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spk02: officer. This call is being webcast and will be archived on the investor relations section of Rockley's website. Before I turn the call over to Andrew, I'd like to note that today's discussion will contain forward-looking statements. These forward-looking statements include, but are not limited to, the anticipated features, benefits, scope, focus, status, and goals of our platform, technology, products, studies, and partnerships with third parties, our ability to and the timing of bringing our products to market, and our development schedules, our strategies, our research and development plans, our customers, our commercial and market opportunities and trends, our debt obligations, our financing agreement with Lincoln Park, and our costs and expenses, our cash reserves and financial performance and outlook and factors affecting the foregoing. These forward-looking statements are subject to risks and uncertainties which may cause actual results to vary materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include but are not limited to those discussed in our earnings press release and in our filings with the SEC. Any forward-looking statements that are made on this call are based on assumptions as of today. and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, Rockley reports certain non-GAAP financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation of these GAAP and non-GAAP measures are included in the tables found in the press release. I'll now turn the call over to Andrew.
spk06: Thank you, Gwyn. And thank you all for joining us for our third quarter earnings conference call. Today, I'll briefly walk through our results for the quarter, and then I'll discuss significant progress that we've made since our last earnings call. In the third quarter, we generated revenue of $1.8 million. Our gap net loss was $58 million in the third quarter, which includes one-time costs related to our IPO, compared to a loss of $30.6 million in the second quarter of 2021. We ended the quarter with $125 million in cash, cash equivalents and investments. Mahesh will provide more detail on our financial results later in the call. Now I'd like to talk about our business. In August, we completed our business combination with SE Health and began trading on the New York Stock Exchange. Through the process, we raised $168 million, which will help us to develop our consumer wearable solution while we work towards its commercialization. We not only strengthened our balance sheet, we also gained increased stature with some of the largest companies in both consumer wearables and medtech. I believe that becoming a public company has already helped accelerate the commercial opportunity for our five-fold spec biomarker-sensitive platform. For those unfamiliar with it, the Rocklea VitalSpec Centric Platform is an end-to-end solution that combines photonic-based hardware, optimized biomarker algorithms, and cloud-based analytics and AI. It enables clinical and healthcare research practitioners to integrate more comprehensive, non-invasive biomarker measurements in their remote patient monitoring studies. Broccoli's proprietary silicon photonics-based laser technology significantly expands the range of biomarkers that can be detected and measured continually and noninvasively beyond the capabilities of current LED-based sensors. This expanded range includes key biomarkers like core body temperature, blood pressure, body hydration, alcohol, lactate, and glucose trends, amongst others. These new measurement capabilities have the potential to transform digital healthcare by providing real-time insight about a variety of health conditions and enabling early detection of multiple disease states. Turning to our product strategy, I am very pleased with the progress that we have made during the quarter in providing our partners with unique solutions which will power their health and wellness products. today we announced new partnerships with five global consumer electronics companies including four of the top 10 risk-based wearable companies strengthening our position in the market by adding some of the most prominent companies in the smartphone and wearables market six of the world's top 10 manufacturers of smart watches and wristbands now look to our platform as an important part of their health and wellness strategies. In medtech, we recently signed partnerships with two of the world's largest medical device companies. Working with these companies has expanded our development effort for our wearables and end-to-end data analytics solutions. And finally, I'm very excited about our partnership with the California Institute of Technology, or Caltech, because I believe that this program will both add to the development of our VitalSpec platform and will give this partner unique tools that will help them advance the tremendous research that they undertake. Now I'll start with an update on our consumer solutions and some of our key partnerships. As a reminder, in this market, we develop chipsets and modules for large consumer electronics companies who will use our solutions in wearables and handheld devices for the consumer health and