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spk04: Good day, ladies and gentlemen, and welcome to the Odyssey Semiconductor Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. At the end of today's presentation, there will be an opportunity to ask questions. Investors can submit their questions using 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 by pressing star 1 on their phone. For analysts to ask questions on the phone, once again, press star 1 on your phone. As a reminder, this event is being recorded. I would now like to turn the conference over to Jeff Christensen, Investor Relations. Please go ahead.
spk02: Thank you, Matthew. Joining me today are Mark Davidson, CEO, 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 Mark, followed by, following those prepared remarks, Mark and John will respond to your questions. Some statements made today are forward-looking. Forward-looking statements are subject to risks, 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. During our prepared remarks, we will be referring to slides that are available for viewing in the webcast and posted to the investor relations section of the website. I will now return the call over to Mark Davidson, Chief Executive Officer.
spk01: Mark Davidson Thank you, Jeff, and thank you all for joining today's call. Today's presentation will include advancements since our last call, as well as updates on our strategy. As a reminder, Odyssey is leading the market migration. from silicon and silicon carbide into high-voltage vertical GAN. In today's presentation, you'll see that we've made significant progress towards commercialization of this new technology for a very large and fast-growing. As I present my slides, I will mention the slide number for those of you who are following along over the phone, so it's easy to keep track of where I am along the way. So let's dive in. Slide two, safe harbor statement. Everybody's familiar with the safe harbor statement, so I will now move to slide three. Slide three, ODII investment highlights. And this slide is one that I'm very proud and excited to present. And you'll hear me refer to significant news that we announced back in September. Now that we've successfully built high voltage vertical GAN power devices to meet our 1200 volt rating, we're moving from this invention and process and material stage into product development. We're now building samples for customers in industrial motor, renewable energy, and electric vehicle markets. So very exciting that we're making the migration from that kind of research into product development and building customer samples. With the industry's strongest vertical Gantt IP portfolio, we are delivering significant performance and at cost levels unattainable by silicon carbide. The material advancements, the material capabilities that VerticalGAN delivers is significant, and you'll see some of that throughout this presentation. We have a very strong and protected portfolio of intellectual property. The market we're pursuing, as I mentioned, is large and it's growing fast. Over 40% CAGR will reach over $5 billion, and we will be addressing this market with a business plan that's going to put us in the 40-plus percent gross margin range. Very good margins for a large and fast-growing market. Let me go into slide four. And if you haven't seen it, we're referring back to the press release that we put out on September 14th. And this is where we told you, the investors, and the world about the fact that we've hit this stated goal and milestone for being able to build 1,200 volt rated vertical Gantt. And as I will share a little later, we have a number of customers waiting for and wanting to get samples of these products. So very exciting that we've hit this milestone. And as I've mentioned before, and as slide five goes to show, it's a significant step for us as a company. Leaving this process and materials R&D phase and moving into product development. So really what the content of the announcement means is that we now get the focus on delivering to customers. We are a product company with fabricating samples which will be delivered in Q1 of next year to our initial customers. It also means that we move from the very difficult to predict invention phase into the more predictable engineering phase, product development. This is a phase that is much more predictable. It's one that we have cycles of experience, myself personally, in understanding how to engineer and develop products. The momentum for Odyssey Semiconductor is building very rapidly, very exciting. Slide six, let me just be much more specific on the significant recent advancements we've made on the technology front. And here, of course, I've talked a lot already about proving that we can build a 1,200 high voltage vertical GAN power device. What this slide shows is we're also building one that's high power. Building a very tiny test chip in a lab is one thing, but we've now built one that will conduct real power, which is what our customers are using. So the fact that we're beyond just a test chip, but we're building something that's actually going to be able to work on a circuit board in a customer's application, that's significant. And really the intellectual property is how do you build these large scale devices? So the fact that we've figured out how to do that, we've generated the intellectual property, we've protected the intellectual property, it's very important. While we do have a number of customers interested, At this stage, we're committing to three customers and three customers have committed to us to evaluate product samples that we'll be delivering early next year. So getting those customers signed up was quite significant because it's more than just customers that want samples. We're asking them to commit to a timeline, commit to sharing evaluation results, et cetera, to make sure that they're really bought into helping us take this important technology to market. It was very exciting for me. We have no marketing and sales team. Uh, that's my background. I spent a lot of my time working in, in, in those disciplines from the press release alone, six