Odyssey Semcondctr Tech

Q1 2023 Earnings Conference Call


spk00: Good day, ladies and gentlemen, and welcome to the Odyssey Semiconductor first quarter 2023 results 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 within the meeting webcast by typing them into the Q&A button on the right side of your viewing screen. Analysts who wish to publish research may ask questions on the phone line. For analysts who ask a question on the phone line, please press star 1. A confirmation tone will indicate your line is in the question queue. As a reminder, this event is being recorded. I would now like to turn the call over to Jeff Christensen, Investor Relations. Please go ahead.
spk03: Thank you, Operator. 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 first quarter of 2023. We'll start today's call with prepared remarks from Mark, followed by Mark and John will respond to your questions. 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. During our prepared remarks, we will refer to slides available for viewing in the webcast and posted in the investor relations section of odysseysemi.com. I will now turn the call over to Mark Davidson, Chief Executive Officer. Mark?
spk02: Thank you, Jeff, and thank you to all who are listening live or on demand. Before we get into the slides, I'd like to make a couple opening remarks. Q1 was another important and successful quarter for Odyssey towards our pursuit of bringing leading technology to a large and fast-growing market. As you'll hear during today's call, we delivered samples to customers, we strengthened our foundry services business, and we remained lean in our operations. We're setting the company up to win big. We remain focused on our milestones, which now include customer commitments. The tasks in front of us remain challenging, which is why Odyssey is so uniquely positioned to win in this space. Our focus, our expertise, and our intellectual property portfolio position us in a way to lead the transition from silicon and silicon carbide to gallium nitride as the superior solution for high value power applications. So we'll dive into slide three on the presentation deck. And slide three is here as an investment summary if you're new to following Odyssey Semiconductor. This slide is a great, broad overview. Odyssey is in the power semiconductor space, focused on an existing product type with a brand new material. When used as a vertical conduction device, this new material, gallium nitride, has great appeal to the electric vehicle, industrial motor, and renewable energy markets. In September of 22, we announced our first significant achievement when we created a device which could withstand 1,200 volts, a very important spec for these markets. Our technology competes against silicon carbide, which is the current state of the art. We will be delivering an order of magnitude of 10x advantage over silicon carbide in a way of higher performance, better economics, much easier to scale. I'll be diving into this topic shortly. We will be taking significant market share in a space that is growing to billions of dollars at a 40% compound annual growth rate with very high margins. And because we offer such an advantage over silicon carbide, we actually believe the vertical gain, the introduction of vertical gain, will accelerate the growth of this market. While I said the 1200 volt was a significant achievement, we didn't stop there when we announced delivery of engineering samples to two teacher customers. Slide four is a paste of a press release, and as it explains, we set a very aggressive goal to fabricate new samples in fourth quarter of 2022, complete our internal testing in time to deliver to customers before the end of Q1. We did this, and now we're focused on the next milestone, customer commitments. Slide five is probably most relevant for investors and analysts who have been following the company since the beginning. To be the leader in vertical GAN for power applications, you must have expertise in semiconductor fabrication and the material properties of gallium nitride. It took a few years of research, trial and error, and experimentation to invent a device, a device design and fabrication process to produce vertical GAN power transistors. This is something we've achieved and allowed us to evolve to the next stage of our company and maturity, which is to develop real products that meet customer needs. We created a significant amount of intellectual property along the way and have been strategic in how we're protecting this know-how. And it's this step that allows us to achieve the milestones and advancements listed on slide six. On a technology front, as we said, we completed the fabrication of these product samples in fourth quarter. We delivered to two teacher customers, and we're actually in fab right now. Maybe another refresher, we have our own wafer fab facility in Ithaca, New York. So when I talk about fabrication, we're in total control of what we fabricate and when. We don't have to follow any other external foundry schedule. So we're We're fabricating significantly more samples now, which we'll use to provide to more customers in second and third quarter. I'm well into negotiating product development agreements with customers. We have an objective to get at least two of these agreements signed by the end of this current quarter, by the end of second quarter. But the advancement and progress we're making, and I'll talk a little bit more about customers later, The advancement and progress we're making with customer interest, customer commitment, et cetera, it's actually staggering and very rewarding for myself as well as for our team that's working really hard in order to bring this technology to market. On the business front, at the end of December, we secured an additional $2.35 million in funding. And as you'll see, we will be doing an additional funding fundraise later this summer. We remain lean, $312,000 per month in Q1. And that includes some new investments that we've made, strengthening our engineering team, as well as looking to better invest in our foundry to make sure that we have improved capabilities and getting ready for product product qualification um we also as as you may know run an external foundry services business this is where we use our equipment we use our factory to generate some revenue we don't build power transistors for customers but because of our expertise