wellness markets. Because of our unique non-invasive biomarker sorting technology, demand for these products is increasing as our partners work to create innovative products that can help them improve the health and well-being of their customers. We have longstanding relationships with several leaders in the consumer electronics space, and we've added the five new partners I've discussed a moment ago. We believe that working with these companies will increase our ability to successfully launch our clinic-on-a-risk solution in the health and wellness market and will reduce our reliance on any one partner. Next, I'll discuss the medical device market. In this market, companies are focused on improving patients' lives through innovative solutions, and they pursue partnerships with companies that can help them achieve their goals. During the quarter, we announced that we signed multi-year partnerships with two of the world's top 10 medical equipment and device manufacturers. We will work with these industry leaders to evaluate and incorporate our next generation of non-invasive biomarker sensing technology into their products, providing them with a complete end-to-end biomarker sensing platform that combines photonics-based hardware, optimized biomarker algorithms, and cloud-based analytics and AI. We also believe that these partnerships will accelerate our product development and timelines and will help us identify and advance potential use cases for our technology in mobile devices for remote patient monitoring. I'm also very pleased about our partnership with Caltech. Through this partnership, we hope to add to the development of future healthcare applications that will use our sensing platform As part of the agreement, we will collaborate on the development of next generation solutions that combine advanced sensors with artificial intelligence to enhance insight into health and well-being. Combining sensing and algorithm research Caltech's Sensing to Intelligence initiative is developing more efficient and intelligent sensing systems that align with Rockley's approach to health and wellness monitoring, combining photonics-based sensor technology with state-of-the-art artificial intelligence and data analytics into an end-to-end platform. This partnership intends to focus on a range of projects, including the development of new spectrometer technologies using advanced photonic sensors, which will help us broaden and enhance the health monitoring capabilities of Rocklea's platform. The team also intends to explore new applications for cloud-based services and will look to exploit the advanced capabilities of platforms such as Amazon Web Services to advance healthcare innovation. I also want to update on our ongoing human studies. We have made very good progress with these studies and we plan to announce the results of our first study next month with others to follow in 2022. Following the tape-out and fab-out of our pre-alpha samples of our product, our studies currently utilize these devices in our non-invasive biomarker sensing bands and optimize biomarker algorithms to gather information from our study participants, which then upload to the cloud. As we develop this library of diagnostic knowledge, we will use artificial intelligence and analysis to create the foundation that will provide deeper understanding of human health and wellness. We believe our alpha devices are on track and will be utilized in our human studies and available to our partners for their pre-production studies in 2022. Finally, I'd like to take a moment to thank our team for their hard work across all aspects of our full-stack solution. The biomarker human studies require a great deal of effort, and the entire Rocklin team and our volunteers have really stepped up to the task as well. Thank you. All these initiatives create significant opportunity for Rocklin and enable us to pursue multiple avenues in parallel I'm very pleased with the response that we've had from all the markets that we serve and believe that each has the potential to allow us to achieve our goals. Our consumer electronic partnerships are going well. And with the additional partnerships that we have announced, we are now working with the leaders in the consumer, smartphone, and wearables markets. I am delighted with the response from our current MedTech partners, as well as the many other companies who have recently expressed interest in working with Rockit. I believe that these MedTech partners understand the importance of the work that we are doing, not only to identify individual biomarkers, but also to interpret the data using cloud analytics and AI, so that we can provide them with actionable information Based on the progress that we've made and the response from our markets, I'm very excited about the prospects for our company. We will continue to develop our innovative, full-stack, non-invasive silicon photonics-based solutions, and we're optimistic that the work we are doing today will change the world and will transform digital health, wellness, and healthcare with actionable insights powered by Rockne. With that, I will turn the call over to Mahesh for detailed review of our financial performance in the quarter.