new companies reached out looking for product samples. We know the customers are there. And, uh, and I think our, that these technology advancements, uh, further strengthened our position in the market. On the business side, as you may recall, we use our factory to generate some near-term revenue, uh, by providing family services in the quarter. We, against the forecast of 195,000, came in a little above that, 209,000 modestly above that. That's great. So it's a very good quarter from that front. The outlook for next quarter, as you can see here, I have a range. A couple of our customers, they're running into some supply chain challenges. We're helping them expedite and find better sources of materials. So as long as we're able to close some of those gaps for them, we'll be on the high side of that forecast, but I am giving a range. And we have a significant pipeline of opportunity for Foundry that we continue to pursue. We continue to focus on closing customers and bringing new opportunities in. Cash use and operations, 321,000, a little bit higher than last quarter as we are making the investments to migrate into product development. We'll see the burn increase slightly, but not much more above this level. John's on phone, our chairman. He made an investment in August, put $1.25 million into the company. That's the working capital that we're using right now to continue to advance forward. Cash on hand, finished the quarter with $901,000. We do actively have a pipe open where we are looking to bring additional capital in that's going to get us into 2023. Along with planning for next year, We brought on a controller and Chief Accounting Officer Laura, Ms. Laura Krause, joined the company in September. And this move was a new role that we just hired, and it's in support of our Uplift plan to NASDAQ for middle of next year. Okay, so that really represents the significant technology and business advancements since the last time we spoke. Let me dive a little bit into strategy, and I'll go through this section relatively quickly because hopefully it's reviewed for many of you, and if not, hopefully I'll deliver enough here. The opportunity for us is really represented by the combination of sustainability, electrification, availability, and affordability. What we're really talking about, high voltage power conversion is much more sustainable, much more energy efficient. So that drives the need for voltage. The fact that we're bringing new materials in because traditional silicon solutions can't deliver anymore. And the fact that we're doing it in our own fab where we have control of availability and provide a much more economical solution. So it's really the combination of these four things represents the opportunity for Odyssey Semiconductor. The market, as I've said before, is large and growing. YOL is a market intelligence firm that we work with. This is from one of the reports, power silicon carbide, and you'll see that we tend to go after the silicon carbide market. We are an upgrade from what silicon carbide is delivering. The market's growing to over 5 billion, 40% CAGR. I've mentioned that before, large and significant market. Slide 10, so I talk about the large market. I talk about high voltage. What specifically are we talking about? There's three initial markets we're focused on, solar inverters and renewable energy. industrial motors electric and hybrid electric vehicles those are three markets and there are more but those are the three initial markets that we're going to focus on where our technology the performance we deliver the economics we can support have a dramatic and significant impact on the markets so why so much talk about high voltage well from a technical perspective high voltage conserves energy And we see that more and more electric vehicles want to move from 400 volts to 800 volts. The higher the voltage, the more energy efficient the entire system is. For us as a company, high voltage, there's very few players that can deliver high voltage power conversion. What that means is it tends to be high value. We're able to protect pricing, protect our margins. And it's the combination of those two things that make this a breakthrough opportunity for Odyssey Semiconductor. On slide 12, as I talk about our vertical GAN versus silicon carbide. We see a lot in the news about silicon carbide right now. There are companies that are making investments in silicon carbide. Silicon carbide is quite a bit better than traditional silicon. You see some other companies doing lateral GAN. Specifically for our vertical GAN approach, we are applying the full material benefits of gallium nitride over silicon carbide. As I said, there are plenty of companies making news in and around silicon carbide. It does represent a meaningful improvement over silicon. However, silicon carbide still lacks the performance and commercial benefits that we will deliver with our vertical GAN approach. That's why you hear me talking so much about vertical GAN versus silicon carbide. As evidenced by here on slide 13, again, referencing a report from the old group, What they're saying here is for silicon carbide to be broadly adopted in electric vehicles, the price would have to erode by two and a half times. That's significant. And not sure that moving foundry from six-inch to eight-inch and some of the other techniques we see is going to get there. That's why I think that's why we see so much customer interest for our vertical GAN products in this space. So how do we do that? So why is it the vertical GAN can deliver? It really comes down to, as I mentioned before, the material benefits of gallium nitride over silicon carbide. So here's a side-by-side comparison of a 6-inch silicon carbide wafer to a 4-inch GAN wafer. And as you can see, because of the material benefits, the gallium nitride allows us to be 10 times smaller than a silicon carbide dye or silicon carbide product. So that comes down to the material properties. So if you can get four times the amount from a smaller die, not only does it offer commercial benefits, but it also makes supply chain and delivery much easier. And again, as we've learned in the