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spk04: Earlier today, we issued a press release announcing our results for the second quarter. We'll start today's call with prepared remarks by Mark, followed by those prepared remarks. John and Rick Brown will join us for Q&A session. 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 may be found in our annual, quarterly, and other reports filed with the SEC. During our prepared remarks, we will be referring to slides that are available for viewing in the webcast and posted in the investor relations section of our website at odysseysemi.com. I will now turn the call over to Mark Davidson, Chief Executive Officer.
spk05: Thank you, Jeff, and welcome everyone. Having just completed my first quarter as CEO of Odyssey Semiconductor, I'm proud to present this quarterly update. Before I turn to my first slide, I'd like to share some observations and conclusions after my first three months on the job. First and foremost, I accepted this job because I believe in the market opportunity and the position Odyssey Semiconductor holds to deliver value, both to customers and to our shareholders. Three months in, and I know we will deliver on that value. Second, having our own foundry is a strategic advantage for a few reasons. It enables us to innovate fast, and the fact that we will be producing in the same factory as we develop the technology will pay off in product qualification. We're generating revenue through foundry services while we develop our products. And last, the CHIPS Act presents an opportunity to expand even faster and and larger. My final conclusion is that we truly do have a strong team of innovators, innovators who are not only working on technology, but technology that will be practical and economical. This team, combined with my marketing and sales experience, is strong. So now turning to slide three in the slide deck, let's start with a refresher. So Odyssey is a semiconductor company, and we're located in Ithaca, New York. We're laser focused on bringing disruptive technology to the large and fast growing high voltage power semiconductor space. Our approach is to build a vertical gallium nitride power transistor that offers the power efficiency of gallium nitride with the voltage capability of silicon carbide. One of the first new directions I've provided to the company since starting is advancing Odyssey from just materials and process R&D to becoming a product company. As you can see on slide four, we accomplished a great deal recently. Most notably on the technology front, we are now fabricating a high-power, 1,000-volt vertical GAN transistor. We will be packaging these transistors later this year, and we'll be shipping a few to teacher customers who have already committed to evaluating. Of course, we will continue to innovate on higher breakdown voltages while expanding the product offering at this voltage node. Moving to the business front, we were able to secure $1.25 million in bridge loan financing, thanks to John Edmonds, our chairman. We've remained very disciplined on spend, offset by generating revenue from our foundry services for other companies, which, as I mentioned before, is an asset while we develop our own product line. Let's move to slide five, talk about our outlook for the second half of 2022. Our outlook remains very simple. We're going to continue to mature our first-generation product by packaging it, having it evaluated internally, and then by those teacher customers that I mentioned earlier. We're also going to target increasing our foundry services revenue to help offset our cash burns. We currently have about a $2 million pipeline of opportunity that we're focused on winning. The goal is to build this foundry revenue back up to something in the neighborhood of $300,000 per quarter or better. While I'm talking about manufacturing, let me talk about our excitement by the passing of the CHIPS Act that President Biden signed today. The CHIPS Act will position our company to receive funds which will help us expand our factory to not only strengthen our business, but also to help America regain our leadership in semiconductors. Power semiconductor market represents a very important segment in that endeavor. All right, at this stage, I'd like to switch gears a little bit and talk a little bit more about the Odyssey strategy. So let's move to slide six. We have an enormous opportunity driven by the megatrends happening in the world. As a company, we are uniquely positioned to enable and deliver on all fronts shown here. Vertical GAN is the answer, and we have the know-how and protected IP to deliver. I will once again state my confidence in our lean and talented team. They are technically brilliant, and my marketing and sales experience complements very well. As you can see on slide seven, the market we're pursuing is large and growing fast. Silicon carbide has gained traction in high voltage because today's lateral GAN solutions can't deliver the performance and voltage range needed. Our approach to vertical GAN will solve that. We will be building high power samples this year for the 600 to 900 volt product line while strengthening our technology for the 1200 volt node. According