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spk03: Good afternoon, ladies and gentlemen, and welcome to the Odyssey Semiconductor Third Quarter 2021 Earnings Call. At this time, all participants are in listen-only mode. At the end of today's presentation, there will be an opportunity to ask questions via a chat line. Investors can submit their questions within the meeting webcast by typing them into the Q&A button on the right side of your viewing screen. Analysts who publish research may ask questions on the phone line. For analysts to ask a question on the phone line, please press star then one on your telephone keypad. To withdraw your question, please press star then two. As a reminder, this event is being recorded. I'd now like to turn the conference over to Jeff Christensen of Investor Relations. Please go ahead.
spk00: Thank you, Anthony. Joining me today are Rick Brown, co-founder, interim CEO, CTO, and board member, and John Edmonds, chairman of the board. Earlier today, we issued a press release announcing our results for the third quarter. We'll start today's call with prepared remarks from Rick and John before moving into Q&A. During our prepared remarks, we will be referring to slides that are available for viewing in the webcast and posted in the investors section of our website at odysseysemi.com under the events subheading. We hope these slides will serve as a framework for management's prepared remarks, reinforce key takeaways, and provide additional transparency and insight into our business strategy and objectives. Before I begin, some statements made today are forward-looking. Forward-looking statements are subject to risk, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in our annual, quarterly, and other reports filed with the SEC. I will now turn the call over to John Edmonds, Chairman of the Board.
spk02: Thanks, Jeff. Good morning, everyone. And thank you for joining the Odyssey earnings call today. Rick and I will talk about our financial and operational performance and how we see the near-term and long-term future. And then we'll have the operator open up the phone lines and webcast for questions. Now let's turn to slide three. In many industrial applications, companies need high voltage and low resistance power devices. Before now, silicon carbide used a vertical structure had been the only practical commercial solution. However, experts have long believed vertical GAN, meaning that electrical current passes from the top through the bottom of the device, would be a better solution because the properties of GAN allow it to fit into smaller form factors, it's more power efficient, operates at higher speeds, and has a lower cost. However, to date, there have not been viable manufacturing processes to enable a reliable vertical GAN architecture to be produced. Over the last two and a half years, Odyssey has developed a novel method to architect a structure, including proprietary processes that have enabled the manufacturing of a reliable vertical GAN device and have opened the door to realizing the potential of vertical GAN for high voltage applications. We're often asked why does Odyssey have vertical GAN while other companies have the so-called lateral GAN. Our vertical architecture is similar to older vertical silicon and vertical silicon carbide power devices. GAN has obvious advantages that will drive vertical GAN replacement of the less power efficient and more costly silicon and silicon carbide solutions in high voltage applications. Lateral GAN devices built by other companies are targeted at low and medium powered applications which is also a good, albeit competitive, high volume market. However, the lateral devices are also limited in the voltage they can handle and look nothing like vertical silicon and vertical silicon carbide power devices that address high voltage applications today. Let's move to slide four. Odyssey is a leading pure play gallium nitride GAN company. It is approximately a two and a half year old company. We're still in the development stage of producing a disruptive high-voltage best-in-class GAN technology with strong IP. The company addresses large and growing power applications for high-voltage industrial motors, electric vehicles, and solar power. It has been developed by an exceptionally talented and experienced GAN research and development team. It was started in Ithaca, New York, by people who were originally PhD graduates from Cornell. We were also able to acquire the old bin optics fab in Ithaca several years ago when Macon moved the previous laser processes to their Massachusetts fab. Odyssey also offers domestic foundry services to other companies, allowing them to source GAN-based technology development. This allows people to do development and scale to production, leveraging our fab and technology. By having its own domestic GAN foundry, Odyssey can also largely control its own destiny for quick cycle times, rapid innovation, manufacturing process development, complete traceability, and wafer costs. Particularly in the area of process development, companies need to have their own manufacturing capabilities. With that, I'll turn it over to Rick.
