASDAQ are within our control, and we're certainly working towards that in a measured fashion.
spk05: Okay, great. Well, that's all the questions from you guys. Thank you.
spk01: Thanks, Richard. Your next question comes from the line of David Williams with Loop Capital.
spk06: Hey, good afternoon, and thanks for taking the question. First, just congrats on the progress. Really strong execution this quarter, and there's a lot of things to be proud of, especially given the challenges that are ongoing. So congrats to the progress. I guess my first question is really around some of the capacity constraints that you talked to earlier, just kind of understanding the shortages that are ongoing. What are you seeing in terms of, I guess, the major constraints? Is this more of the resins on the packaging side, or are you seeing anything on the front side that may be causing you some issues on the supply side?
spk00: Great. So mainly there, um, uh, David, it's, it's the, it's, it's constraints on the packaging slide, uh, as we work with external subcontractor partners. Uh, and the key key thing there is just to be ahead of the curve in planning. So certainly the levels we are at, the industry is used to much higher levels of, of, uh, uh, packaged, uh, devices, right. With Silicon. But, uh, the packaging places are the Silicon business and GAN business. It's, it's kind of shared. at the same places. So the overall silicon semiconductor ramp that is also happening, we do have to watch out for that and plan accordingly. So a lot of it is advanced planning. On the flip side, like you said, it's exciting. We're getting orders ahead of time, which is great. But it means we have to just do careful planning. And our supply chain and production control teams try to be all over it to be ahead of the curve. On the wafer side, we have reasonably we have capacity, reasonable capacity for what we need to do. And then even there, we continue to look ahead. But yeah, to answer your question again, it would be managing the packaging side well ahead of the ramps.
spk06: Okay, great. Certainly appreciate the color. And then maybe just more of a broad-based question, but From the auto OEM side, are you seeing anything in terms there where you're maybe making more progress or maybe having more discussions? Just kind of thinking about the supply chain diversification that has been really discussed among the industry given the shortages that are obviously ongoing?
spk00: Yes. So on the auto OEMs, we are in the design-in stages, like we said earlier. So we are definitely seeing strong interactions with the auto OEMs, with our existing partners. and new customers as well as we open up especially in Japan. So we do see those design-ins moving forward at a steady pace in the auto industry. And then some of our partners are also seeing increased interest, so to speak, in gallium nitride.
spk06: Fantastic. And then lastly, maybe just if you could talk maybe a little bit about your go-to-market strategy and how that changes, I guess, moving forward as you think about just the volume ramps. You're obviously making – you've made good progress on the design ends. How do you think about the go-to-market strategy and how does that evolve over time?
spk00: So on the go-to-market, fundamentally no major change in the go-to-market strategy that we have. And it is sort of segment dependent. Say you take something like a fast chargers and adapter segments. Some enhancements we are making to accelerate rapidly is, like I said, we established another kind of a customer partner that could help us expand into multiple of the end market wins. So establishing customer partners. Last quarter we had reported we established one sort of the strategic customer partner. Now we have established another customer partner that would allow us to expand into multiple adapter design wins. We are also actively teaming up with external design experts in external design houses for reference design. And to our strengths, we are finding out that Transform's gallium nitride part, like I alluded to in the presentation, is showing the performance and the speed of design that design houses working with our gallium nitride feel more comfortable, that higher reliability products will actually allow them also a faster time to market.
spk06: Great. Thanks, Lester.
spk00: I appreciate it. In the longer term, just finishing up in the area of automotive, our strategy with our select customer partners like Morelli and cooperation partners like Nexperia, that stays intact.
spk06: Thanks. Best of luck on the quarter, guys. Certainly appreciate the time.
spk01: Thank you. Thank you. Your next question comes from the line of Craig Ellis with the Riley Securities.
spk04: Yep. Thanks for taking the follow-up. I'll just start with something more along the lines of housekeeping for you, Cameron. Following the $4.5 million in OPEX in the fourth quarter, can you give us some help on how we should think about the contour, both in the first quarter and then through the year? Should we think of things at that same level, or would operating expense move back from $4.5 million towards the three and a half to four million level.
