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spk04: 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.
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 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?
spk01: 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.
spk00: Excuse me, one second. Okay, excuse me. Sorry about that.
spk01: Lastly, as slide 10 shows, as I show frequently, as a company, we're at an inflection point. We have proven technology based on a few years of process materials research. We have customers. We need to couple these two things together to make sure we convert our potential into real opportunities and success. Tim Reymann, Time remains now for obviously semiconductor to take this opportunity this important step forward, so I want to thank you for your time your interest and obviously semiconductor and i'll turn it back over to Jeff q&a.
spk04: Thank you. At this time, we will be conducting a question and answer session. 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 questions on the phone line, please press star 1 on your telephone keypad. 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 key.
spk00: Please hold while we poll for questions. The first question comes from David Williams with Benchmark.
spk04: Please proceed.
spk02: Thank you. Good afternoon, Mark, and congrats on all the progress in the quarter.
spk01: Thanks, David.
spk02: It's great to hear the progress. I had a couple of quick questions just from some of the things you talked about in your script. And one is, can you kind of talk about the end markets that you're sampling to and where you're finding the most, I guess, the biggest amount of demand from customers? Is it broad-based? Is it largely around automotive? Or just talk about the market you're seeing interest with.
spk01: Yeah, yeah, 100%. you know, when I look at all the customers that, that we are engaged with, first thing I'll tell you, and I've said this a number of times, I'm proud to say we're yet to do any outreach. These are customers that have come to us and, you know, while companies in, you know, industrial motor, even some military, um, DOE type applications, we, we have spoken to them. The most proactive on the followup are the guys going after electric vehicles. So OEMs and tier ones. And I'd say, um, Of the customer conversations I've had, I've had more conversations with the electric vehicle and e-mobility companies than any other company there. So broader-based attention, but really the kind of the focus and the lead opportunities are automotive.
spk02: Okay, fantastic. And as you kind of think about the automotive market, you talked about it being faster time to revenue, but it's also kind of more challenging in terms of that design cycle and a little more rigorous reliability standards and qualifications. Can you talk a little bit about what you've done in order to prepare for some of that, just for that automotive market? And clearly you've done a lot of work here, if it looks like it's the first revenue. Just what have you done maybe that gives you the confidence that you can get to revenue fastest in the automotive market?
spk01: Yeah, great question, because I like to put some emphasis. First thing I'll tell you what I've done is I started my career designing powertrain electronics and automotives. and I know it well, and I've sold into it for two decades. You know, if the only opportunity we have is to, let's say, go into a, you know, pick an OEM's high-running vehicle, yeah, it takes a very, very long time until we have enough data where the trust is there. So what we do is we find, I'll call it adjacent opportunities. Maybe it's a, and I mentioned kind of some recreational vehicles. You know, ATVs are going electric now, right? And you still need a traction inverter. And power efficiency and all those things still really matter. So we look for some of those adjacent where the long-term reliability testing, et cetera, isn't as required. And we see that as a faster time to getting to production revenue. That coupled with those kind of milestones I talked about for getting some payments along the way to make sure that the customer is paying along the way and not just waiting until they launch are a couple things we do. On the product side, we haven't started doing any look-ahead rel testing yet. We'll do that, probably kick that off in Q1 of next year. And that's actually one of the reasons why we've been spending so much time trying to get some of these things right instead of just trying to band-aid them good enough and move on. Because we know you don't really, when you're a young company, you don't have multiple chances to make first impressions. So we will start to do look-ahead qual. but I can say that a lot of the work that we do, when we do test our parts to failure, recognizing the failure modes, understanding where parts break down, what are the conditions, we put a lot of that back into future revs, et cetera. So we're trying to be as proactive as possible, using obviously a lot of my experience to guide the product development teams.
spk02: Great color there. Fantastic answer. Thanks for that. And then just one more if I might. Are you providing, I guess, the drivers as well? And can you talk about the challenges maybe your customers have designing around it? I know with the horizontal GAN, the circuit design is obviously a challenge. It's kind of given GAN's differentiation. But do you have that same issue? And are there specialty drivers required that you can kind of use standard off-the-shelf silicon? Thank you.
