Transphorm, Inc.

Good afternoon. My name is Mike and I'll be your conference operator today. At this time, I would like to welcome everyone to the Transform Inc Business Update conference call. All lines have been placed on 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.

Brett Perry Good afternoon, and welcome to Transform's third quarter business update conference call. Joining us today from Transform are Mario Rivas, Chief Executive Officer, Premit Parikh, Co-Founder and Chief Operating Officer, Cameron McClay, Chief Financial Officer. Before we begin, I'd like to point out that there is 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're also posted and available as a linked PDF. 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 into markets, and other areas of discussion. It's not possible for the company's management to predict all risks, nor can the company assess the impact of all factors on its business or the extent to which any factor 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 events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. Any projections as of the company's future performance represent management's estimates as of today, November 10th, 2020. Neither the company nor any person assumes responsibility for the accuracy or completeness of the forward-looking statements. The company also 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 the 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 Transform's S-1 filing on June 2nd, 2020, as well as the company's other subsequent filings with the SEC. With that, it's now my pleasure to turn the call over to Transform CEO, Mario Rivas. Mario, please go ahead.

Thank you, Brett. Welcome, everybody, to today's call, and thank you for joining us. We are excited to be hosting today's call and to have the opportunity to provide a business update to our existing shareholders as well as new prospective investors. Despite a challenging environment, we saw steady progress in several areas in the first three quarters of 2020, and we are able to maintain our upward outlook. Our underlying business remains stable And we saw good customer activity resulting in stable revenue driven by licensing, government, and product areas. We continue to support our customers during the coronavirus crisis. And with our strong intellectual property and supply chain, we are in a good position to continue to do so. Transform enables next generation power conversion solutions in rapidly growing markets. Next slide, Brett. No, no. the one before. Sorry, my connection must be slow. Transform CAN solutions will enable the future of electric vehicles and fast charging for 5G smartphones. Our technology is validated by our blue-chip partners and customers, as well as by the U.S. Department of Defense through the Office of Naval Research. We continue to ramp up commercially with enough capacity to support 50 to 80 percent compound growth rate. Our technology is also supported by the strongest GAN IP portfolio and the most qualified GAN team with a collective experience of over 300 years. We are also happy to announce that we recently expanded the leadership and expertise of our board with the appointment of Dr. Julian Humphries as an independent director. Next slide, Brad. Some of the mega trends driving the growth for GAN include the appearance of over 30 million electric vehicles in 2025, which will contain onboard chargers, power converters, and power inverters. 100 million 5G handsets in the year 2021. That will be smartphones, laptops and tablets, and gaming consoles, all needing fast chargers. And a market of over $800 million from Gunner S for 5G RF devices, even infrastructure, high-frequency broadband in the Department of Defense, which we will support via our IP sales. With this, I'll pass the call to Translocal founder and CEO, Pramod Parikh, to walk through the developments over the past few months.