spk05: Thank you. Thank you, Andrew, and good afternoon, everyone. I will begin by reviewing our third quarter performance, and then I will provide an update on our outlook for the fourth quarter. Turning to our third quarter results, we reported revenue of $1.8 million compared to revenue of 2.2 million in the second quarter as a reminder we are in the pre-alpha stage of developing what we believe to be a game-changing technology for the broad health and wellness sector as well as medical device companies that could benefit from our leading technologies as such Our current revenue is derived from non-recurring engineering activities, which results in quarter-to-quarter variability. Our third quarter cost of revenue was $3.5 million compared to $4.5 million in the second quarter of 2021. our non-GAAP cost of revenue was $3.1 million, compared to $4.2 million in Q2 of 2021. As we previously mentioned, our cost of revenue can fluctuate from period to period, depending on several factors, including the timing of the completion of project milestones. Moving to operating expenses, We recorded total GAAP operating expenses of $40 million in the third quarter compared to $24.3 million in the prior quarter. GAAP SG&A expenses was $13.6 million compared to $6.7 million in Q2 2021. And GAAP R&D expenses where $26.4 million was $17.6 million in Q2 2021. The increase in expenses was driven primarily by $14.3 million in one-time transaction-related costs, personal expenses, and public company costs. Total non-GAAP operating expenses for the third quarter was 33.7 million dollars compared to 21.5 million during the second quarter of 2021. Non-GAAP SG&A expenses was 9.4 million compared to 5.8 million in Q2 2021. Non-GAAP R&D expenses Total 24.3 million in Q3 versus 15.7 million in Q2. We plan to continue to expand our R&D organization as we drive our technology forward to support the many growth opportunities ahead of us. our r d efforts are essential to our ability to remain on track for our customers projected product rollouts as we scale the business we expect our expenses to fluctuate as a percentage of revenue period to period but to generally decrease over the long term moving to net income we recorded a gap net loss of $58 million or a loss of 54 cents per share in the third quarter compared to a net loss of $30.6 million or a loss of 36 cents per basic share in Q2 2021. Our non-gap net loss was $51.4 million or a loss of 48 cents per share in the third quarter. Adjusted EBITDA and non-GAAP measures was a loss of 35.6 million in the third quarter, which compared to the loss of 23.4 million in the second quarter of 2021. Our net cash used in operating activity totaled 37.4 million in Q3 compared to 29.6 million in Q2. The sequential increase was primarily driven by an increase in headcount and R&D activities. Turning to our balance sheet, we ended the quarter with cash, cash equivalents, and investments of $125 million an increase from $35.4 million on June 30, 2021, prior to the close of our transaction. During the quarter, we retired all our convertible notes, and we expect to retire our remaining debt obligations of $28.6 million in 2022. Recently, we announced that we signed a financing agreement with Lincoln Park Capital to provide us with an equity line of credit of up to $50 million. This agreement will strengthen our balance sheet and provide us with additional flexibility as we work to commercialize our non-invasive biomarker sensing solutions. Looking ahead, as we previously discussed, we continue to believe that we will generate approximately $27.5 million in revenue in 2021. This guidance includes a significant technical sale in the fourth quarter, and as with similar deals, there is always the chance that the transaction will slip into 2022. In wrapping up my prepared remarks, we are pleased with our performance in the third quarter. We significantly strengthened our balance sheet through the completion of our business transaction with SE Health in August, and we believe we remain well positioned to execute on our roadmap ahead. I will now turn the call back to the operator to open up the call for questions.
spk01: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Vivek Arara with Bank of America. Please proceed.
spk03: Thanks for taking my question. So, Andrew, for the first one, you mentioned the addition of new consumer electronics partners. I was hoping you could give us a little more color. You know, what does that do to the size of the opportunity? When do they start adding to the backlog? When do they start becoming customers? you know, more important to your expectations? And then are they engaging with you exclusively or are you part of, you know, other engagements that they're also doing?
spk06: Great question, Vivek. Thank you. So obviously in our set of projections, we had four consumer customers, and now we have six of the top ten wearables customers and obviously additional customers as well. So what that says is that you can look at the numbers and say, okay, this is either an increase to the opportunity or it's significantly de-risking the opportunity for us with the significant increase in the number of signed customers and our penetration into the vast majority of the available addressable market in wearables. That's the first thing. Second thing is that what we do with these customers is, you know, when they're signed up, is we start work with them on the physical design in activities. And that is what we're doing with all of these customers. So what then translates into next year is the process of providing a significant number of units for their qualification process. following the detailed design and work that we're doing with them now, which then prepares them for the launch of their products into the consumer market in 2023. So no change there from the plan, just significantly more customers than were in the projections, and whichever way you'd like to look at it, significantly de-risking what we say we're going to do.
spk03: Got it. And, Andrew, on the MedTech opportunity, what is the most important product milestone that you need to deliver on to make that happen?
