AmpliTech Group, Inc. Q4 FY2021 Earnings Call

Good day, ladies and gentlemen, and welcome to AmpliTech Group’s Inaugural Investor Update Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference call is being recorded. I'd now like to turn the conference call over to David Collins. You may begin.

Thank you for joining today's call to review the progress of AmpliTech’s growth initiatives and to answer investor questions. On the call today, our AmpliTech’s Founder and CEO, Fawad Maqbool; the Company COO, Jorge Flores; and the Company CFO, Louisa Sanfratello. Following initial management comments, we will open the call to investor questions. An archive replay of today's call will be posted to the Investor Relations section of AmpliTech’s corporate website. This call is taking place on Thursday, April 14, 2022. Remarks that follow and answers to questions including statements the Company believes to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as anticipate, believe, expect, or words of similar importance. Likewise, statements that describe future plans, objectives, or goals are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include among others matters that the Company has described in its press releases and in its filings with the Securities and Exchange Commission, except as described in these filings, the Company disclaimed any obligations to update forward-looking statement, which are made as of today's date. With that, let me turn the call over to Fawad Maqbool.

Thank you, David. Good morning, everyone. We appreciate everyone joining us today for our first inaugural investor update calls, and we plan to host more investor update calls going forward. But let me begin by saying over the past year, we've dramatically transformed the Company to better position it for growth, financial success, investor visibility, and liquidity. We focused on taking our disruptive core technology and making it a key enabler of the rapidly emerging technologies such as 5G, quantum computing, satellite communications, wireless tech telecom, and IoT, just to name a few. We've also entered the semiconductor space, infusing our technology into chips or MMIC in order to access the much broader and higher value markets. The keyword here is transformation. We are no longer the Company we were when we uplisted to NASDAQ nearly a year ago. Let me mention some of the key highlights over the past year. We had a major recapitalization of the Company and a simultaneous uplisting of our shares to the NASDAQ capital market, a feat we are very proud of. We had the purchase of Spectrum Semiconductor Materials, and with this acquisition, we effectively quadrupled our yearly top-line, expanding our sales, generating cash flow while also increasing our market reach. We now have a physical presence on the East Coast to West Coast and the Center of the United States in Texas. The launch of our AmpliTech Group MMIC design center in Plano, Texas, and the initial fabrication of MMIC chips is a big milestone for us. Also, the development of a new 5G communication system that can finally achieve the promise of 1 gigabit per second data transfer speeds leveraging the superior low noise performance of our amplifier technology at a very compelling cost relative to other proposed solutions. Another key point is the formation of a joint venture with SN2N to develop hardware encrypted low noise amplifiers, designed to bring mission-critical secured data communications to the systems. We've also expanded our team, infrastructure, and production capabilities to support expanded product development and revenue growth, significant increases in sales, and marketing, and our presence at key industry conferences. You can see we've been quite busy building value for our shareholders. I'll discuss some of these initiatives in more detail later in my remarks. Reflecting initial benefits of these other efforts, two weeks ago, we reported record annual revenues of $5.3 million in 2021, a 53% increase over 2020 revenues of $3.5 million. We also said we expect record Q1 '22 revenue of at least $4.8 million compared to just $0.5 million in the year-ago period. Additionally, we disclosed the current order backlog of $9.3 million representing contractual hardware and engineering services anticipated for delivery over approximately the next six months. Together, our Q1 outlook and order backlog provide good visibility for revenue rising to at least $15 million in 2022 compared to $5.3 million in 2021, and we have two-thirds of the year still to go. I'm very proud of the progress that we have made over the past year and pleased that we can finally see the beginnings of our revenue growth map. Of course, with our fiscal year 2021 being a transformative year, our results in 2021 reflect significant increases in overhead and investment related to the transformation of our company, and this is to support significant long-term growth. However, we are not deviating from our long track record of financial and fiscal discipline and our focus on margins, cost management, and profitability. During 2021, we invested approximately $11 million to complete the spectrum acquisition. We also invested $1.8 million in R&D, principally related to our MMIC and 5G development systems. We were able to secure our new headquarters facility for which we moved in April 1st, effectively tripling our manufacturing space and production. We added over a million dollars in state-of-the-art production test equipment to further enhance our capabilities, which is the necessary ingredient to stay competitive and keep blazing trails. We also invested $250,000 in our joint venture with SN2N to develop hardware encrypted communications. We recorded $370,000 in non-recurring expenses related to AmpliTech’s recapitalization and NASDAQ uplisting, $350,000 in spectrum acquisition related expenses. All of the above while also eliminating $1.2 million or over 90% of our outstanding debt. We expect continued investment in these cutting-edge solutions in the first few quarters of 2022, and are working hard toward initial commercialization in the next few quarters. Based on our 2022 revenue outlook, we believe AmpliTech is positioned for profitable operations in 2022, despite ongoing investments in the development of our MMIC semiconductor solutions and our system to deliver true 5G communication speeds of 1 gigabit per second. The investment in R&D is always dynamic, and we have to keep investing a portion of our revenues into R&D to stay competitive and stay ahead of the competition. AmpliTech remains well-funded to support our strategic plan with year-end working capital of $20.5 million including $18 million of cash and no debt. With this solid balance sheet, we see no need for additional capital in the foreseeable future. With the strategic financial overview as a background, I would now like to discuss in detail our growth strategy, core technologies and competitive advantage that underlies our optimism for AmpliTech’s future. Well, we have technology leadership in LNAs. We've always had that for many years. We've just used them in lower volume applications for our large OEMs in their most critical applications, but that's no longer the case. The noise figure of these amplifiers and all communications matters now more than ever since all of these technologies now including 5G, quantum computing, and satellite all require the best amplifiers in the business. That means that the signal clarity is the most important thing to offer the highest speeds and the longest range in coverage. Therefore, our growth initiatives include legacy LNA growth, MMIC development to make this technology more accessible to the larger volume applications that I just mentioned, a full 5G system including phased array antennas, as well as incorporating our LNAs and all the control circuitry that's required to make an old ran radio that would replace existing base stations that are out there right now that are not true 5G. Spectrum's role will be in the distribution and growth of the Company. As we develop more and more MMICs and chips, we will turn them over to be packaged and distributed to Spectrum, which already has a very, very strong stance in the business. Our other core markets include quantum computing, which we all know is on the verge of explosion, defense and aerospace, and many other technologies that involve low noise application technology. Validation of our strategy is that we have significant customer interest in our solutions. We've had over 30 meetings at a physical science conference in Chicago recently. We've had over 140 meetings at a satellite conference. We are gold sponsors at the upcoming IMS June 2022 worldwide trade show in Denver, Colorado. The evolution of the market demand, that's what's happening, and this is what's driving the demand for solutions we offer. We also have applications in satellites themselves. We have experience in space applications, space production. So, we are building now systems that will be going into satellites, LEO satellites, lower orbit, and MEO satellites as well. This will allow us to access other technologies like wireless airline, wireless technology, Wi-Fi, IFC, and other things. As we can see, there are huge corporations using quantum computing, and there's a race for quantum supremacy. We want to be the enabler for the U.S. to win this race. We believe we have that advanced technology that's required to beat all the competition and allow us to win that quantum supremacy race with the best quantum computers. Each quantum computer requires an LNA, which goes into each qubit of this computer. We're going to need approximately 1,000 qubits in a fully working quantum computer. So, applications driving these demands for communications bandwidth include all proliferation of wireless devices, cloud computing, content streaming, metaverse, gaming, blockchain, artificial intelligence, fully autonomous vehicles, IoT solutions. These are all rapidly emerging technologies that AmpliTech is going to participate in and enable in the near future, not the long-term future, but in the near future because we have been developing our technology so that we can access all these technologies sooner than later. In conclusion, our world is on a collision course with the limitations of our current state-of-the-art data throughput with some monumental problems for more industries, and it must be solved for many of them to realize their potential. We are the gateway to ushering in all these crescendo technologies that I mentioned, and we're solving the problems with our substantial expertise and proven proprietary high-value solutions. Now, I thank everybody for joining today's call. I will continue to look for opportunities to expand the reach of our story to investors, conferences, meetings, and other IR activities. We also look forward to updating you further in conjunction with our Q1 financial results to release in the early May timeframe. If you have any other questions or wish to schedule a call with management, please contact our IR team, their contact information included at the bottom of our news releases. Go back to you, David.