and what are known as three five materials we do um in what i'll call innovation fab fabrication work for other customers So we onboarded two new customers. We have some very significant opportunities. We're in the closing phase where we're in pretty deep discussions with these customers on using us as a way for FAB for them. We had set a goal of a half a million dollars of revenue this year, about a 50% increase over the last year. And I'd say we're on track to that and with pretty significant opportunity to maybe even beat that number. But for now, 500 grand is the forecast. That's really a summary of what we've accomplished, what we're setting up for to make this year a very strong and powerful year. I'm going to move to slide seven now, which is going to dive into a topic which is really vertical GAN versus silicon carbide. And I want to take a few minutes to dive into this, because silicon carbide has been in the news a lot lately, from Tesla announcing a 75% reduction of silicon carbide usage to the billions of dollars of new capital investment being made for silicon carbide. Personally, I've been receiving a lot of questions, and I've even been invited to participate in a number of panel discussions on this very topic. Based on that interest and the topics in the news, I thought this warranted a few minutes digging into this topic here on our call today. Despite all of this activity and news around silicon carbide, vertical GAN remains far superior with all the criteria that matters most to customers. It's higher performance, much easier to scale, and will offer significant solution level savings. While we see and acknowledge that silicon carbide is ahead of vertical GAN with respect to time, it is viewed by customers I'm speaking to as a stopgap solution or said otherwise, an intermediate and temporary answer while vertical GAN is being developed. Yes, silicon carbide offers better performance versus pure silicon, but the price is far too high with only these moderate performance benefits. Silicon carbide is first, but it's not the best. And the beauty of analog semiconductors and specifically power, our use cases are not standardized. They're not mandated by specs like 5G communications. Vertical GAN will dominate because the price performance tradeoff is far superior. Now, on slide eight, you know, so up until now I've made some pretty bold statements about silicon carbide. And what slide eight shows is I'm not the only one who sees silicon carbide's challenge. This report, which I've quoted a number of times by Yale Development, shows the orders of magnitude savings needed by silicon carbide to meet the requirements of the markets, a feat that's not practical in the timeframe needed. So how exactly does vertical GAN deliver what silicon carbide cannot? Slide nine is another one of my favorite slides. So you got to understand semiconductor products are fabricated on wafers, or another word, substrates. And within that wafer or substrate are hundreds or even thousands of individual products that are fabricated at the same time. Once fabrication is complete, they're simulated into individual dye. Silicon carbides substrates currently are at six inches and are moving to really unchartered territory of eight inches. Gallium nitride, while only on four inch wafers, offer four times as many individual products as a six-inch silicon carbide wafer. As silicon carbide moves to eight-inch, GaN will move to the mature six-inch substrate size, maintaining this significant advantage. Slide 10 quantifies how these advantages translate to be meaningful to customers. To be succinct, vertical GaN enables power solutions to be smaller and lighter, more efficient, and lower cost. Usually, designs require tradeoffs. You have to give something up to get something else. But thanks to the material properties of gallium nitride, when used as vertical conduction power devices, there really are no sacrifices. The physics support this claim. So why are silicon carbide companies putting so much investment into capacity? Because they need to just to meet modest demand. The low number of products or dye per wafer, combined with the ongoing yield challenges that have been synonymous with silicon carbide for years, have forced billions of dollars of capital investment. And we see in the news that there are delays in getting that capital and getting those 8-inch wafer fabs and substrate fabs up and running. When that much capital investment is needed, capital depreciation costs alone will further challenge the economics of silicon carbide. Once again, gallium nitride doesn't have this challenge. There's a lot of 4-inch and 6-inch legacy equipment available that's more suitable to meet the requirements for gallium nitride fabrication. Further, GAN has already matured in other markets, such as blue lasers for video, communications, and diagnostics equipment. Our wafer suppliers recently presented the roadmaps to us. They're ahead of schedule on ramping 6-inch substrates to mass production, something that we're very, very encouraged to hear. So how does all this translate to customer traction? And I apologize, we're on slide 12 now. I was just presenting slide 11. So on slide 12, how does this translate to customer traction? We're currently engaged in about 10 active customer opportunities. And I want to emphasize this point. Every customer we're talking to, whether one of the many automotive electric vehicle OEMs or tier ones, or the solar or industrial motor companies, Every one of them has found us based on the milestones we're achieving and the news we're making. We're not investing money in outbound lead generation or cold calling companies to find contacts. We're responding to customer inquiries. And because as you can see on the screen, customers don't see Silicon Carbide closing the gap that they need. They're counting on us and we're focused on delivering. So that really, because of all the news and the amount of inquiries I've had on Silicon Carbide, That's our perspective. That's why we as a company are so focused on getting these products into customers' hands as fast as possible and then using that customer interest to get product development agreements signed and use that to just continue to move closer and closer to product commercialization. So that marks the end of my prepared remarks. I appreciate you listening, and now I'll turn it back over to the operator.