Thank you, Mario, and good afternoon, everyone. I'll first cover some of the exciting market and business opportunities that are in front of us here today, as well as the strength of Transform's product portfolio, our dominating intellectual property, strong manufacturing channels in place, and then walk you through some of our recent execution versus what we had said last time we do, as well as future key priorities. But first of all, reiterating Mario's comments here, we are very excited to be in the midst of two very, very exciting megatrends, those of electric vehicles and 5G. electric vehicles with our power devices. For the automotive, 5G with our power devices for the adapters and fast chargers. And then we get a second bite at 5G with our epi business vertical, where we supply epi wafers for RF. Next slide, Greg. So overall, we're addressing a tremendous market opportunity here with Gallium Nitride for power conversion. And as time has progressed, GaN has become even more established in the market space. We are looking at a $1.5 billion GAN TAM, as we call it, and more than doubling that in the next several years. Now, layered onto this GAN TAM is the adoption rate of GAN in this market, which is also a strong 30% CAGR per IHS market research estimates. So this TAM, we don't even show the EV powertrain portion of the electric vehicle segment, which takes some time to mature, and we expect to materialize from 2024, 2025 onwards. But obviously, we are addressing the onboard chargers, DC-DC converters, and other areas today in design-ins. So in the near term, as we have said before, our revenues will be derived from power adapters and chargers, computing power supplies, and data centers and infrastructure and communication. After that, near to mid-term, broad industrial and energy markets. And then mid-term to long-term, automotive electric vehicles and charging. All of these areas with very large and growing Gantams. And across the variety of this application, gallium nitride, with its highest figure of merit for power conversion among the popular technologies today, delivers essential benefits of high efficiency, which is low energy loss, low heat, running cool. That in turn makes way for compact systems, ability to more than double the power density, reduce size and weight in industrial application, or in the case of automotive, this additionally can translate to increased electric vehicle range. So let's get into some of the recent new insights into this segment and how those are helping position transform strongly. Next slide, Greg. So many of you are familiar with the adapters and fast chargers that we have talked about. But in case those who are not, this is a part of a key shift in the adapter arena where the older, lower power multiple chargers are now being replaced with higher power, for example, 65-watt chargers with gallium nitride that can charge multiple devices as well as more importantly utilize the full power in the new smartphones and quick charge the phones for example zero to fifty percent can be achieved uh in in five minutes here is an example of a 65 watt ultra slim charger powered by transform scan that is capable of charging several smartphones uh the ones that have the usb pd control capability And some of the recent trends where new phone manufacturers, large manufacturers are announcing that smartphones are getting shipped without a charger and will be paired with aftermarket charger, we believe actually accelerates the opportunity for dial-in nitride and transform. After entering this adapters and chargers area relatively recently, we have quickly positioned ourselves to win on several fronts. customers are seeking out transform because of our product quality and reliability, as also highlighted in our recent press release, where we announced 10 billion plus hours of operation with less than one fit rate, which is very, very, very good field reliability statistics. And this actually, this fit rate includes large power GAN products, small GAN products, one kilowatt product for servers, etc., And typically, these products are equal to sort of 5 to 6x times the lower power adapter parts. So the 800,000 or parts or so we have shipped in mass production, actually, if you compare them just on adapter equivalent or lower power equivalent, that's like 5, 6 million parts equivalent of semiconductor area. Specific for fast chargers, what we have seen versus competition is that our die size is actually half that of some of the leading suppliers of gallium nitride. Our organic nitride with associated, our circuit techniques can operate at higher frequency, higher speed, some cases as much as two to three times, which makes everything smaller, the other electronics smaller for compact charges. And the fundamental performance figure of merit, the switching figure of merit is up to 30% lower with some of the leading branch on the market. So with this under our belt, we're now focusing to expand our efforts in this area, which is shaping up to be a very large near-term market opportunity. Our goal is to keep on adding more design-ins, like some of the ones that we highlight here, that we have either won some of them or are in the process of active design-in, and then set us up nicely for a ramp in 2021. Next slide, Brad. One of the largest and most enduring market opportunities for GAN and TGAN transform is in the area of electric vehicles. When it comes to power conversion, GaN offers several vectors that enable smaller, lighter, and more efficient power conversion in onboard electronics power conversion in the automotive, with the potential to enable faster charging, higher driving range, and overall cost efficient inverters and converters. For example, in a previous research effort, onboard chargers that were done with transformed gallium nitride devices in a Department of Energy R&D program were 50% more compact versus equivalent counterparts with silicon. Recently, our latest Gen 5 devices have been successfully tested by us in an engineering mode in the company with 50% lower switching loss and up to 25% lower total loss in the power stage versus the most recent silicon carbide MOSFETs. that are now accepted in this area. So as we look at the future from here, the next several years, GaN will no doubt be expected and will deliver a pivotal role to widespread growth of electric vehicles, contributing to the achievement of several target metrics like increased mileage range, fast charging with onboard chargers with packing more power in a given form factor, efficient DC to DC conversion, system cost savings by making everything smaller, and enabling the super growth of electric vehicles. Now, obviously, this is a very important area of focus for the company and the one we are positioning ourselves very strongly for. We have talked about in past our key customer, partner, and strategic relationships with both Morelli and Expedia previously, which are going well. Today, we are in design-ins for opportunities including onboard chargers, DC-DCs for auxiliary electronics, and then DC to AC inverters for off-grid power, And our technology has already proven feasibility for the main powertrain inverters, 50 kilowatt, and expanding well with the capability to expanding well over 100 to 150 kilowatts as we make even higher current large area devices with our Gen 5 technology. Next slide. So a solid segment for us always has been the data server and communication, the so-called SSN, server storage networking segment, with high efficiency power supplies one that was one of the earlier segments in market we targeted. So here gallium nitride enables titanium class efficiency, which is a specific standard of the power supply manufacturing associations for power supply standards, along with high power density, which allows our customers to translate that not only into energy efficiency or compact size, but additional system level cost savings like total cost of ownership down the chain in data centers. For example, more than 100,000 can be saved with small efficiency improvements in a power supply in a typical 5 megawatt data center. And a very interesting key recent trend that we haven't talked about before in this area of data server power supply has been the EU standard now requiring titanium class efficiency for certain single output type of power supply classes in data servers from January 2023. And because of that, we believe we are seeing some nice recent uptick and activity in this area. Our customers who are power supply makers and their downstream customer system integrators, server providers, they are all expected to gear up for that in 2021 to be ready in 2022 to meet these standards. Next slide. So shifting gears, our nice vertical for us is the GaN EpiWafer business. where we focus on supplying epiwafers for the RF market in particular and certain strategic power customers. And that business is catalyzed, or was catalyzed rather, by the Navy contract, which is central to our manufacturing scale expansion and enables us to do epiwafer products on silicon, silicon carbide, and sapphire substrates, again, for the RF and power markets. This also