to Yole, a French company that gathers market statistics, the 600 to 900 volt is the larger market today, is growing at a 20% compound annual growth rate. The 1,200 volt product or market segment is growing faster at 63% CAGR and will become the larger market in the second half of this decade. Together, the collective markets are expected to increase from about 800 million per year in 2021 to about $3 billion in 2025, approximate combined CAGR of 40%. And again, this is all according to Yule. All right, let's turn to slide eight. We'll talk about, so while there are a number of markets that will benefit from high voltage vertical GAN, we are going to start by focusing on three markets, industrial motors, electric vehicles, and renewable energy. And as we build out our marketing team, we'll enable additional markets who are looking for the performance delivered by our vertical GAN power FET product line. So why are we so focused on high voltage? As you can see on slide nine, the higher the voltage, the more energy can be conserved. That's why the megatrend of moving to high voltage is happening as electrification happens. Because, again, higher voltage, the more energy can be conserved. To date, there really have been limited solutions to efficiently deliver and convert power at these levels. There's limited competition, but a large market opportunity exists for high margin solutions. Slide 10 illustrates the opportunity very clearly. According to the latest report from YOL, while silicon carbide delivers better performance than traditional silicon in the power-fet space, the economics just aren't there. While we see silicon carbide companies making moves here, they're still an order of magnitude away from meeting the economics required. So how can we, Odyssey with our vertical GAN, meet what the market demands? And slide 11 illustrates that. First, let's remember that GaN offers extremely high efficiency while allowing the smallest solution size. It's all about power density, and GaN allows the highest power density, both better than silicon or silicon carbide. But since lateral GaN can't practically offer the voltage range needed, customers haven't considered GaN as an alternative. But now that we're going to deliver on both, the economics matter. Now, in this space, die size is driven by on-resistance. So for the same on-resistance, we can fit almost 10 vertical GAN transistors in the same area as a single silicon carbide transistor. When comparing their 6-inch wafer to our 4-inch wafer, we're building four times as many devices per wafer than the silicon carbide companies. That offers significant economic advantage. So why Odyssey Semiconductor? As slide 12 illustrates, we are uniquely positioned. We have the expertise and the IP portfolio to protect it. And because we have our own foundry, we can innovate quickly, and when we're ready for production revenue, we will control our ability to supply products to customers. And customers agree. Slide 13 offers a glimpse into the customer conversations we've had thus far. and I'm having more conversations. We're not just building novel technology. We're building products that customers need. I was recently talking to a customer. Specifically, I gave them the update that we're assembling engineering samples this year for internal and then for their evaluation. They restated their commitment to want to get samples to test as soon as they're ready. Of course, I reminded them that we'll be evaluating them first, and as soon as we finish our evaluation, they'll be next on the list in order to be able to a sample and work with the technology. They're very excited. That represents not only the market opportunity, but again, the position that we, Odyssey, have in bringing vertical GAN to the market. So slide 14, really the main message I'm going to leave you with. The time is now. Odyssey is emerging from purely process R&D to now also starting to develop our first products. We validated our approach. We're pursuing a large and growing market. And as I've said a number of times, we are assembling our first engineering samples later this year. It's an exciting time for Odyssey. We are a product company. So I'll wrap up with slide 15, which is here for your reference. It just really summarizes our strategy in previous rounds of financing. So let me tie it all together with a summary. We're emerging from process and materials R&D to delivering on our thesis as a product company. We'll do it at voltages that lateral GAN can't practically reach and at performance and cost levels unattainable by silicon carbide. We'll use recent financing to assemble our first-gen product samples while also continuing to pursue higher voltages. Our vertical GAN products will deliver high power conversion efficiency and a small solution size for a large and fast-growing market. Thank you for your participation, and I'll now turn it back over to the operator. Thank you.
spk01: 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 1 on your telephone keypad.
spk00: Once again, for analysts, that is star one on your telephone keypad.
spk01: All right, I will now turn the call back to Jeff Christensen to read questions submitted through the webcast. Thank you.
