Odyssey Semcondctr Tech

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.

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?

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.