spk00: 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 wish to publish research may ask questions on the phone line. For analysts to ask questions on the phone line, please press star 1. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. There are no questions from the phone lines at this time. I would like to turn the call over to Jeff Christensen to read questions submitted through the webcast.
spk03: Thank you, operator. The first question submitted is for Mark, and I saw the company filed Form RW. Why did the company pull the S-1, and what does it mean moving forward?
spk02: Yeah, so first, yeah, we were advised that that our current s one was getting dated. And we were we were advised to pull it so this doesn't change our pursuit of doing a capital raise with an up list. We remain committed to that. But we took we took that advice and realize that there was some quite a bit has changed in in the company in the industry, etc. Since that s one was first put together. So we're going through a pretty heavy edit cycle. And we'll have that resubmitted here shortly.
spk03: Thank you. And anyone that's listening on the webcast can submit, as the operator said, can use the button to ask a question. We'd be happy to take your question. The next question that was submitted is, can you provide more color on the process of customer sampling and how it leads to commercialization?
spk02: Yeah, absolutely. So right now we have this initial product that we're using to sample and we're fabricating more. And what that does is prove to the customers that these things, I call them the material properties of gallium nitride, vertical GAN, deliver performance, low conduction loss, the ability to make power density higher, which means solutions are smaller, etc., So we use that same product for many, many customers to get their feedback, evaluation, and to validate our claims. Then what they've done, and we've actually had customers do this even without seeing the samples, they send us their detailed specs. These are the technical specs that we would need in order to use your product in a electric vehicle traction inverter or to power this super high-efficient industrial motor, et cetera. So they give us those detailed specs. And then that's when we engage into this thing I'm calling a product development agreement. And the way it works there is because we can't do every product for every customer that's interested, so we will be working on product development agreements that will have customers pay us a number upfront. We call it NRE, non-recurring engineering, to pay us NRE upfront for them to have early access to the technology early access to the exact product that they need. That NRE is usually a pretty significant commitment for the customer and one that we know they wouldn't be making that investment unless they absolutely were planning on using this product at scale. People aren't looking for just these products to evaluate just for fun or just to, you know, because it's novel technology, they're looking to find new products to solve the problems better than what the current state of the art is. So we use that NRE model to make sure that they're truly committed to the long term there. And then as we develop that product, we qualify the product and they design that product in. And then we ramp that product based on when their product goes to market. So it really starts with sampling, product development agreement, signed, receiving some NRE, and then we're well on our way to commercializing at scale. Thanks.
spk03: Our next question submitted into the portal is, uh, what you are onboarding more boundary services clients. What is the company doing to further expand that business?
spk02: Yeah. So it's a couple of factors. One is, um, we actually, uh, while I've said that we're not doing any marketing on the product, we're actually doing some, some pretty efficient marketing on the boundary side. Um, we, we do some digital marketing to get more people to realize what our capabilities. are and that's paying off we don't need a ton of leads but we're getting some new lead sources which is helpful um and uh and then you know we're also as we look to round out the equipment that's in our fab it allows our foundry team to be able to offer new services that maybe they couldn't offer before and then the last thing is just really hone in on exactly what it is these customers are looking for why they're interested in us why they're coming to us and make sure we, uh, we solve that problem in a way that, um, a, they can afford and be, um, you know, we can generate some, some positive cash because we view foundry services as a way to limit our, our net cash burn. And, uh, so, you know, we've just, we treat it as important and, uh, and, and it's paying off half a million dollars. You know, it's not, it's not a huge number, but it's a, it's a, it's pretty good growth relative to last year. And we see that continuing to grow year over year. to a few million dollars, which would be very significant for our operations.
spk03: Thank you. Our next question submitted is, how do you balance keeping operations running lean while also making sure you are making the investments required to execute and deliver?
spk02: It's difficult. It's very difficult. Matter of fact, we just made a decision recently to acquire something that's really going to improve our throughput and repeatability on product fabrication. So it's, uh, you know, we've got a team that is extremely committed. Um, we, we really are looking, what are the required investments and how do we do it most efficiently for, we're looking for ways to save money on things that aren't as critical and, uh, you know, which we've been able to do late 2022 and again in 23. Um, You know, the thing that we need to invest in the most right now are our world-class engineers that can help us, you know, just mature the product even faster and further. And we have a couple open positions. We're currently interviewing for one and just make sure that, like I said, that while we add something critical like that, we're looking for other places to save that aren't as critical.
spk03: Thank you. And, yeah, we appreciate your questions, and please continue to submit them into the webcast portal, that Ask a Question button. Our next question is for John. Odyssey received two bridge loans in 2022. Is the company achieving what you expected with the bridge loans?
