Odyssey Semcondctr Tech

Good afternoon, ladies and gentlemen, and welcome to the Odyssey Semiconductor Second Quarter 2023 Results Call. At this time, all participants are in listen-only mode. At the end of today's presentation, there will be an opportunity to ask questions. Investors can submit their questions within the meeting webcast by typing them into the QA button on the left side of your viewing screen. Analysts who publish research may ask questions on the phone line. For analysts to ask a question on the phone line, please press star 1 on your touchtone phone. Pressing star 2 will remove you from the queue. 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.

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 second quarter of 2023. We'll start today's call with prepared remarks from Mark. 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 risk, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by those 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 portal, or you can click on the PDF version inside the webcast portal. And they're also posted to our website at odysseysemi.com. I will now turn the call over to Mark Davidson, Chief Executive Officer. Mark?

Thank you, Jeff. And thank you to all of you who have been following us for a little while now. And of course, thank you for those of you who are new to following us. I have a number of updates to share with you, starting with some opening comments, and then I'll move to presenting a few slides. I'm proud to say we were able to accomplish quite a bit in Q2, despite some challenges. And I'll start with, you know, sometimes it takes challenging environments to learn the true character of your team. Our team at Odyssey Semiconductor have stood strong and achieved a number of outstanding accomplishments during the quarter. The commitment, intelligence, thoughtful effort were very impressive to observe. So I'm proud of my team. We got a bunch of very smart, hardworking people. We started the quarter working through customer feedback from Q1 product sampling. And as you recall, we did generate or we did deliver samples to a couple customers in Q1 of this year. Through that process, customers validated what we had observed, and they helped us prioritize what needed to be addressed in making our product samples better. When we delivered those samples in March, we had provided a fairly detailed list of technical expectations to each customer, telling them what was working well, what we saw were anomalies that needed to be addressed. The good news is the customers didn't find anything we didn't tell them. The challenge is that we've had some delays in getting the products to meet those customer requirements. Instead of just trying to band-aid fixes, we're fixing the products the right way so our paths of qualification and revenue will be more streamlined. It's a painful path now, but one that we know will pay off in the future. In order to make the products better, we needed to get some new material, substrates and what we call epi or epitax. We had originally thought we could get there with our original material, but decided we needed to do it the right way and get the better material. We did have some delays in acquiring and characterizing that material, but now we have it in-house and a much more reliable source for future engineering needs. Production will not have these same challenges. It's when you want to buy production quantities, no problem, but when you want to do small engineering quantities, that's where in a very full supply chain, that's where some of the challenges come in. Solving the product issues that we talked about from feedback from customers and our own observations, as I mentioned, has taken a little longer than expected. The final two issues, one has been fully validated, and the last we feel confident is corrected. That material is running through FAB right now. We'll have it out by the end of the month. So we're confident that the feedback and some of the things we had to make better are behind us. Very excited for customer sampling again with known better parts happening later this third quarter. The good news is customers... have been fully informed of our schedule and remain in constant communication with us. Actually, every one of them remained interested in getting evaluation samples of this second generation product. We're delayed in getting the product development agreement signed. However, we do have two letters of agreement signed for early access sampling. A third one's in process and is expected to be signed by September. Primarily automotive Electric vehicle OEMs and Tier 1s are where we're focused. They're the most aggressive about getting samples. They recognize the value of what these products are going to do for their applications, such as traction inverters, et cetera, in the electric vehicle. And as we've talked about quite a bit, there are other markets that we will be serving as well, industrial motor, renewable energy, et cetera. But we are focused on auto right now. We found some faster time to revenue opportunities inside automotive. But the main reason is these guys are willing to pay for access to the technology. And as I'll talk about in a little bit, we have a kind of a path to monetization when working with them. As we've been following, finding ways to solve some of the product challenges, we've been very focused on IP generation and protection. So we filed additional patents and have more disclosures in process. So feel very good about the technology we're creating and the technology we're protecting. If I switch gears a little bit, and as you recall, we use our FAB to generate some foundry services revenue. In Q2, we onboarded two new customers, a little bit of deposits from them, not recognized revenue yet, of course, until we deliver. So invoice for the quarter was low, $8,000.00. But both of these customers will be invoicing six figures from them starting this Q3. But more importantly, they represent recurring business. They're not just one-offs. As we build material for them this quarter, there'll be follow-on builds. They're starting to schedule us out into next year. So really excited that we got to overcome some of those initial onboarding challenges. uh work and uh and we'll start to see some recurring revenue from these two new customers plus we have some of our existing customers that are still still in process uh with respect to cash and funding again we averaged about 345k per month we've been pretty consistent there we've been talking quite a bit to investors And our goal right now is to do a $2 million raise as a bridge that's going to get us through Q1, give us plenty of time to secure customer commitments prior to a larger capital raise. And lastly, we, you know, through Q2, as I said, we averaged 345. We're doing some things now to further extend our runway to make sure that we give ourselves the time needed to generate those customer commitments that we know are right around the corner for us. We've also been pretty active on the government grant fund. We submitted one grant, which we're very confident in. We'll know more about that in Q4 and then final answer in Q1. And we're working on another one right now. We're working on our CHIPS and Sciences Act application. So