spk04: Thanks, Chelsea. And I'm going to go through the Q&A that's on the webcast. And if you have a question, you can certainly post it to the questions section area within the webcast. And if an analyst has a live question for the conference call, you can certainly follow Chelsea's question, her instructions to ask that question live on the conference call. In the webcast Q&A, our first question is for Mark. How should we think about Odyssey's most important competitive differentiators in the 650-volt and 1200-volt markets? And how will you stay ahead of the competition in those high-voltage markets?
spk05: Thanks. Great question. So I'll start with the first question. So we're developing vertical GAN to provide efficiency and switching frequency of lateral GAN, but at voltages that they can't get to. The voltage is really reserved for silicon carbide. And that combination of efficiency and switching frequency means higher and higher power density, which is really the technical challenge our customers are faced with. So we're going to allow power density in these voltages that they haven't been able to achieve before, both at the 650 volt as well as the 1,200 volt moment. Second question is how are we going to stay ahead of competition? And it really is coming down to innovation cycles. Again, as I mentioned, being able to innovate in our factory, innovate very fast, And that, combined with a strong IP protection strategy, is how we're going to continue to stay ahead of our competition.
spk04: Thanks, Mark. Our next question is for you also, is please comment about the future of high-voltage vertical GANs.
spk05: Yeah, you know, before I got here, there was talk that vertical GAN was years and years away. And obviously we're pretty excited to say that it's here now. So vertical GAN, it's coming. And as we've discussed quite a few times, you know, that power density that vertical GAN enables at high voltages is the reason why the market's going to be so receptive to it. Low on resistance, low switching losses, you know, all these things are the big differentiators. But there are some other benefits of vertical GAN as well. GAN on GAN, meaning you have inherent reliability because you have no crystal mismatch, which is important. And the fact that, you know, we're confident in our approach to fabricate and with repeatability with the yields needed to not only deliver the technical solution but also the economics. So, you know, vertical GAN is not going to be in production tomorrow. But over the next few quarters, we'll be moving from validating it to becoming able to produce it reliably and with that repeatability that I mentioned before.
spk04: Thanks, Mark. Our next question is for Rick. The company's approach was validated with the 1,000-fold milestone. Can you provide more color on that?
spk02: Yes. We've been taking a methodical approach to expanding the voltage rating without sacrificing other performance metrics like on-resistance. In addition to hitting this voltage with low on-resistance, we've also validated our approach to build large dye that will be packaged. That, too, was an important milestone. So now we have two paths. We'll continue to increase voltage rating while also fabricating and assembling product samples.
spk04: Thank you. Our next question is from Mark. How much production revenue could be generated with the company's fab?
spk05: Yeah, great. So, you know, we do have a factory. It requires what I would call moderate investment to get to the I'm going to give it the $10 million to $20 million range, and that's based on a couple different models that I've put together. So $10 million to $20 million with moderate investment from our current facility. But, of course, we're going after a much, much, much larger market opportunity, and that's where the CHIPS Act comes in. So we do have a view of what it would take to be able to support even higher revenue, and we look forward to the CHIPS Act helping us get there faster and more cost-effectively.
spk04: Thank you. Mark, when will Odyssey have production revenue?
spk05: That's a great question. Very hard to predict. But there's a process to get to production revenue. You know, as we said, we validated our approach to be able to build these products. The next step is building repeatability at scale. and then product qualifications, et cetera. So the process and the fact that we're already working with customers help us accelerate that process. But I'd say, you know, we're hopeful that second half of 2024 we'll get to production revenue. But, again, it is hard to predict at this stage.
spk04: Thank you. Mark, what are the company's next initiatives that we can look forward to after it provides engineering samples to customers?