last couple of years, that's a major problem that a lot of companies are dealing with. And gallium nitride vertical GAN FETs offer material advantage here. And although I have been talking quite a bit about commercial, in this market, performance really matters. So here's another comparison. For the vertical GAN solution, it's 40% smaller than silicon carbide solution. In markets that I spoke about before, like electric vehicles, where size and weight really matter, this is significant. Slide 16. Vertical GAN is a significant technology for high voltage power conversion. We at Odyssey are uniquely positioned to lead the market. We have the expertise and we've protected it with the strongest IP portfolio in the space. Personally, the state we're in takes full advantage of my background of growing power businesses. It takes full advantage of my experience in product management, marketing, and sales. I'm proud to say this isn't my first time doing this. I'm very excited that we as a company have gotten to this phase where we can really start to focus on commercialization, working with customers, and getting products into the market. As I mentioned before, we own our own production capabilities. Like most leading semiconductor companies in the analog and power space, a lot of the IP lies in the fabrication process. Like them, we own our own fab, where we currently drive all of our innovation. And we'll be delivering production revenue from this facility as well. With modest investment, we can generate $10 to $20 million of revenue from this fab. And I give that range really due to product mix. Not exactly sure which products will be taken off first. but in that $10 to $20 million range out of our current FAB. And as we've learned over the last couple of years, owning manufacturing IP and supply chain has never been more critical. The Chips and Science Act was passed for that very purpose. Slide 18, a little bit more about customers. Customers are here and they're waiting for us. I have regular communications with these customers. Not only the few that we've agreed to give samples to early in Q1, but also the customers that are on deck waiting for samples and new customers. We have opportunities to talk to new customers. It seems like every day, but every week or every couple weeks, we're finding new companies that are coming to us looking to engage. So we're going to start with a controlled approach here to make sure that we don't overcommit. We want to make sure that what we deliver to the market is to a process and a plan so that customers get what they need and we get what we need back from the customers. So getting close to wrapping up on 19, slide 19, Odyssey is positioned, O-D-I-I-R. We are positioned to be the leader in vertical gain. The megatrends are there to drive the need. We have the, the performance and economics. We have the intellectual property. And as we're seeing now, we have the customer interest. So this story is really about execution. And there's one thing since I've been here since April, one thing that I'm maniacally focused on is, is coordinating planning and executing, making sure that we say what we do and do what we say. And as long as we continue on that path, we're going to have a very great future as a company. Slide 20 is here for your reference. Oftentimes, people want to know what does the current cap structure look like with previous rounds of financing, et cetera. It's here for reference. And on slide 21, here is contact information if you want to get a hold of me or Jeff from Investor Relations. We'd love the opportunity to speak to each and every one of you. So at this point, I'll turn it over to the operator for the Q&A session.
spk04: 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 of your viewing screen. Analysts who published research may ask questions on the phone line. For analysts to ask a question over the phone line, please press star 1 on your phone.
spk00: Please hold while they poll for questions. Thank you.
spk04: I will now turn this call back to Jeff Christensen to read questions submitted through the webcast. Thank you.
spk02: Thanks, Matthew. Mark, the first question is for you. What are Odyssey's next initiatives and timing that we can look forward to after the company provides engineering samples to customers?
spk01: Yeah, so obviously right now we're focused on getting the samples fabbed and then getting to the customers. What we'll be doing after that, Each customer is signing up to what we'll call an early access agreement where they'll be providing feedback, and we'll use that feedback to make the product even better. This is a portfolio business, so not all customers will want the same exact product. So we'll use feedback to look at business cases and figure out what are the first products that we're going to be developing. So first half of 2023 is really focused on that customer feedback. The design phase at this point, because we have the IP already developed, is an engineering effort, like I said, quite straightforward. And then we'll start perfecting and qualifying those products to get them ready for high volume commercial sales.
spk02: Thank you. Mark, the word sample can be misconstrued. Can Odyssey give vivid comments about what these samples represent en route to subsequent serial production revenue and full monetization?
spk01: Yeah, I think it really segues into the previous answer. So the sample is not the exact product that customers will use in their end products, but they're ones that they'll use to validate that the technology does what we say it's going to do. So we call it an engineering sample of the sample. Once the customers prove that point out with the samples, as I said, then we'll work with them on what's the exact product they want us to build that they'll use in their production and then we'll generate production revenue from.
spk02: Okay, thank you. For the investor audience, we have more questions that we're getting to, but in the meantime, you can click that button on the webcast player to submit a question. Mark, where do you think Odyssey's GAN components could be installed in electric vehicles?