includes some very unique types of gallium nitride epi for which only transform has the core intellectual property. Now we are looking to segue this also into the robust existing commercial RF GAN market segment in the 5G, which both Mario and I talked about, which is poised to further grow and represents a very meaningful revenue growth opportunity business target for us. Now, one of the things Transform has uniquely done is to have a reliable, robust portfolio of GAN devices, ranging from 30-watt power level all the way to 10-kilowatt power level addressed by our larger Gen 5 devices. Many of our competitors are able to play only in select ranges, say, some few hundred watts for some of them. And nothing wrong there, but we believe the approach we have taken, where we have built a solid platform across the range from 30 watts to 10 kilowatts, and then higher by paralleling multiple devices, will pay dividends as we can now expand products systematically in multiple market areas, be it adapters and fast chargers, server and telecom, industrial drives, renewable and UPS, and automotive electric vehicles. We want to dominate GAN power. I always like to reiterate Transform's industry-leading intellectual property position in PowerGAN with access to more than 1,000 patents owned by Transform or opportunistically licensed, such as UCSB or Fujitsu and other players. These patents span the entire gamut of the GAN value chain, from AP materials all the way to packaging and application. In fact, some of our most fundamental patents are circuit patents that covers some of the most prevalent use of GAN in application. And frankly, independent of the way how the GAN itself may be manufactured. We have also quantified our IP through a PatSnap, which is a third party IP valuation service and software with the patent valuation exceeding more than $225 million. This includes only our own and exclusively licensed IP. It does not even include any of the non-exclusive IP. So as the GAN market grows, our IP will only continue to become more and more critical. That said, let me now turn our attention and focus onto the second half execution in the three areas that we have highlighted as part of our last Q2 business update. We have made definitive progress in each of the following, and overall setting up for a strong year despite the pandemic issues. First, in the area of adapters and chargers, we are in design-in with multiple customers, more than 10 design-ins going on right now, in power levels ranging from 30 watt for wall plugs to 65 to 100 watts for fast chargers to 150 watts and above for adapters for, say, laptops. We are pleased to report that we have secured a new volume order for Q4 2020 with a new strategic partner customer. What we are hearing from several customers is actually they would like to use TransformGAN. Based on our designs and our proven quality and reliability, as well as strong manufacturing, again, as exemplified in our recent press release where we announced excellent field reliability data. As we continue our own efforts and also build more reference designs for adapters for our customers, we aim to expand even quicker in this area in the coming year. This quarter, we also saw a nice renewed uptick in interest in the data server segment for the 2 to 3 kilowatt class power supplies, which, as I said earlier, could be likely triggered by this EU standard requiring the higher levels of titanium efficiency by January 2023. And the supply chain associated with that is starting to gear up in this area. So 5 plus power supplies from our end customers are already releasing production with TGAN inside. Second, we have rolled out our new products and reference designs in this period like we had targeted. Our Gen 4 products, both for the sub-100 watt adapters to the larger die for 3 to 4 kilowatt server and industrial power applications are now both in production. And we released our second 900 volt products, Transform still being the only company in gallium nitride to have 900 volt product offering. And that's possible because our 650 volt is robust and bulletproof for high voltage operations. We also successfully released our new 4 kilowatt analog totem pole power supply reference, designed for high efficiency power factor correction circuits for power supplies, and also backed by the fundamental IP we have in bridge circuits for this application. This complements our digital design with Microchip that was released earlier in this year and reduces the design time for customers who prefer the ease and simplicity of analog-based design. We have also sampled our high current Gen 5 engineering samples for select application for the target we laid out last time. As a reminder, Gen 5 will also be very key for enabling higher power, for example, 8 to 10 kilowatts with a single die, and then paralleling for even higher power, which is very, very important for electric vehicles. We are also excited to build out our second vertical business of EpiVapor sales, securing revenue of over 200K from three of our DoD customers in 2020 so far, all of them being large DoD Prime's contractors. This is actually in addition to our existing strong baseline of the Navy government program revenue on which we continue to execute solidly. The company continues to build on strategic partners. They are always important to transform with especially focus on automotive electric vehicles and industrial areas. We are pleased to report that we have aligned on Yasukawa, a long-time partner of the company, on a $4 million NRE-based agreement that has been associated targeted product development plan for motor drives. The Nixperia cooperation agreement overall is on track and execution proceeding smoothly. We've also deepened the partnership with Morelli, in particular, our longer-term product development efforts and mapping the same to the longer-term multi-year automotive and EV product plans for the customers for chargers, DC-DC converters, and inverters. Next slide, please. So we aim to continue and build on this very strong foundation as we go into Q4 and finish off the year and look forward to the early parts of 2021 to set up a very exciting 2021. I wanted to lay out a few key areas of focus for the next several months. Continue the strong momentum that we have secured recently in the area of adapters and data center power supply segments. Complete shipment of our high volume production order for adapters in Q4 and secure multiple wins in this segment over the next several months from the various designs we have going on in progress. And then also add a new design that will bear fruit for the second half of 2021. Next, secure production orders for data center power supplies in Q4, completing shipments in Q1. On the new product and design front, we want to start sampling additional Gen 4 product SKUs as we fill out our product portfolio and continue to position for improved margins. An important objective is completing automotive qualification of our Gen 4 product, which is already JEDEC commercial qualified and in production for commercial application. But the next several months, we want to address the automotive qualification. And then, always to support our product hand in hand, we want to release reference designs for both adapters, new reference designs for both adapters and server power supplies to continue building next year. For our government programs and AP business, First and foremost, we continue to execute well on the Navy program, keeping that revenue on track. And then an important milestone coming up is get our new MOCBD epi reactor, which was acquired under this Navy program, operational. In our epi business, we see a nice opportunity to add more commercial customers to complement our DOD customers and grow that vertical faster over the next year. And then key milestone for our strategic partners activity. Like I said, we have aligned on the Yaskawa NRE agreement. So now the next step is to complete the final signing of that agreement, complete the deliverables associated with the first milestones, and secure the first $1 million funding increment of that agreement. Second, secure the $1 million investment, the equity investment from Morelli in Q1, which was the original plan that we had, and continue engagement on the EV product and systems development. And then continue the win-win cooperation agreement and execution with Nixperia to grow the market with transforms normally of a product architecture design coupled with Nixperia's own designs in this area. All in all, I'm pleased to say that we had a solid quarter executing to our plans on design wins and production orders, new product development and rollout, government, EPI, and partner business, despite some of the challenging environments facing us especially with respect to international travel. The platform we have set will serve us well as we look to grow in 2021, keeping the momentum in adapters, chargers, data center power supplies, epi products revenue growth, and automotive electric vehicles design-in activities. I will now hand the call over to our CFO, Cameron McCauley, who will walk you through our financials.