spk01: Thanks, John. And hello, everyone. Before turning to my first slide, I'll discuss why it's time for GAN to succeed. Silicon and silicon carbide have enabled tremendous advances in power electronics over the last century. Switching power supplies have enabled the miniaturization of power conversion systems that are now ubiquitous in all electrical systems. For applications requiring switching high voltages with high efficiency, such as electric vehicles, high voltage industrial motors, and solar power inverters, silicon carbide transistors are the current top choice as its material properties enable better efficiency at higher voltages over the legacy silicon transistors. However, in the push to make systems smaller and more efficient, even silicon carbide transistors are reaching a limit. Fortunately, the next generation material is within reach. GAN-based power switching transistors are superior to their silicon and silicon carbide counterparts because of material properties which allow for transistors with significantly smaller wafer area with equivalent breakdown voltage, on resistance, and electrical current handling capability. As a result, GaN delivers essential benefits of more compact systems with higher efficiency that will make way for increased penetration of the electrification of everything. We turn to slide five. Recently, you've been seeing tremendous excitement and enthusiasm for GaN among public and private companies, but they operate in the lower voltage and lower power ranges, basically small compact charging devices for consumer electronics operating at household line voltages. Odyssey is targeting the much higher voltage power device market currently being served mainly by silicon carbide devices. Odyssey addresses the large and growing applications like high performance industrial motor drives, electric vehicles, and solar power. We believe we can offer a reliable solution that will provide for greater power efficiency and lower cost both in terms of the chip and the surrounding platform. Odyssey has developed a unique manufacturing process and we have demonstrated both vertically conducting PM junctions and transistors utilizing this technology. Our first product is targeted at 1200 volts and should be able to scale beyond that voltage all the way to 10,000 volts, thus providing both efficient high voltage performance with high reliability. We can turn to the slide six. Odyssey is targeting the High voltage power device market currently served by silicon and silicon carbide vertically conducting transistors on the upper right part of the graph. It's widely agreed that medium to high voltage GAN will provide significantly higher power efficiency and lower costs for the chip and the surrounding power converter platforms than today's silicon carbide solutions. We turn to slide seven. All present silicon and silicon carbide transistors conduct current vertically through the semiconductor, which is inherently a more space-efficient approach that allows for easy scaling of breakdown voltage by controlling the thickness of the semiconductor layer. Odyssey's vertical GaN transistors also function in this manner, which contrasts with all other currently available GaN transistors that conduct laterally. Laterally conducting GaN transistors are easier to fabricate, but have been limited in breakdown voltage to below 1,000 volts. Since GaN switches allow for switching speeds about 10 times greater than silicon carbide switches, GaN-based power converters are considerably smaller than silicon carbide-based systems, reducing about a quarter of the volume and weight. GaN is 10 times less resistive to the flow of electric current relative to silicon carbide for the same area, and this means a 4-inch wafer of devices can accommodate 10 times more GaN transistors than the equivalent silicon carbide wafer. And the material appears to be scalable to voltage levels well above 1,000 volts. Charging at a higher voltage slashes charging time, and the systems are also smaller and lighter, and importantly, cheaper to produce as the cost of components roughly scales with size and weight. And with that, I'll pass it back over to John.
spk02: Thanks, Rick. I will turn to slide eight and take a look at our markets. We hope to provide devices for industrial motors, solar and electric vehicles. We see some really good pull in these markets for high voltage applications. We hope to allow electric vehicle manufacturers the opportunity to further improve the range of the vehicle. That's by taking size or bulk out of the system and having a better performing device. The electric vehicle segment takes time but will present the strongest potential growth rate for us with a CAGR of 38%. Longer term, the electrical vehicles, with the electrical vehicles, we're also looking to enable things like on-the-go charging. There may be many on-the-go charging applications. For example, a special lane on the highway that allows vehicles to wirelessly recharge without ever stopping the car. At some stage, we may also see driverless trucks making nonstop coast-to-coast trips. You can already see people testing this concept with trucks on German freeways, making clumsy trolley-like connections overhead to recharge over a given distance. Likewise, companies with giant warehouses and distribution centers already use robots for everything from cleaning the floors to stocking inventory. But even robots must take breaks to recharge. By recharging on the go, a reduced fleet could accomplish the same or better results. Now, looking to slide nine, overall, we are addressing a tremendous market opportunity with GAN for high-voltage power conversion that grows to $2.6 billion by 2025. That's 5x growth for a 32% CAGR. There are many very sizable market segments that we can expect GAN and Odyssey to penetrate. We expect to begin to ramp into production in these markets at various stages in the next few years. We believe GAN will be a multi-year growth opportunity as momentum continues to build. Now moving to slide 10, we're making substantial progress. Odyssey is completing the development of our first vertical GAN product. We plan to provide customers with engineering samples of our first GAN product later this quarter, that is by the end of 2021. The additional development time we're taking has enabled us to pivot to a better design, and have an even more exciting GAN device with greater potential for a scalable range. We have successfully completed many experiments and gained additional insights. In fact, over the last six months, we've completed approximately 20 device runs in the FAB. We continue to add to our portfolio of IP and target GAN sample revenue in 2022. Looking at slide 11, We have foundry services revenues of approximately $175,000 in the third quarter and $693,000 year-to-date in 2021. Odyssey is a development company. We have not yet generated our own GAN product revenue as yet. Odyssey's reported revenue on our income statement is entirely from our foundry service business. These services are being offered to other companies, which include design, manufacture, and testing, using complex equipment, and providing engineering and technical services. We are continuing to manage our cash balance with $3.4 million at the end of September 2021. The cash burn rate is currently averaging approximately $185,000 per month year-to-date in 2021. This is composed in Q3 of $149,000 being generated from the P&L and another approximately $40,000 in working capital, which deals with the timing of operating cash flows that will fluctuate over time. We believe we can further reduce the burn rate based on foundry contracts already in place to provide process design services and FAB capacity to certain third parties in the coming months. However, at the same time, we also plan to invest in a few additional resources, so we hope to balance these two activities over the coming quarters. On to slide 12, we continue to believe that our GAN processing technology will enable the company to capture opportunities and achieve sustainable growth both in the near and longer term. We also believe the current share price undervalues the potential of the company and serves as a highly attractive investment opportunity. As we announced previously, I purchased 125,000 Odyssey shares in September of 2021 and plan to continue to invest in the company over time. Given the progress we've made on our product roadmap, commercialization efforts, and overall corporate developments, we will continue more active ongoing communications with the investment community. We are currently scheduled to appear at the Needham Growth Conference in the week of January 10th through the 14th. With that, operator Anthony, please open up the call for questions.