spk06: So on the MedTech area, it's the same technology. It's the same module technology. But what's really exciting is when we took the company public, we really focused attention on the consumer area, which has now obviously rocketed ahead in terms of our engagement with customers. But we weren't explicit about what we were doing in the MedTech area other than that we had customer engagement. It's now clear from customers our continued development and our continued development of the commercial opportunity and the customers that we're working with, which amongst others include two of the world's leading medical device companies, is that these customers all want us to deliver a full stack solution into particularly things like patient remote monitoring. And so What's involved in that is basically everything that we have been developing, all the way from the modules going into the wearables, into wearables suitable for the healthcare market as opposed to the consumer market. And there's a difference there. And then the algorithms for the individual biomarkers and then the algorithms in the cloud that process the information longitudinally over time to come up with guidance and insight and diagnosis for patients. So all of that is accelerating very, very rapidly for us. And as we said, it essentially creates another further growth opportunity for us. But what's really different about it is, well, actually there's not a great deal of difference in terms of what we do. It's really more about customers engaging in the healthcare area for our entire full-stack capability and the need for us to present the solution in a format that's appropriate for the healthcare market as opposed to the consumer market, and that is a sort of physical solution. implementation into wearable devices that are quite unobtrusive, you know, don't do any other functions other than focus on an individual's health, and sit there in the background continually monitoring the patient and providing the data into the cloud, into our cloud platform, which we then interface to our customer.
spk03: All right. And maybe one or two for Mahesh, if I may. On the backlog, you mentioned $23 million. If I got that right, I think steady from Q2 to Q3. That still leaves a fair bit of turns business that you will need to execute on for next year. I'm curious, how is your level of visibility and confidence around the next handful of quarters versus what you had 90 days ago?
spk05: Okay, let's break it into two pieces. For 2021, we have guided $27.5 million. This includes a significant technical sale and has with similar deals, there is always a chance that the transaction will slip into 2022. For the 2022 guidelines, at this stage, we feel comfortable, and if there is any other change, we will let you know appropriately.
spk03: Thank you, Mahesh. And just the last one, how are you positioned from a financing perspective, and how should we think about just the use of cash over the next several quarters as you execute to your 2022 plan? Thank you.
spk05: As we had said in our last call, we believe we have raised enough funds to take our customer wearable products to commercialization. To supplement other activities, we announced today that we entered into a financial agreement with Lincoln Park Capital where they will provide us with the option to utilize up to $50 million through an equity line of credit or ELOC. Thank you.
spk01: Our next question is from Quinn Bolton with Needham and Company. Please proceed.
spk08: I just wanted to follow up on Vivek's questions. First on the new consumer electronics customers, I just want to make sure I have this right. I think at the time of the business combination you had talked about for consumer electronics companies, you know, leading to your forecast, Am I right to think now with the five additional, you're at nine, or did the five customers that you talked about on this call include some of those original four?
spk06: Hi, Quinn. Yeah, good question. Yeah, for clarity there, if you recall that we were engaged, we were signed or engaged with those customers. That didn't mean to say that we had signed them all. What we are now saying that we have signed six out of the top ten.
spk08: Got it. Got it. Okay. Thank you. And then some following questions to the CE customers. Do any of them generate NRE opportunity for you in 2022 or into 2023 as they look to go to production? And second, do any of them require customization that might lead to additional OPEX outside of the original plan that you had put forth?
spk05: Yeah, Quinn, this is Mahesh. On that subject, currently our focus is to develop a standalone product which we will be able to come to the market. So NRE from this customer is not our focal point. However, there will be some NREs, but I would not expect it to be very material. Got it.
spk08: Okay, great. And then it sounds like the outlook for the company to deliver the pre-alpha samples to customers next year so they can conduct their human trials remains on track. So it sort of sounds like those first customer requests devices likely announced either late 2022, early 2023 with the production ramp in 2023, no change to that timing?
spk06: Yeah, that's correct, Quinn. And just to clarify a couple of things, the pre-alpha devices exist today, and we have been providing devices to customers that we were due to tape out and fab out our alpha versions We've done that now. We've got the first lots come back as expected. And then those alphas will be supplied to customers starting in the first half of next year as part of their ongoing evaluation, if you like, and pre-production activities. Then by the middle of next year, the full production version with a few tweaks, which are inevitable, will have been taped out and fabbed out by us. And then that will start ramping in Q4. And at that point, we are basically in the design in cycle for the products launching in 2023.
spk08: Understood. Thank you, Andrew. And then I guess, Mahesh, just sort of on the use of cash, maybe help just bridge for investors. You've got $125 million of cash today. You burned or consumed $37 million in the third quarter. I don't know if you can give us any comments on what you think cash burn or OPEX might look like over the next few quarters. But If you're starting with $125 million and you intend to pay back the $28.6 million of existing debt obligations. It looks like you've got about $100 million of cash outside of that debt repayment to fund operations, and obviously your cash burn in the third quarter was pretty high. So how should we be thinking about OPEX on a quarterly basis over the next few quarters? Does that come down meaningfully? Does revenue ramp pretty meaningfully to offset that? Just any help you could provide would be much appreciated.