Thank you, Pranay, and good afternoon to everyone joining today's call. Let me start today with a brief recap of our year-to-date financial performance, including our QC results. Slide 17, please, Ben. Overall, we remain in line with our revenue range despite the challenging environment. Total revenue for the third quarter was $1.9 million, with a total for the first nine months of the year of $9.4 million. Product revenue for the nine months to date is $1.9 million, comparing favourably to the $1 million product revenue for the same period in 2019. The balance of our revenue, driven through licensing and government contracts, demonstrates our continued ability to successfully monetise our strong existing IP portfolio. Operating expenses were higher in Q3 than the previous quarter, driven by a couple of factors. In G&A, there was an increase in non-cash stock-based compensation expenditure, together with G&A allocation costs pertaining to our ONR contract. Cost of goods increased due to higher non-licensing revenue in the quarter, These increases were partially offset by a reduction in R&D due to increased government activity absorbing a higher proportion of our R&D spend. For the nine-month period, operating expenses were higher than over the same period in 2019, reflecting increased G&A primarily due to one-off costs pertaining to our APO, increased D&O costs, and as with the quarter, non-cash items such as government allocations and stock-based compensation. These were partially offset by lower R&D costs due to the two separate government contracts. Net loss for the quarter was $0.19 per share and $0.39 for the first nine months, which is an improvement from a net loss of $0.63 for the nine-month period in 2019. Next slide, please, Glenn. Turning to the balance sheet, the company exited Q3 with a cash balance of $4.4 million. Our cash burn is expected to be significantly lower in Q4, driven by funding related to the Ascala agreement, reduced interest costs, and continued cautious cash management. The fair value of our promissory note with Yaskawa increased in the quarter. Its valuation is now very close to the value at the end of 2019. Other assets and liabilities remain largely stable. As discussed in our last call, the company is proactively addressing efforts to value options for near-term growth capital, ultimately to support two objectives. Firstly, it will allow us to meet near-term capital requirements to support the volume production ramp of our products. And secondly, it will provide us with a bridge to our ultimate goal of uplifting to NASDAQ. Next slide, please. Now turning to our outlook, we are in the process of building a high-growth, cash-generating business. From a revenue perspective, as you know, there are three different streams of income, licensing, government, and products. For 2019 and 2020, licensing and government comprise the larger portion of our revenue, but as noted earlier, we expect solid growth in product revenue in this period. As we move into 2021, we will continue to generate revenue from both licensing and government contracts, and we expect accelerating growth in our product revenue. The company anticipates that this growth will be across multiple segments, including our epi vertical, and as Clement articulated earlier, we expect to see much of our growth in the consumer adapter space, and we believe we are very well positioned to execute. In the longer term, production revenue will form the significant majority of our revenue. We are targeting an annual CAGR between a baseline model of 50% up to potential CAGR of 80%. Based on these revenue levels, we expect to achieve a blended gross margin in the 40% plus range. All segments will be able to benefit now from the improved cost structure in our current Gen 4 products and in the future from Gen 5. With respect to operating margin, the company will continue to invest to support all aspects of our core operations. The company has in place a very stable op-ed structure that will ultimately allow increasing revenue to drive operating margins of over 20% and free cash flow margin of over 10%. Next slide, please. A few highlights to conclude. Transform is a pioneer and leading provider of GaN power conversion devices. We have the short-fifth technology that provides power conversion solutions across a number of significant growing markets, including 5G and EV. We are already commercially ramping our well-positioned for long-term growth. The company has best-in-class technology and the industry's strongest IT position. We have a comprehensive portfolio to meet our customers' needs and a roadmap in place for product and package enhancements, as well as specific devices to capitalize on the large and growing markets for both 5G and EV. We have a manufacturing structure in place today that can support our long-term growth, and all of this is enabled by a deep, talented team led by world-renowned GAN experts. This completes our prepared materials and remarks. We would now like to open the call to any questions. Operator, please proceed with managing the Q&A portion of the call.