spk01: Yeah, thanks for the question, Jeff. I guess I'll just start off by observing that it's been just about a year since Mark Davidson has come on board as the CEO and CEO. I think part of these notes were really provided in a sense to give Mark some runway and a chance to be successful. In essence, I think Mark brings something to the two founders, Rick and Dick, that they didn't have before, and that's somebody who's got 20 years of experience in selling power semiconductor into the market. So he knows what's necessary to prepare the product to actually sample the and how to go talk to the customers, how to manage the customer interest. It's, you know, it's great as a small company, it's great to have 10 customers unsolicited that are interested in sampling the technology and, you know, potentially signing these development agreements. So, you know, I think all of that's very positive and it's been great. Of course, we, we'd all like this to be happening sooner. And we sometimes have to remember we're not making instant coffee here. We're, inventing new technology and the steps involved in making the technology are complicated and involve chemistry and physics dynamics and things that have to be worked out in the manufacturing process. And that's what makes this sort of difficult to hammer out in terms of a recipe to make something that hasn't been made before and a lot of people don't think can be made. And so I think it's exciting from that point of view to have this new technology developed and and now finally sampling in the hands of customers. So, uh, we do have investor interest as well as a customer interest. And I think fairly shortly, we're going to see the confluence of, uh, of that, uh, customer interest, uh, promoting investor interest in, in getting involved with a company before they might miss an opportunity that won't be there before too much longer. So, uh, you know, we're excited about that part of it. And, uh, uh, you know, things moving forward here to where, you know, raising money and getting an additional investment isn't so much of a challenge. Of course, the overall environment for, you know, late stage startups and getting financing has been tough for about the last year. You know, I know I've got another company I've worked with had to lay off like 80% of their employees and, you know, work with as much smaller crew now and hope to survive to live and fight another day. Fortunately, we haven't had to do anything like that at Odyssey. And, you know, we feel like we brought a leader in who can really make a difference in helping the group to move forward. And so we're happy that he's having an opportunity to do that and he's delivering on that potential. So that's been great from our point of view.
spk03: Thanks, John. The next question is for Mark. What gives you confidence in signing product development agreements with customers in Q2
spk02: 2023? I think confidence comes from it's just two factors. One, will we execute to deliver something that that's meaningful to the customer? And then two is a customer really willing to put, you know, put some financial commitment behind getting access to it. And, you know, I'd say both of those things are on track. I always get nervous, you know, a signed agreement, there's people outside of the business and the technical community at our customers that are involved in signing commitments. So, you know, I get a little worried maybe about the legal review side of things, but I would say the ongoing customer conversations that we have, the specs that they've provided that are well within the envelope of our capabilities, it's a combination of those things make me feel really good about our ability to close on that milestone.
spk03: Thank you.
spk02: what is the cost to the end user with your products versus current technology yeah so um i'll use an example of an electric vehicle traction inverter and to use the traction inverter the current you know kind of published design that we know about use 24 silicon carbide transistors in order to make a traction inverter. A traction inverter converts the battery voltage, which is DC, into the AC and makes the wheels spin. That's the purpose of a traction inverter. So it's a very high power. We're talking over 100 kilowatts. We believe, from talking to customers, and by the way, those silicon carbide transistors are upwards of $12, $13, $14 in that range. we believe we can get the customer to use the same output power delivered, significantly fewer devices. So let's say instead of needing 24, maybe they need 15. So significant. So even if I stayed at the same price, pretty significant overall solution savings for the customer. Maybe I give a little bit of a lower price, or maybe I go higher price. I think there's a lot to be determined right there. But we're talking significant solution price delta by using our vertical GAN technology versus silicon carbide.
spk01: And then, Jeff, or Mark, they'll also save on the other componentry that surrounds the not only implementation of the device itself, but the other surrounding componentry on the platform. can also be reduced in size and cost as well. Isn't that correct?
spk02: Absolutely. That's right. And that's a great point, John. And in an electric vehicle, weight matters. A heavier car doesn't go as far as a lighter car. So there's that other factor, too, because power supplies tend to be bulky and heavy, lots of metal to dissipate heat, et cetera. So when you can make it smaller, lighter, yeah, everything's pointing in the right direction. It's kind of the point I made earlier, which is, vertical gallium nitride versus silicon carbide, there's no negative tradeoff other than they're here now. So it's really time. And the other point I made was, you know, this isn't a standards-driven technology. You don't get obsolete if you miss a wave. But when these solutions are ready, the customers are absolutely waiting for us.
spk03: Thank you. It looks like there's no other questions for the conference call. And, Mark, do you have any closing remarks?
spk02: No, I'd just like, once again, thank everybody for their interest in participating. And we remain focused on bringing the technology and hit our milestones. And we look forward to any investors that want to hear more, or especially with regard to our upcoming capital raise. We'd love to have the opportunity to speak with you.
spk00: Thank you. This concludes today's conference. All parties may disconnect and have a great day.

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