looking for ways while the country is so focused on semiconductors, we want to make sure that Odyssey Semiconductor is in the forefront of their minds as they look to keep valuable technology and manufacturing capacity here in the US. So those are my opening statements. There's just a couple of points I wanted to get out of the way up front. Let's go to the PowerPoint slides. And Jeff, if you can, for those that are following with what you're presenting, we'll start on slide three. And slide three is a refresher for those who have been following us and a good introduction for those who are new to following Odyssey Summit Doctor. We are in this area called high voltage vertical GAN power transistors, specifically 1,200 volt vertical gallium nitride power transistors, focused on electric vehicle, renewable energy, industrial motors, et cetera, places where high voltage and high efficiency are paramount. And we do it in a way that is extremely easy to supply high volume and that's cost competitive. Our solutions will offer an order of magnitude improvement over current state of the art. And I think that's why we see so many customers staying with us, staying patient with us as we develop this technology. Significant advantage over what else is out there. And the market that we're going after, multi-billion dollar, over $5 billion growing, 40% CAGR. So we have a compelling position. We have an order of magnitude improvement in a market that's growing fast and with customers who are very interested and highly engaged with us. So that's the overview of why we are while we're here. Slide four summarizes our recent advancements since our last earnings call, specifically on the product development side. And as I've mentioned earlier, we sampled customers in Q1 of this year. Since then, we've had great feedback, ongoing conversations with many customers. We're in the final steps of developing a second version of products, which will go to more customers later this year. In solving the issues and maturing the technology, we filed additional patents, further strengthening our position as the technology leader in vertical GAN for power applications. And actually, one of the patents that we filed will be valuable even for silicon and silicon carbide, which is pretty interesting. On the business front, as I said, we were able to secure two letters of intent with customers for early access to sampling. and we expect at least one more by the end of Q3. Boundary Business, two new customers who have hired us to build their technology, and as I mentioned, both represent long-term business opportunities. Not much invoice in Q2, but we'll see larger revenue Q3, Q4, and well into next year. And lastly, as we always do, we remain tight on spend through the quarter. Almost all the money that we spend goes into product development, talking to customers and keeping our factory running. So we're very tight, very lean there. With the intent of doing a bridge financing here shortly, imminently, it's going to get us well into Q1 of next year, giving us time to get those customer commitments. Moving to the next slide, and as I've proudly mentioned a few times, our pipeline of customers for our products is strong with highly desirable companies. We remain focused on the automotive right now for a few reasons. One, each opportunity represents a significant amount of money versus opportunities in other markets, which, while they might bring faster time to revenue, are smaller individual opportunities. And if I may use a baseball analogy, it's home runs versus singles, and it's much easier to score runs when you hit home runs. And second, as I mentioned before, the automotive industry has the most pressing need for and willingness to pay for access to our products. which is a great segue to the next slide which is slide six as we secure agreements with the automotive companies we'll be doing so with payments along the way our intent is to make sure we don't have to wait until the customer products are launched to get paid we will set a number of milestones which will trigger payments we're also finding e-mobility opportunities and other adjacent opportunities in automotive which will bring revenue faster for example off-road recreational vehicles High-performance racing teams actually is very interesting how the high-performance racing teams, they want the latest and greatest technology, and they won it yesterday because it's all about winning on race day. The point is we're looking at creative business models and opportunities to get the revenue as fast as possible so we understand how important it is to show revenue and to generate cash flow. Moving to slide seven shows our status with our most active customers and also where we are in the product development. As you can see, thanks to the value of our products and for how many are needed in each electric traction inverter in an electric vehicle, the opportunity size grow very quickly. We're actually not pushing too hard for too many additional customers because just what I'm showing here represents significant opportunity and we want to make sure that we remain focused. On the product side, as you can see, we're optimizing the manufacturing process. We feel as though everything else is complete and ready to go. And also, as you can see, creating and protecting new IP is and will remain a focus. Slide 8, I wanted to show an example of exactly what we're talking about here with regard to product development. So on the left side, you see nine test chips. While the wafer that we fabricate those chips on has a lot more than nine, I zoomed in just to show you nine to give you an idea. And each one of them is 0.3 millimeters by 0.3 millimeters tiny. These devices at this size work very well. They're great for us to do some testing in the lab, but they're not useful to testing in a customer application. But we can generate great data, and we use that data to continue to share with customers and validate that the performance you're looking for will be delivered. The image on the right is one of our devices, 1 and 1 half millimeters by 1 and 1 half millimeters. This represents a device that can be tested by a customer in a customer application. And of course, our focus is on making that larger device perform like the small devices, albeit handling significantly more power, significantly more current. As I mentioned, the device design is there. The structure is there. It's a matter of just getting that manufacturing process that works well on the tiny device to then also work well on the larger devices. As I mentioned, we do need to raise additional funding to get us to be able to close customer commitments based on testing of our products. Slide 9 provides some insight into the use of proceeds. which is essentially keeping a focus to fabricate and deliver samples to customers by Q4, with Q1 of next year being when we'll be signing agreements with these customers. So we're within one to two quarters of really generating that traction that we're looking for. And then as I said earlier, we put a lot of effort into government grants and we feel confident that we're going to, at least one of them we feel very confident will be successful, but we'll keep looking for other ways to take advantage of that focus.