spk02: Thanks, Greg. I think largely a lot of the operating expenses will be flat. I think what we were looking to see as we go into 2021 is a reduction in G&A. I mentioned in my prepared remarks, we saw as a result of taking the company public, some one-off costs associated with that. And obviously, whilst the base is a little bit higher in G&A than it was last year, just the cost of being public and staying public, those one-off costs won't recur. I think other costs like R&D will remain largely flat. I think sales and marketing uptick slightly as we increase our team. But I think overall, you're talking about OPEXs I would hope would be flat to slightly down, driven by a G&A reduction in the year.
spk04: Okay, got it. And then bouncing up to the revenue line and looking a little bit further ahead, I think you know, at least for us, we would have expected the company would be around an Xperia milestone payment conversion in the second quarter timeframe. Is that still reasonable? And how should we think about things beyond that, assuming that it is? And if not, then what's the right way to think about the next payment from Xperia?
spk02: I think that timeframe remains reasonable, Craig. We're talking about Q2 to be able to realise that. And I think that is something that the teams are continuing to work towards. We've got a good collaborative relationship with Experian and we're continuing to work towards that. And the big focus for us, obviously, in 2021 is executing on that, but also growing the product revenue line from the base in 2020.
spk04: Great. And then lastly, and I'll shoot this one towards Primit. We're in an environment where front-end fab constraints are pretty acute, and the company has the opportunity in the first half of this year to move to a full ownership position with the current or recently joint venture Fujitsu fab. So the question is, one, how's that ownership progression doing? Are we on track? And two, as the company engages with customers, is vertical integration an advantage, and what has the interest been as you've worked with potential partners on the other side of Fujitsu to have a collaborative agreement with that facility? Thank you.
spk00: Yes, so first of all, we are on target for the final goal for the Fujitsu FAB, our AFSW FAB, where, like we said last time, we are working with a partner, and now we have an MOU-level agreement for a financial strategic partner to come in and acquire a larger stake of the AFSW FAB, partnering with Transform, including taking over, of course, the Fujitsu semiconductor stake. And most of the due diligence for that process is now done, only a handful of items remaining, including one final in-person visit that has been delayed several weeks by Japan's CB19-related travel restrictions. But overall, we are close to that, and we are closely working with Japan regulatory approval agencies as well. Nothing changes, obviously, until that is approved. It remains status quo. And the overall, we expect the transaction to still close sometime in Q221. So that should allow us to be on our plans for ensuring strong production capability for our manufacturing, as well as maintaining the 2021 overall cash targets with respect to the ISOFAB. Got it. Thanks, Ben. In terms of your second question on the vertical integration. Yeah, that, as you know, Craig, we've always believed strongly in that. So not necessarily owning all the assets, but we obviously own our epi manufacturing. That's critical. We control and will continue to own part of the stake in the wafer fab along with the partner. And even we drive innovation in our packages, although that is 100% subcontracted out. So having that value chain ownership is what has allowed us, our products to be reliable, robust with the thousand plus patent portfolio and above all, responding quickly to customer's problem, right? So as you can relate to all new semiconductor technologies, be it gallium arsenide in the 80s and then gallium nitride LEDs, gallium nitride RF, silicon carbide, everything has, the companies who have succeeded is first through vertical integration and only then later on, the Foundry model has worked well. So we continue to believe on what I call an asset-light vertical integration model where we can innovate and be kind of a cradle-to-grave epi to end product ownership of IP for our customers and respond fast to our customers' problems.
spk04: That's helpful, Kalar. Thanks.
spk01: There are currently no questions at this time. I would now like to turn the call back to the management team for any closing remarks.
spk03: Thank you, operator. Before closing out today's call, I want to let investors know that we are planning to participate at a series of upcoming investor-focused events. Later this week, We will be presenting and or hosting meetings at the B-Violet Sustainable Energy and Technology Conference and the Bear Vehicle Technology and Mobility Conference, as well as at Loop Capital Virtual TMT Conference. Then, we are also scheduled to participate at Oppenheimer's Emerging Growth Conference in May and Craig Holland's Institutional Conference in early June. For those interested in meeting with us as part of one of these events, I encourage you to contact either of the hosting firms or reach out to the Shelton Group in order to schedule the meeting. Having said that, I want to thank you again for joining us on today's call, and we look forward to reporting on our continued progress and developments over the coming year. Operator, you may now disconnect the call.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
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