spk05: Okay. Yeah, so obviously getting those samples to customers, that's the focus right now. And once we do, you heard me use the term teacher customers because we will be working closely with these initial teacher customers, understand their feedback, and apply it to our product roadmap. We will need to build a portfolio out of our technology, and we have a plan to do that. So step one is really work with those customers on the feedback side. The next is taking that and figuring out exactly how to build these products with that repeatability at scale within our factory that I talked about. It's an important next evolutionary step in semiconductors. And then third is found out the factory. We will need to acquire a few pieces of equipment that's going to allow our fab to run more efficiently to hit some of those revenue projections that I gave before. So, you know, obviously a lot of work to do, but those are three big, you know, kind of big things that we need to focus on as we're working with customers on samples.
spk04: Okay. Thank you. Yeah. Appreciate your questions in the question webcast. So, Feel free to click on that link, and we look forward to your questions. Our next question is for Mark. You mentioned you want to get back to about $300,000 a quarter or better in foundry services revenue. What are the important initiatives to achieve that?
spk05: Yeah, the market opportunity for specialty fabrication that we have is absolutely there. Many of our current opportunities are what I would call innovation-oriented. Companies are figuring out how to innovate using these materials and our fabrication capabilities. What that means is low volume but high price. You know, we might run a couple wafers for a customer who's trying to validate a new piece of technology. And we want to continue to do that. But then also, as these companies progress their business, you know, we want to complement that innovation that innovation manufacturing with pre-production and early production runs, trying to fab multiple lots of waivers where we can start to generate some volume. So we get those two things working complementary, and we'll be able to get to that revenue run rate.
spk04: What is the timing? A follow-up question there is what's the timing of the higher boundary services revenues?
spk05: Yeah, I'm going to use my it's hard to predict answer again. Many of those innovation customers that I've talked about that are using our foundry services, you know, they're using us to validate their technology and they'll have their conversations with customers, investors, et cetera. So as we deliver for them, they'll be positioned to evolve and move to the next phase. So it's really going to come down to how quickly they can move from validation into that pre-production and then early production phase.
spk04: Thank you. John, our next question is for you. How should we think about the expected approximate monthly cash used in operations per month in Q3 2022?
spk03: Yeah, thanks for the question. You know, we have been running at about $260,000 a month, which is a little bit higher. Last year we were running at about $200,000, but obviously we brought the new CEO on and we're spending a little bit more on uh, uh, samples and, and, uh, production runs through the fab. Um, but so at this point we're at an average of around 260,000. Um, we can potentially bring that down by bringing, uh, foundry services business in. Uh, so, uh, and I think Mark's optimistic here, uh, even in the third quarter to see some of that start to come in and build that back up to the, uh, you know, the $300,000, uh, a quarter sort of level or better. Um, so as we do that, we'll be offsetting, uh, those same expenses and, um, you know, when all, all happened in one quarter, but, and so I would plan on something at the $260,000 a level until you start to see us building, uh, those boundaries, uh, services offsets up. And as that revenue starts to come in from founder services, um, In theory, we could get the break-even, although our focus is not to be a founder services business. It's really to develop product and get the leverage out of being a product-oriented company.
spk04: Thank you. Our next question is also for John. Odyssey filed an S-1 earlier in 2022. How should we think about the timing of that equity financing and the up list? And will you have higher revenue before you will need to raise capital again?
spk03: Yeah, thanks for the question. We did talk about this earlier in the year, and essentially we filed very early in January with our, I think our September 30 financials, just to get a process going and to get some reaction back from, in particular, from NASDAQ. And we were able to do that. We've updated the numbers since then with our December 31st numbers and now our March 31st and soon our June 30 numbers. And so we've kept that S-1 current, and we've also gotten comments back from NASDAQ as to what they wanted to see from an uplisting perspective. We solved one of those issues by hiring Mark in as the CEO. We also need to hire a chief financial or a chief accounting officer in to take responsibility for the 302 certifications on that side. We have a couple of candidates right now, so we're close on that front. in terms of enabling ourselves to be able to uplift. It's still a little bit of stormy weather out there and it's in the middle of the summer, so it's not necessarily the best time to come to market with an offering. And that's one of the reasons we wanted to do a bridge loan. And we hope to be able to come in the fall sometime or maybe early in the winter. And we're working with different people to enable an offering in that timeframe. And again, we have one or two things to solve on the uplisting side, but we're very close on that. We think we'll be well-positioned post-Labor Day to do something either in the fall or in the early winter, as I suggested. And again, these were originally forecasted to be some sort of smaller type of offering in the $5 million to $7 million range, and that's something we've talked about in the past. we could obviously raise more than that, but I think that's, that would be the next right step for us to take. Uh, and, and as we continue to prove ourselves and then generate revenue beyond that. So, um, uh, we have, you know, very promising progress being made right now. And, uh, you know, we hope to be able to share more of that, uh, you know, with people as we get into the fall and, and also get to start to get some customer reaction back, uh, either late this year or early next, and it'll be an exciting time to be part of Odyssey.