spk05: On that front, if you recall, we had provided the guidance for this quarter and for the rest of the year. As of date, we still feel that the OPEX will be in line with that forecast. So there are a couple of things we are doing to address some of the cash issues. One is this HELOC, which has come in effective today. So that will be a $50 million amount, which we will raise. And then there are other forms of instruments we are looking at, and we will probably address that in Q1 timeframe.
spk08: Understood. Thank you very much.
spk01: As a reminder, just star 1 on your telephone keypad if you would like to ask a question. Our next question is from Tristan Guerra with Baird. Please proceed.
spk04: Hi. Good afternoon. Just following up on the new design winds relative to the alpha sampling, how much of those winds are contingent on basically your company meeting the thresholds that are expected by And you've also said during the Q&A that of the original four design wins, some were signed, others were just engagements. So how much of that is really a hard win that is going to launch as long as you deliver the product versus others that might be engagements with a potential or a strong potential to launch? to turn into a design win? And then finally, are you able to quantify, you know, kind of the design win revenue funnel is at this point over the next several years?
spk06: Thanks, Tristan. So to be clear that these customers that we're talking about in the total of six out of the ten, and of course there are more than not included in the ten, We are now at the stage with these customers where they're very, very explicit in terms of what they want, that we have agreements in place, and our engineering teams are working together on the activities associated with the specific design of our solutions into their wearable products. products. So all of those will just continue. I think universally that we've seen all customers very, very, very keen to have one or a number or all of the biomarkers that we're able to deliver with the platform in their products as soon as possible. And they're driving us very hard to Of course, in terms of number of customers, we don't – in the consumer area, we don't want to be kind of overwhelmed with a long tail. So, of course, we're focused on the very, very largest customers and those customers that we believe will take us to significantly higher volume. So that's our approach.
spk04: Great. Thanks for the cover. And then, you know, you've – We have a sense of the ASPs for the module and for the chip. Do those ASPs change depending on the markers that they're going to initially use, or that doesn't matter and the ASP is solely based on the hardware platform that you're delivering?
spk06: I'll turn that one over to Mahesh, but just remembering that there are two versions, what we now call the baseline and the pro, that they were formerly called the basic and the advanced. So they do themselves have different prices and different levels of biomarkers. But over to Mahesh.
spk05: To address your specific question, this was what was initially forecasted and planned by us, and that same – the assumption still holds good, so there is no change to that. It kind of reinforces our assumption.
spk04: Great. Thanks, Surat.
spk01: Our next question is from Paul Silverstein with Cowan and Company. Please proceed.
spk00: Thanks. I've got a number of clarifications of responses to previous questions. First off, Andrew, I just want to make sure I understand this. The six out of ten consumer customers you're referencing, including the five new wins, were any of those five new wins with customers that did not have, quote, unquote, engagements with you previously, or is this just going to the next stage with five of those existing engagements?
spk06: Paul, yes. I was just thinking, I think we were engaged with all of them, but moving them basically from engagements to contracts.
spk00: All right, that begs the next question. The difference when you say that they've gone from engagements to contracts, correct me if I'm wrong, but I assume none of these are contractual commitments in the sense that they've given you committed to volumes that they have to carry through or they have to pay if they don't take it. I assume none of them are at that stage yet.
spk06: They're not at that stage, but there is financial commitment in a number of those relationships, and they're quite explicit in terms of their process of going to market. And so that involves a certain level of volume required for the qualification process in their products next year, which then leads into the following year's volume. And obviously what we've been guided by is those individual companies' existing position and share of the market in terms of anticipation and reinforced by what they're saying in terms of what they expect the volumes that they will be demanding in 2023 will be. All right.
spk00: I just want to make sure I understand what you just said. So they're giving you indications in terms of what their volume expectations are. But when you talk about commitments, the commitments are to volumes for their internal qualifications? Is that the extent of the commitments to date?
spk06: The commitments, there is money involved in a number of those contracts, but the level of commitment is not at the level of all of the units that they will require for their full qualifications. So those POs will come in due course.