As a reminder, to ask a question, press star 1 on your telephone keypad. To withdraw your question, press the pound key. We will pause for a moment to compile the Q&A roster. Your first question comes from Craig Ellis from B Riley Securities. Please go ahead.

Thanks for taking the question, and team, congratulations on executing in the quarter, especially with that in the quarter cash level. Nice to see. I just wanted to start off with a couple questions that are related on chargers. So in the press release, there was an indication that a volume order has come in. And then in the slide deck, I think it was slide 14, there was mention made of, I think, 10 designs in the pipeline, although some may have been away from chargers. Can you just help us understand, one, on that volume order, when would you expect revenue to hit for that? And two, for the things that are more in the pipeline, can you characterize your confidence around what closes when and when those start contributing to revenue?

Sure, Craig. I can take that. Thank you. So the volume order that we talked about, like we also put in the priorities, that execution, we want to ship that in Q4. The order that we have got, we are gearing, our team is working hard to ship it in Q4 itself before end of the year. So that'll be exciting. And then obviously we hope to continue with that customer in 2021. Regarding to the pipelines, yeah, It's, uh, yeah, we, we want to convert that quite a bit of that, uh, into it with respect to the timing. Uh, some, uh, uh, maybe, uh, uh, one or two may be done by end of the year and are confirmed to go into production. A couple in, in, in Q1 and then ramps, uh, happening in Q2. So kind of Q1, Q2 is where we would see increased uptake, uh, with actual, uh, orders and shipments, uh, from that pipeline pipeline. The conversion rate, again, I don't want to give out a number. We hope to convert a good bit of those into revenue. Not all of them are just with chargers. Like I said, some are for the fast chargers for phone, and some are actually for adapters for laptops. And more importantly, we want to add more design-ins also. So we are now, we have increased effort in this area, and then we want to add more design-ins in the first half, Q1, Q2, that will materialized to increase revenue in Q3 and Q4.