spk01: Yeah, yeah, great, great, absolutely great question. For initial evaluation, we do something called a double pulse test when you can just use a function generator and drive the gate no problem. The gate drive requirements are really going to come down to what's the topology that the customer is using. There's a lot of different topologies. At this point, we feel pretty confident that there's going to be standard off-the-shelf gate drivers available. But that is an area that we will be working closely with the customers on. Because how many transistors, how many in parallel, what's the gate drive requirements? Are they high side, low side? All those things go into it. But we feel confident. as do the customers, that there should be plenty of off-the-shelf gate drivers to work with.
spk02: Great. Thanks so much for the time and the answer there. Certainly appreciate it. Best of luck to you. I'm looking forward to seeing the program.
spk01: Yeah, thanks. Appreciate you dialing in today.
spk04: Once again, investors can submit their questions within the meeting webcast by typing them into the QA button on the left side of your viewing screen. For analysts to ask a question on the phone lines, please press star 1 on your telephone keypad. Star 2 will remove you from the queue. Okay, we have no further questions in queue. I will now return this call to Jeff Christensen to read questions submitted through the webcast. Thank you.
spk03: Thanks, Operator. And we do have some questions that were submitted. Mark, this one's for you. You mentioned you're onboarding more boundary services clients. What is the company doing further to expand that business?
spk01: Yeah, it's... It's a lot of who you know in the space with this semiconductor innovation. We do run some digital, but for the most part, it's word of mouth. And I don't know that we can expand too, too, too much, depending on if some of the volumes that these current customers are talking about, we might be at capacity because, of course, we can't use all of our capacity because we've got to build our products, too. But, yes, it's a combination between just kind of the community and a little bit of digital, and then making sure we don't overcommit.
spk03: Okay, thank you. Another question was submitted was on the, you talked about the customers received samples in the first quarter. Any other comments about the next steps with them and what should investors be thinking about?
spk01: Yeah, I think it's important that, so obviously, you know, we delivered some samples and we knew We knew what worked well and we knew with your auto was so number one the fact customers didn't find a problem that we didn't identify was big because that means we really understand the application. Number two after evaluating they say okay here's our feedback when we get the next gen, so I think the fact that you know we were careful about who we picked. and the fact that they remain interested and engaged in wanting to get the next gen products, I think is really telling on how important this technology is for the market as a whole. So we'll generate, we'll deliver kind of the next gen sample to some of the existing and then some new companies. And then from there, it's looking for who's got the most pressing need, who's willing to make the largest investment in order to get access to the product. And then from there, we focus, we execute, we qualify, and we ramp high volume to production.
spk03: Okay, thank you. As you already mentioned, you can click on the left-hand button there to submit a question via the webcast. Another question was submitted was you mentioned you need to raise capital by the end of the third quarter. Can you give a little more color on that?
spk01: Yeah, for sure. You know, we're, we're so darn close and, uh, the market has, has not been, has not been tying to early stage OTC companies, but here we are. And, uh, so what we're looking to do is a $2 million bridge. As I said, you know, by then I know we've got these products in the customer's hands. We've got some customer commitments, so we're looking to have two quarters of, uh, generate traction with the customers. And then, then, you know, the path to revenue is, is clear. and we'll know what to do. We'll need additional money to get there, but it'll be much more predictable. So $2 million is really the number we're looking for right now in order to bridge us into Q1 of next year.
spk03: Okay, thank you. It looks like there are no other questions. Mark, do you have any closing remarks?
spk01: No, as usual, I just want to thank everybody for their interest and their participation here at Odyssey. We appreciate it. We actively share our story with the investment community as we move forward and look for opportunities to meet with each and every one of you in person at an investor conference or as a one-on-one.
spk00: So I just wanted to thank everybody once again. Thank you. I guess I'll end the call.
spk04: Thank you, gentlemen. Thank you. This concludes today's conference. All parties may disconnect and have a great day.
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