spk00: Okay. Then with respect to MedTech, the two companies you referenced, does that make for three total, including your initial one, or is the initial one, your investor, one of the two that you're referencing?
spk06: We can't name customers specifically, but in terms of two that we're engaged with, we have moved from sorry, we've moved from the engagement level with two of the top 10 to a contractual level. And those relationships are moving very rapidly and in an extremely exciting position. Outside the top 10, we already had one other customer signed previously. And then the really interesting development, which is reflected by many companies that we're engaged with, as well as the ones that we're now contracted with, is the desire for Rocklea to deliver the complete solution because we had to create the complete solution, a wearable, as well as the full stack, in order to conduct all of our human trials and in order to provide the reference designs and the algorithms for the consumer market. So moving into the healthcare market, those devices, they're not – You know, they don't tell you the time. You can't phone anybody on them. They don't give you your email. But they are exactly what we've discovered the healthcare market wants, the professional healthcare market. They want essentially an innocuous device that sits in the background, typically not on your watch wrist, but actually better on your dominant wrist. And, you know, don't need to be charged every day. They can... you know, charged every week. and sitting there providing the data continuously into the cloud platform and providing essentially the APIs for our customers to then extract and utilize and benefit from that data. And that is the model that has now evolved for us over the last couple of months, which is another huge growth opportunity. Obviously, we're talking about devices that have a – much higher average selling price because we're producing the entire device, that they become stickier over time with FDA qualification. That's not required for initial healthcare customer applications. And they provide a more solid platform for us to monetize all of our cloud-based capability. So that's progressed a great deal for us.
spk00: All right, Andrew, if I could ask you, I know you went through it earlier, but if I could ask you to revisit commercialization, what is required between now and getting to commercial revenue? And I'll apologize again, perhaps I have a misunderstanding, but Quinn suggested that commercial volumes won't be until 23. I was under the impression that you all were talking about commercial revenue by the end of 22. was what I thought you initially put out there. Not that the end of 22 and 23 is all that different, so I don't mean to make a big deal out of this, but I would like to understand if anything's changed.
spk06: Nothing's changed, Paul. So the pre-alphas that are being used today for all of the algorithm development and all the human trials, and we are shipping product to customer today out of that generation, That is then replaced by what we call the alpha versions in the first half of next year. That is all on track. When we last spoke, they had taped out. Now those first batches of the spectrophotometer chip are fabbed out. and all of that work is going very well. That generation is used and will be used in, you know, a level of volume. Typically, customers require about 10,000 units for their qualification process through the course of next year. Then the beta, which are the are going in the end, you know, customer launch products in 2023 ramp in Q4. And there's no change to the guidance that we provided there or the guidance in 2023.
spk00: So you'll be selling those products to your customers around the fourth quarter of 22. If all goes according to plan, you'll be booking the revenue, initial volume revenue, commercial volume revenue in the fourth quarter with a ramp throughout 23 as those products sell.
spk06: Yeah. And so if you look at what's happened, we've gone from a couple of customers in the ones that we're engaged with and using four consumer customers to drive our entire revenue projections over the entire period of the model that we put out there to a position now where we have gone to six out of the ten top customers in consumer. Then if you look at the healthcare area, What we've done there is we have been able to cement the opportunity to deliver the entire full-stack solution in that area, and we've got demonstrable customer traction in that area. Now, how that rolls out and affects things, that is not waiting for anything else. That is actually on the timeline already. of the chips and modules for the consumer market. And so we've not projected any numbers associated with that. But what we're saying is that has now become a very strong opportunity for us, where the ASP is obviously much, much higher, and there is no... physical socket design in that we're waiting for for the 2023, you know, launch of our end customers' products, that those customers in the healthcare area are driving us as fast as possible to start their utilization of the technology on an earlier timeframe, which is very, very exciting.
spk00: So, Andrew, you think you could have commercial volume revenue from MedTech in 2023?
spk06: We will, within the numbers that we projected for 2022, there is the opportunity to have MedTech sales there. That's really the key message that we've really cemented that opportunity with customer traction, with customer contract engagement to start shipping into that market in 2022. When we were previously only projected that in 2020, anything meaningful in 2025.