That's helpful, Pramit. And can you just help us with another dimension of those design wins? Following a Tier 1 supplier's product release that had a charger outside of the box, so purchased separately, I'm wondering, what are you seeing as you engage with potential customers? Are any of the design wins you talked about for chargers that would be in the box with a smartphone for a PC, or are these all aftermarket and for retail, either in-store or online?

So there's a mix. Some are for aftermarket, some are for targeted for inbox as well. And then what we saw, the trend, we don't quite know how kind of widespread that trend will become, shipping out-of-box charges, but The way we think about it is because GAN, overall GAN, is still growing in this market in the early stages, a trend like which is out-of-the-box chargers actually helps out with GAN and transform because there are now multiple opportunities to make the same box. And some of these are very high-volume applications. So it actually bodes well for the near-term growth of the GAN shipments for adapters.

Yeah, certainly, it seems the press has picked up a lot more on the Gantt opportunity with chargers following that product announcement. Moving on from it and touching on data center, it sounds like the company may have been a bit surprised with the number of engagements that are coming in and potentially related to Europe regs changes. Is that fair? And how materially

can some of those things that are happening in that market contribute to revenue so we see that uh in the first half of next year the second half of next year is that really something that's a 2022 opportunity for this company so of course we we believe it's definitely 2021 uh opportunities that they're saying and not not so much surprise craig as in as in a kind of a good positive input we've been growing like i said data center was one of the first markets uh we went into because we were the ones with high quality, high reliability, 1 to 2, 1 to 3 kilowatt products out there. But we are seeing this nice, as I call it, nice uptick, sudden kind of a renewed interest, which we link to this January 2023 standard becoming now near term. So definitely 2021, some of them we should see actually in the first half. But overall, I would say 2021 for sure, and then only further expansion in 2022.

Great. And then lastly, before I hop in the queue, and on the product side, it wasn't something that was mentioned, but I believe from past conversations, one of the things that helped gaining power supplies was the farms that were put up for Bitcoin mining with Bitcoin pricing getting back to relatively high levels. Are you seeing any demand percolate up in that particular end market that could benefit calendar 21 sales?

And so we are also so that in 2018, we saw a significant demand in that area in 2019 kind of become a flat to a very low and a lot of the first half or the first nine months of 2020 as well. But even there, I, what I cannot tell you is whether it is related to the Bitcoin pricing or not, but even that, that, that application that we already have a design win and a running product, we are seeing some nice upticks recently in Q4. because of that. Again, we haven't linked it to the Bitcoin mining, but you can perhaps put those two independent things together and attribute it to perhaps the Bitcoin pricing. But what we know we are seeing is some, again, we saw a nice kind of orders on that in Q4. Nice to see you, and I'll hop back into you.

Thanks, Pranit. Thank you.

Your next question comes from the line of Richard Shannon from Craig Hallen. Please go ahead.

Well, hi, guys. Thanks for taking my questions as well. I think I'll follow up on the fast charger market here. Again, to follow up on the comment regarding high-volume order, what do you consider to be a high-volume order? Is that kind of five-figure units, or could that be in six? Help us think about and put that in context.

Yeah, right now, five-figure unit, but hopefully the potential to become six next year.

Okay. Excellent. We look forward to seeing that. Just to kind of tie together comments from last quarter, I think you said you're expecting to get three to four wins in the fast charger market this year, and it sounds like based on your commentary, you're hopeful about what happens. Is that a fair assumption, or maybe you can tell us how you're fitting relative to that target quarter ago?

Yeah, no, we are right. Actually, we are right around that by the three to four design wins. So we feel good about that.

Okay. Excellent. Great to hear. A couple of questions on epiwafers. For me, I just saw a press release some number of weeks ago about NXP opening up a GANFAB in Arizona, I believe. I'm wondering if you see that as an opportunity for your EpiWay for operation. If so, can you discuss when, you know, how and when that might become, you know, noticeable for you?