spk01: Yeah, the most exciting option. opportunity for us is in the traction inverter. So these are the, they get installed, they could be installed in each individual wheel or installed under the car and they're what makes the tires turn. That traction inverter, it's a very significant electrical challenge to generate torque, do it efficiently, and doing it at high voltage. So that's really the prime and exciting opportunity for technology. onboard charger, and there's a few other places as well, but I would tell you that I think the reason why customers are most interested in what we have is for the traction inverter.
spk02: Thank you. John, the next question is for you. Odyssey received a bridge loan of $1.25 million from you in August. Is the company achieving what you expected with the bridge loan?
spk03: Oh, yeah. Well, it's a good question. You know, I think when I made the investment in that time frame, we just hired Mark the previous May. And obviously, the market has not been conducive toward doing the public offering we plan to do. So I felt like I owed it to Mark and the rest of the company to give them a chance to be successful together. And so I wanted to bridge the company to begin with. And the The bridge is really not tied to an equity price. It's more or less a loan that pays interest and then will convert to equity after a year or when there's an actual equity transaction. So let's say a full offering in the market, I think, above my $5 million or so. But the exciting thing for us now is that with Mark on board, you know, the company is making a lot of strides, um, toward commercializing the technology. And this is really an area where I think, uh, Mark brings a lot to the table. Uh, I think I always, uh, uh, appreciated. And I, you know, I love Rick and Dick. Uh, I think they're great guys and done great development. Um, but bringing that technology to market, especially in this particular space, uh, where you have to aggregate apart and show that, you know, uh, a higher version aggregated part can work, which is what these first samples will show. And then you need to then configure the part the way a customer wants it to have it used. So there's no real reinvention here. We just have to be able to build the part and show first that we can aggregate and then we can aggregate it in the format that somebody really wants it is really the second set of samples that Mark was alluding to. Having somebody with background in power semiconductor who's been through that before and done that before is a tremendous boon to our capability. I think Rick and Dick would be the first guys to tell you that they're pleased with what Mark's brought to the table. Not just that, but the enthusiasm he has for working in a small company and making this happen. From all of those reasons, I'd say that all of my ambitions with respect to making the investment are being realized now. And, you know, we're just, you know, very excited. I was just looking again last night, looking, you can count maybe a half a dozen companies or development teams that have tried to develop vertical gain. And I'm pretty confident we're going to be the first guy to actually put the ball over the goal line here and get something into production that will be used in the marketplace as opposed to you know, people who might have been able to demonstrate it theoretically, but could never build a, you know, a part to actually work or be manufacturable. And that's very exciting. It's an exciting place to be for all of us together. So I'm quite pleased with the investment that I made and the company's progress.
spk02: Thanks. Mark, the next question is for you. With the pipe bridge loan expected this year and the uplist capital raise plan for mid-2023, What is the expected use of the funds?
spk01: Yeah, good question. So, you know, obviously right now we're focused on this thing, this engineering, this product development. And we need to add a little bit of capability people-wise in order to be able to execute. We're a little bit short on engineers, so we're going to bring some engineers in. The other thing is we're going to start acquiring some of the equipment we need to get the factory ready. for productization and qualification. Those are the two main things. And then just, you know, continuing the monthly burn. But new investment-wise is really the engineering and then starting to bring some of the equipment in so we can re-qualify our fab. The building we're in has been production-qualified before from the company that occupied the space before us. So we know it can be done. We understand the scale. It's just a matter of doing it.
spk02: Thank you. Mark, our next question, what are the expectations around the CHIPS Act funding? What are the actions the company's taking to pursue it? And what is the potential range of dollars for Odyssey?
spk01: Yeah, man, there's a lot going on here. First thing I'll tell you is we're not going it alone. We're talking to a few different partners in the gallium nitride space. People, obviously not direct competitors, but people that understand the why gallium nitride is so important to be here in the US. LEDs, light emitting diodes, like the ones backlighting your phone or your laptop, or maybe even the headlights of your car, they're based off gallium nitride. And that technology has already left the US. China is dominating. So gallium nitride is very important. And we think that if we put critical mass around gallium nitride and similar compound semiconductors, we'll be in a better position. So we are working with some local and state-level government. We're working with some other commercial companies where we could kind of combine ourselves together. For the range of dollars, you know, I wish I knew. We believe that anything we get is going to require matching, which we're prepared for, and proof that you can sustain the business. And so we're preparing ourselves with some other prerequisites as well. I think for us, total speculation, but money in the tens of millions of dollars, which would be significant for us as a third phase for a company. As I said, we can do 10 to 20 million of revenue in our current FAB. We have aspirations to make the business much larger than that. And I think CHIPS Act can really help us do that large-scale multi-FAB manufacturing strategy that we know we're going to need.