spk00: Understood. But, Andrew, I apologize. I'm going to push you here. I just want to make sure. The difference between commercial volume and pre-commercial volume, you were talking about commercial volume in late 22, 23 for MedTech coterminous with your shipment into consumer wearables? Exactly. So you're two years ahead of schedule on that. All right, final question from me. What, if any, meaningful hurdles remain from a technology standpoint? What are those hurdles? And it sounds like from your commentary, I trust the answer is not, but have there been any glitches of a meaningful nature to date?
spk06: Nope. Things have rolled out extremely well in terms of the technology. If we recall, the measurement science was well developed by us previously on a benchtop level. And so what's been critical here is the delivery of that benchtop performance in the miniaturized technology. spectrophotometer chip format. And the performance that we're getting from the pre-alpha devices is meeting that requirement. And as we look at our human trials that are going on with those devices, there is an incredible level of excitement. This is both the baseline and the pro versions. They're incredibly powerful instruments, very powerful instruments. So the insight that we're getting And the things that we're achieving are exceeding our expectations and making us and our partners extremely excited.
spk00: So you're not overly concerned about it. I guess I'm trying to decipher if there's some risk that occurs between now and commercial volume shipment. What, if anything, that could be over the next 12 months?
spk06: Technological risk is not there. Of course, there's all the usual executional ramp-up associated risks that you would expect that are no different to before. And things like making sure that we've got dual sources, making sure that we've obviously placed purchase order for purchase orders for our various bill of materials, all of these things happening in the right time frame, that we protect ourselves against any kind of problems that might occur in terms of, you know, take something out, you fab it out, and there's a fault, how will that delay you? Over years, we've developed risk mitigation on those kind of issues because they always do occur. They do occur. is by having what we call lead lots, main lots, backup lots, et cetera, where we can make changes. So we've learned a lot in terms of how to make sure these things run to schedule and that we mitigate the inevitable risks. You know, something is, some design element is overlooked or something like that and that you need to make a change. But that, we have the process of mitigating those risks. And we've also, you know, we're going from a beta design, sorry, from an alpha design, which is fabbing out now, to a further design, a beta design. But we do believe the alpha design will ship to customers and, you know, may well be sufficient. So we put another design in cycle, major design in cycle, in the loop there between now and volume production.
spk00: Got it. I appreciate the responses. Thank you.
spk01: Our next question is from Tim Savageau with Northland Capital Markets. Please proceed.
spk07: Hi. Good afternoon. And congrats on all the new customer engagement. And my question was, about that and not to beat a dead horse, but just in terms of looking at, you know, trying to get a better sense of, you know, what progress is, is incremental here. You know, I think in your previous investor presentation, you talked about, and this is going back to September, I guess, eight contracted customers. I think that was all consumer electronics, but, and then, you know, on up the funnel, various stages of negotiation. With the five additional consumer customers and the two new med techs, you know, do we, is that 15 now? I guess would be my question in terms of contracted customers where there are a few that were maybe, you know, along or can you provide us with an update for that contracted figure that you previously quoted? That's question one. Question two is that previous figure, seem to correlate into what you estimated was a 60% market share in terms of these customers' share of the smartphone and wearable market. I wonder if there's an update on that market share number as a result of these new wins on the consumer side.
spk05: Yeah, this is Mahesh. Let me kind of, I think all of you are asking almost the same type of question, so let me clarify certain things. There are There are two things. One is the wearables and the medical device. On the medical device, we have now four. We have four customers on the medical device and then 11 in the consumer wearable device companies.
spk07: That's 15. It works. And then maybe follow up on that market share commentary on the consumer side.
spk06: So on that front, just to be clear, Tim, you were looking for market share in wearables or smartphones?
spk07: Well, you guys had defined it previously, I think, as a combination of both. But you are absolutely welcome to break them down.
spk06: Breaking it down, what we just announced prior to the quarter announcement was six of the top ten in the wearables, that's smart watches and fitness bands. When we look at the smartphone players, there is an overlap there. And I don't have the numbers in front of me, but I think in terms of engagement, it's probably bigger in terms of the smartphone space, in terms of the percentage of the market, because many of those players are leaders in the smartphone area. And at least one I can think of that isn't in the top 10 in terms of wearables, but is certainly in the top 10 in terms of phones.
spk05: There are a few players in China where they're especially this customer Andrew is referring to, is one of the top five producers of cell phone in the world. But they are aggressively now started getting into the wearable space, and that's the one we signed at MOU recently.