Yeah, so that, again, kind of particular customers, we obviously we try to address the RF market, but we don't necessarily tend to address particular customers. We operate with many customers under NDA, but certainly very exciting to see that FAP open up, gallium nitrate RF FAP open up in Arizona. Okay. A couple of questions. Correcting myself, apologies. The order, the doctor volume order, the figures I was counting zeros. You were saying figures. The order, the volume order that we have got is actually six figures in 2020 that we want to ship. It's low six figures, but it is six figures that we want to ship in Q4. And then 2021, we hope to get kind of in the millions. That would be seven figures. Counting zeros versus ten numbers.

Okay, great. That sounds great. We'll look forward to hearing more about that. Again, back on the EpiWafer topic here, just to clarify, in your presentation, you talked about it in three RF at the customers with $200,000 this year. Is that each customer or in total?

In total. The three of them, the three customers in total, and these are DoD customers. their end application is DOD, either D&D, R&D programs that they have or other applications.

Okay. And then my last one on this topic here is that I think in your presentation, I'm actually trying to page through it to find it because I know I saw it. It said in there hoping to target as much as $10 million in sales in 2022. And Epi, and I'm losing the page where that's on here, but can you, here's on slide 11. Can you talk a little bit more about where you see that coming? How, you know, what's the probability of that? And how do you see out in 22 in terms of timeframes?

so the 22 is it all depends how we build up to it first i want to clarify that that that's a market potential kind of thing so the rf business is is out there today actually that's pretty predictable that in 2022 the gan rf business will be a billion dollars right that that that's uh that's reasonably plus minus maybe something depending on how the growth is now we we estimate uh that every portion of that um rf uh bomb is uh say around 15 to 20 percent and uh What we are seeing there is that would put, say, the epi market to be $150 to $200 million equivalent of that $1 billion. And we are seeing 5% of that market represents a $10 million epi revenue potential. Now, that's a top-down view. What we will be doing in execution, obviously, like we said, adding systematically one at a time epi commercial, epi customers to complement our DOD customers to build towards that. So I hope that clarifies that $10 million is a top-down view of what it can be, and then we have to build that bottom-up.

Okay. Excellent. Look forward to seeing that one as well. My last question, probably for Cameron, unless I missed something from your prepared comments, I didn't hear any specific thought process about how to think about revenues and financials for the fourth quarter. Is that something you can offer here, thinking about it qualitatively or even quantitatively?

Yeah, I think, you know, without guiding, I think what we see is good product revenue traction over the first nine months of the year. I think we feel pretty confident that trend can continue, not least at which we have the adapter order that Pramit referenced for Q4, and plus the continued interest in data servers. From a government revenue standpoint, I mean, that has been pretty stable. We're in the middle of the owner contract right now, and we don't anticipate any significant deviations from the runway that we've seen in the first nine months of the year.

I appreciate it. Sure. Sorry, I didn't mean to interrupt, Cameron. Did you want to finish there?

No, just to say that I think from an OPEX perspective, you've got a stable platform in place. I think we continue to manage all aspects of it, but I think that also will remain largely stable as we look into the next quarter or two. Thanks, Richard.

Okay, great. Thank you. That's all from you guys.

Your next question comes from the line of David Williams from Loop Capital. Please go ahead.

Hey, guys. Thanks for letting me ask the question, and congrats on the progress in the quarter. I wanted to see if maybe you could talk a little bit about the EpiWave for business that you discussed on slide 11, and where you've got the six-inch silicon carbide and maybe some sapphire substrates. Can you talk a little bit about that, what that does in terms of your opportunity, the size of that system, or what that could add overall as you get into those other businesses?

Sure. So the silicon carbide GAN RF devices today, most of the GAN RF devices are built on silicon carbide, insulating silicon carbide substrate. And some people are looking at SAFIRE either for R&D or future use. So under our NAVY program, we have a development for both those areas, the silicon carbide and SAFIRE. Actually, the fact is it's easier to grow material in general on silicon carbide or a sapphire than silicon. So we do GaN on silicon for our main power business. And then for the RF side, the numbers we were just talking in answer to Richard's question, the existing gallium nitride RF transistor business, which a lot of them are on silicon carbide business, we want to provide GaN on silicon carbide EPI or GaN on sapphire EPI. to address the epi portion of that RF galvanized business.