spk02: Thanks. Mark, how long do you expect the iterative process of the samples development to potentially take to get finalized product approved by the customer?
spk01: Yeah, it'll happen next year. So, you know, if we think in basic terms, they get samples and you want to evaluate, we'll get the feedback. You know, Q2, we'll do a little bit of iteration and design. I would think Q2, Q3, we're fabbing the new versions and Q3, you know, late Q3, we're getting their green light that those products are as expected and we can go into qualification. So really, you know, within three quarters of beginning of next year.
spk02: Thank you. Mark, can you talk about getting substrates within GAN? Is that an issue? Are you seeing any back, you know, bottleneck at that stage?
spk01: that's good it's actually um i think the third time i've heard this question in the last few days because obviously there's so much going on in supply chain we have a few companies we're working with so we feel confident in in being able to get not only the raw vapor but the epi uh epitaxial growth that goes on top of the way so that we need to build our product so i can tell you that as we're talking to these suppliers quality economics and, of course, supply chain, and then also understanding that there are some geopolitical challenges in the world right now to make sure anybody we're getting this material from, even the raw material, is on approved list so we don't find any issues in the future. So at this point, we don't anticipate any issues, and we are being extremely proactive in having the right pieces in place.
spk02: Thank you. Mark, what are your expectations around building out your customer roster and from that aspect?
spk01: I'm going to use the term methodical. You know, we know certain markets move faster than others. Circuit markets are larger than others. Certain companies are collaborative. Certain companies try to take ownership of intellectual property. You know, we're going to be working with market makers. We're going to be working with people who really are collaborative in technology development. But in the end, you know, I would say once we get this initial customer going and we have standard products that are available, we'll open up to the entire market. And we'll be very excited by the breadth of customers that are going to want to get a hold of our product.
spk03: This is where, this is John again, this is where I think we're, We're much better off now with Mark on board because he has sold in this market before. He knows players that we can go work with. He can bring talent to the company and customers, intermediaries that will build modules for customers who we could work with and then take a combined module up to a higher level customer. And that's the kind of infrastructure and relationship building we want to do early on. so that when we get there to the large auto company or whatever, we're going to be successful because we're part of the right team that they want to rely on.
spk02: Thank you. Mark, what are Odyssey's most important competitive differentiators in the 650 and 1200 volt markets, and how will you stay ahead of the competition in those high voltage markets?
spk01: Yeah, so it really comes down to performance in a couple of factors. One, power density. The other is overall conversion efficiency. And those two things, oftentimes in power conversion, if you want to make something smaller, you lose efficiency. If you want to make it super efficient, you've got to make it bigger. What we're able to do with vertical GAN is take a significant order of magnitude step forward on that what we'll call figure of merit on those tradeoffs. You know, doing that, we have very proactive in thinking about packaging, thinking about really all the tradeoffs needed to deliver a working product that fits in a customer circuit. One of the earlier hires that we made was strengthening our systems and applications team. We have a couple guys right now. working on an evaluation platform that simulates a lot of the customers and systems. So we will test our product in those systems ahead of time. So that systems and applications knowledge as well. But it's really, you know, the fundamental is taking advantage of those material properties of gallium nitride first and foremost.
spk02: Thank you. Mark, are there currently any competitors with 1200 volt vertical GAN? And what will prevent a big power semiconductor company from creating 1200 volt or higher vertical gain.
spk01: Yeah, we know of a couple, a couple other companies that are that are working on vertical gain, we're yet to see anything in the public domain, that they've been successful in building 1200 1200 volt capable device, especially one that conducts real power versus a tiny test chip. So, but you know, eyes and ears always open, never, never want to get surprised by competition. And on the other part of the question, yeah, I mean, the big semiconductor guys, and I've worked into big companies as well, they're spending a lot of their money just trying to iterate in the technology where they have market share and protect market share. It's very, very hard nowadays for these large companies to invest in new material, new technology. So I think, again, we'll keep our eyes and ears open, but I think Big companies like that are relying on little companies like ours to find a way to make it work.
spk02: Thank you. It looks like there are no other questions. Mark, do you have any other closing remarks?
spk01: No. Thanks, Jeff. I just want to thank everybody for their interest in Odyssey Semiconductor. We actively share our story with the investment community as we move forward in our markets. We hope to meet with you at upcoming events. investor events, or in the future one-on-ones. As I mentioned earlier, if you have any further questions, our contact info is in the presentation and in our press release. So thank you to everybody once again.
spk04: Thank you. This concludes today's conference. All parties may disconnect and have a great day.
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