spk03: Thank you. At this time, we are conducting a question and answer session. Investors can submit their questions within the meeting webcast by typing them into the Q&A button on the right side of your viewing screen. Analysts who publish research may ask questions on the phone line. For analysts to ask questions on the phone line, please press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys to withdraw your question. I want to turn this call back over to Jeff Christensen to read questions submitted through the webcast. Thank you.
spk00: Thanks, Anthony. Our first question is for Rick, actually, and it's any additional color on your contact with customers on vertical GAN?
spk01: We maintain regular contact with some well-recognized U.S. and international companies with automotive applications, including a couple of auto manufacturers and at least one company making controls for industrial motors.
spk00: Our next question on the chat is for John is, is there any update on Odyssey search for the permanent CEO?
spk02: Yeah, we, we actually have a good promising looking internally sourced candidate right now and well-recognized in the GAN community. So we're trying to sort through that and see if we can land that candidate. We also have a national recruiter lined up and he's a, He'll be looking for candidates shortly, assuming that we're not able to land this particular candidate. So we are organized and conducting the search at the moment, and we hope to have, you know, a candidate identified and in the saddle sometime in Q1.
spk00: Thank you. Our next question in the webcast Q&A, and you can submit your question by clicking on the Q&A. Our next question is for Rick, and why is the development of the GaN power device taking a while?
spk01: Well, we are on track to provide engineering samples to customers in the fourth quarter of this year. But we have done a lot of work in this area, and the additional time has enabled us to actually pivot to a better design than we actually originally conceived of when we started the company. And this sort of newer design has better performance and wider processing windows than the original device. And, you know, the reason it's been taking a while is sort of in part due to that pivot and also just, you know, the nature of developing a new device that hasn't been developed before.
spk00: Thanks, Rick. Our next question is for John. What are the plans for getting the Odyssey story to the investment community?
spk02: Yeah, thanks, Jeff. That's a good question. I, you know, we were, we were working to to try to organize ourselves given the progress that we've made with the product roadmap and everything else. And we did hire Darrell here in late August, early September. So we've been ramping up to speed and we, You know, we wanted to organize this first earnings conference call. We'll get better at this as we move along here. And we're starting to participate in a handful of investor conferences this year. And, for instance, we'll be at the Needham Growth Conference, as we said earlier on the call. And we are getting good interest, both from some institutional investors who stopped by the company who've heard about us and want to get to know us, also with some strategic – private equity investors or otherwise strategic investors have also called in and wanted to be briefed. In addition to customers and people that are very interested in the technology. We hope to accelerate that interest, particularly once we have a working sample shipping out here later in the quarter and move into more robust investor relations and just relations in general with the public and customers in the first quarter.
spk00: Thank you. And our last question is for John. Would you consider uplisting the shares?
spk02: Yes, we've started to look into uplisting and requirements there. So we do think we need to get a little more good news back into the stock market. And we hope that announcing the sampling of the product later this quarter will help to achieve that. And as we move forward into the first quarter, if we're able to put ourselves in a position where uplifting can make sense for us, then certainly we're going to work on that process. There's a number of different avenues and paths that we can go down. And we have some people lined up to help us with that. We are looking at that possibility, and we'll see how quickly we're able to generate the momentum that takes us there.
spk00: Thank you. And it looks like all the questions. And, Rick, do you want to give any closing remarks?
spk01: All right. Yeah, I'd just like to say that I appreciate the contributions of our employees and the patience and continued support of our shareholders. I hope you can sense our confidence and excitement coming through as we continue to focus on our primary mission of producing a disruptive, high-voltage, best-in-class vertical GAN technology coupled with strong intellectual property protection. And we look forward to our next update. Thank you.
spk03: Thank you. This concludes today's conference. All parties may disconnect, and have a great day.
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