Okay, fantastic. Great. And then I wanted to ask a little bit going back to the chargers. Obviously, you're making some really nice headway there on the handset fast charging. But if you kind of think about that expanding out into maybe laptop computers or even the 65-watt chargers that we're seeing on the monitor side and even TVs, what is that opportunity there? And are you seeing much traction or much opportunity beyond maybe what you're seeing just in the handsets?

Correct. So the handsets now are geared towards a lot of the gallium nitride ones for handsets are going into 65 watts because these are the new 5G phones or new smartphones which are power hungry. So some are 45, 50 watts, but a lot of the activity even in the smartphones is around 65 watts. The 65 watts is also nice for, you know, tablets and small size laptops. So that's one area. Then for the larger laptops, you see in excess of 100 watts, 150 watts being the typical number there. And then into kind of the 200 to 300 watt, you start getting into things like gaming adapters and other things. And the TVs, the TV power supplies tend to be in the more kind of the 300 to 500 watt regime. So that's kind of the mix. You see that on the other side, if you go to wall chargers, the wall plugs, those tend to be, like the one example we showed, those tend to be even lower power at the 30-watt regime. So that's how the power space is divided across those applications.

OK, great. Thank you. And then one last one, if I can. I just want to clarify. You said that you had five products for these in the data center that's in the design phase. Is that correct?

Yes. So what we said that was our customer has products released already. So these are power supply products released in their manufacturing with our Gallium Nitride inside. So we have a couple of Gallium Nitride devices. that target, say, we have devices for 1.5 kilowatt, 2.2 kilowatts, 3.3 kilowatts. So we have a couple of devices that target those. And then the five I referred to was actually our customers' power supplies that are released in production.

Okay, fantastic. Well, thanks so much for the time. Certainly appreciate it, and best of luck on the quarter.

Thank you.

Your next question comes from the line of Craig Ellis from B. Riley Securities. Please go ahead.

Yeah, thanks for taking the follow-up and really appreciate all the detail on this call. So, Cameron, one of the things that you mentioned was that cash burn would be down in the fourth quarter. Can you just talk through some of the gives and takes with cash differentials?

Sure, sure. If I compare Q3 to Q4, you're looking at two main factors, I think, Craig, that are going to lower the cash burn. The first one is that we are finalising the Escala development agreement, and we would see a million dollars of funding coming through from that in the latter part of the quarter. You will also see a reduction in interest costs. And those are the two main factors. And then, obviously, we continue to manage the cash position very carefully as we go forward.

Great. And then Permit if I could flip it back to you. Any update on progress as you look at options for the ISU, JVFAB, and potentially finding FAB partners there?

Yes. So on that side, we are in due diligence with a couple of target parties and actually close to reaching an MOU level agreement with the lead partner there. to come in and replace the Fujitsu stake after that plan exit, which was earlier announced, as you know. And that's obviously remained subject to Japanese regulatory agencies that move at their pace. So a process originally we said could take six to 12 months, and we are kind of in that zone. So we are confident that this process that we have set up with the new partners will allow us to meet our stated objectives of maintaining 2021 and probably do even better with respect to the ISOFAB by maintaining full production capability for our own manufacturing and development.

That's a great update. And then lastly, and at a higher level, there was a recent press release noting that Dr. Julian Humphreys has been added to the board. could you just talk about what you think his expertise brings and how does that impact some of the strategic decisions that the board and the executive team are making? And should investors and analysts be expecting any other board appointments in the near to intermediate term future? Thank you.

Mario, go ahead. Yeah, sorry. You know, Dr. Humphreys is a well-known executive with Chile Semiconductors, as well as Nexperia, their standard product spinoff. And he also brings not only the industry knowledge, but also the European perspective to our board. So it's a very experienced professional, independent, and great perspective. And your second question, yes, you should expect to see and one or two more appointments to our board to complement the expertise that we already have as we make the transition from private to public company and trying to uplift into the NASDAQ.

That's helpful. Thank you, Mario.

That was our last question at this time. I will now turn the call back to management for any closing remarks.

Thank you very much. For posting out today's call, I want to let investors know that we are scheduled to participate in two upcoming virtual conferences. First, we will be hosting virtual meetings at the Craig Hallam Alpha Select Conference on November 17th. And then the following day, we will participate at the Benchmark Discovery Conference on November 18th. For those interested in meeting with us as part of one of those events, I encourage you to contact either of the hosting firms or the Sheldon Group to schedule a meeting. 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 in the near future. Operators, you may now disconnect the call. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.