spk07: Great. Thanks very much. Thanks, Tim. Thank you.
spk01: We now have a follow-up question from Paul Silverstein with Cowan & Company. Please proceed.
spk00: There's always one more. On a serious note, going back to an earlier question, these new quote-unquote engagements, are they exclusive or all of them exclusive or none of them exclusive or some exclusive and some not?
spk06: So exclusive in what direction, Paul? Exclusive to you.
spk00: Are you aware of them working with any other company on biosensor technology?
spk06: Not of the nature of our technology and the power of the technology itself. As you know, what we are basically delivering is something much more powerful than the LED type of solution that's there today, and that forms the mainstay of, I think, the industry's Previously, the industry's kind of roadmap here is simply to continue to improve on the performance of the LED-based solutions, which would, in our view, would never get anywhere near close to the performance that we're able to deliver here. So as we look at all of those customers, it has been a journey for us really to root out and look under every stone and get a relationship with every single customer to make figure out whether there was something else there lurking and we are even more confident today than we were on the last call that there isn't something else there. And as we look at this technology, the performance that's delivered by our solution is extraordinary, and that's coming out in terms of the human trials. But it is also stuff that requires an extraordinary amount of long-term development and planning and in a form that we don't see anybody else having even the beginnings or the platform to be able to implement something like this. And then you've got a huge amount of qualification, of material science, of semiconductor processes, of testing procedures, of packaging and assembly. All of these things take many, many years. to get perfected and to, you know, get ready for the ramp that we have in front of us. And so, yeah, our customers are telling us explicitly that they do not have an alternative to this.
spk00: Andrew, just to be clear, are these customers indicating to you that they plan to totally displace in all their form factors the current state-of-the-art LED technology? with your silicon photonics-based solution, or are they going to mix and match for low-end, they'll maintain LED, and they'll only use you on certain devices, or, again, are they planning to shift over their entire lineup?
spk06: Well, the LED technologies that exist today, which we actually include in our module as well, are good for primarily measuring heart rate, Heart rate variability, you know, typically devices have accelerometers, motion sensors in them. That's what we do as well. And then the two LED solution for, you know, pulse oximetry for blood oxygen measurement. Now, those technologies today, that is not in the infrared range that we're operating. So they still remain good to measure those particular parameters. It's the infrared and very broad infrared spectral range that we add on top of all of that that opens up all of these additional biomarkers. So in terms of, you know, will they – the customers essentially are not abandoning the existing LED technology that delivers those particular biomarkers. They're adding – the IR biomarkers that our technology advances deliver. And our customers have the opportunity to actually either take the IR element of what we do, which is the principal value of it, or a complete module with the IR and the existing LEDs for the heart rate and the blood oxygen. One could think about extending the LED technology into other areas, but we don't see that happening. So it sort of stays where it is, but the IR technology builds dramatically on top of it, adding all these additional biomarkers.
spk00: All right. I'll take the other soft line. Thank you.
spk01: And we have another follow-up question from Quinn Bolton with Needham & Company. Please proceed.
spk08: Hi, Andrea. Just wanted to ask on a sort of supply chain check, if customers intend to go to volume production or receive volume production devices from you in the fourth quarter, can you walk us through sort of your lead times and when those customers would have to place those production orders given how tight the supply chain has become? would they need to place orders in Q1 or Q2, or are your lead times still relatively short that those production orders could be placed as late as Q3 of next year?
spk06: Well, we're taking the – in terms of the supply chain and the bill of materials to make sure that we are in a position to meet our volume projections in that period. So customers could place orders on all of the timeframes that you've indicated and still be satisfied.
spk08: So you're sort of placing those orders or holding that production capacity at your manufacturing partners in advance of those orders to provide some flexibility on the timing of customer orders. Exactly. And is that contractual? Are you effectively, you know, obligated to take that production capacity from those foundries?
spk06: Yes. Yep. We would be... contractually obliged, but in terms of the cost of that, it's not a significant cost to us.
spk08: Got it. Understood. Okay. Thank you.
spk01: We have reached the end of our question and answer session. I would like to turn the conference back over to Andrew for closing remarks.
spk06: Well, thank you very much, everybody. We really appreciate the questions, and we're really excited about the progress of the company. It really exceeded our expectations, and we're looking forward to updating you further in our next quarter earnings conference call. Have a good day, everybody.
spk01: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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