spk04: Okay, thanks, John. A question about our IP is, what IP has expanded over the past year, and what is the significance of that, and what advances have been made?
spk02: We've been... continually filing applications for patents that basically encapsulate all the process improvements and developments that we've been making to enable the 1,000-volt and above transistor technology. And so it's kind of just a continually evolving. We try to stay as on top of it as possible as soon as possible. As soon as an innovation here proves out on the test bench, we make efforts to protect it in as, you know, all-encompassing way possible. We have a great board member in Richard Ogawa, who's kind of an expert in this area, and he's been a lot of assistance in doing that.
spk04: Okay, thanks, Rick. Mark, this is about the CHIPS Act. How is the company positioning to receive funding through the CHIPS Act?
spk05: Yeah, that's a great question. Thank you. You know, we've anticipated that the law was going to pass, and I'd say we're about six months in, so even predating me. But we've been doing our research and working with consultants, like I said, for about six months. We know what it takes to qualify for funding. You can't just show up and ask for money. There are prerequisites with regards to building a workforce and educating a workforce, making sure that as you receive funding, you can use it to win business and sustain yourself, et cetera. And we know that it's going to be competitive. There's going to be a lot of companies that are going to be looking for funding. We are unique in the fact that we not only have a fab, but we also have a large growth product family in development. So the timing of CHIPS is really ideal for us as a company to expand capacity in a very investor-friendly way while also delivering on that intent of CHIPS, which is to create jobs and help America regain our competitive edge in semiconductors.
spk04: Okay, thanks, Mark. A couple of follow-up questions is, when do you anticipate receiving funds from the CHIPS Act? And what do you estimate possible proceeds could be?
spk05: Jeff, I caught the first question. So the timing, I'm going to say 2023. But we really don't know. We're waiting for, while we've been proactive in reaching out to local representatives, we're still waiting for the application process to open. We'd be aggressive thinking we'd get it by the end of this year, so I really think it's going to be early to mid-2023 when we start to see the funds released. And, Jeff, I apologize. I missed the second question.
spk04: Yeah, the second question was on CHIP. What do you estimate the possible proceeds from the CHIPS Act to be to Odyssey?
spk05: Yeah, well, I think it's going to be in the tens of millions of dollar range or more. I think, you know, for us, that's enough for us to build a world-class, large gallium nitride factory. And I think it's also large enough that we can get the attention of the people distributing the money.
spk04: Okay, thanks. And, Mark, what would you, you know, you kind of mentioned it briefly, but just wanted to ask the question directly because it was on the webcast. What would you do with the funds from the capital raise or the CHIPS Act?
spk05: Yeah, so, you know, for a capital raise, obviously we would build out the team we need to build and deliver high-value products. Specifically from the CHIPS Act, that money would go primarily into the factory, expanding the capacity, which is not only equipment, and getting that equipment facilitized, but also training and building the workforce. As we've read and heard a lot, there's not a lot of semiconductor expertise in our country anymore. And whether that's fab engineers or fab operators, we'd be putting money to make sure that not only we have the equipment, but the people who know how to run the equipment and keep it operational.
spk04: Mark, thank you. Looks like we have no other questions. Kelsey, you can end the call.
spk01: Thank you, ladies and gentlemen. This concludes today's conference. All parties may disconnect, and please have a great day.
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