Our first question today comes from Jack Vander Aarde from Maxim Group. Please proceed with your question.

Thank you. Hi, Fawad. Thanks for the update. Nice to have the first official conference call. Just a follow-up question in terms of you have a pretty substantial backlog. I think it's 9.3 million, which already takes into account your first quarter guidance. Can you maybe just talk about your level of visibility or just feelings of additional customer orders that you expect to come in for 2022? I know it's hard to gauge that, but maybe just any added color from your expectations would be interesting?

Sure. I mean, if you look at just the numbers that we've done so far including our backlog, I mean, we're looking at about 14 million or so in revenue with us not booking anything at all from now on, but that we know is not possible. So, we expect to have more revenue, of course, this year than the 14 million predicted by the backlog currently, and the revenue outlook. So, because of the shows that we went to and the immense interest that we've received from all these satellite companies that want our equipment onboard, we believe that there's a great future in bookings coming, not far from, but sooner, because of all the shows and all the exposure that we've gotten and the recognition of the advanced technology and disruptive technologies that we have.

And then just with regard to these trade shows and all the meetings you've set up which are substantial in the hundreds in aggregate. Can we just talk about what's your guys' approach at AmpliTech in terms of just communications and follow-up with those clients or potential customers from the trade shows? Do you have a process in place for communication loops with them and how to follow-up? And just curious if there's any added color there in terms of what the discussions are about or how warm they are? And how you're pursuing follow-ups with them?

Yes, sure. We've got a process in place. I think Jorge can explain in more detail what we put in place to handle all of this.

Yes, one of the major process implementations that we did was introduce the use of Salesforce across our division. We do have a lot of the leads that we made in these shows already loaded into Salesforce. From the face-to-face meetings that we had with them, we have already loaded, looked at the action items that we need to follow up with each one of them. We have advanced talks with a lot of people that we met. We already had several conference calls since these shows to start developing new opportunities. So, we do have several opportunities in the pipeline right now that we are following through Salesforce.

It's very helpful and encouraging to hear. In terms of the three different trade shows you've attended, which had significant turnout, could you discuss the demand you're seeing for your product lines, particularly your MMIC products?

If we reflect on the APS show we attended, the emphasis was entirely on quantum computing and related products aimed at making quantum technology practical and usable via the cloud for various business applications and scientific calculations. During that event, we connected with numerous key industry players. When we presented our new data sheets, they expressed considerable interest in our advancements over existing technology and our competitive edge over international offerings. Our primary objective is to demonstrate that the U.S. is a pivotal supplier and innovator in this field, and we aim to play an essential role in the future of this technology. We believe we are approaching a significant growth phase for quantum computers, as indicated by numerous articles predicting a breakthrough year for the sector. We feel confident in our positioning and in the quality of our products. Additionally, at the satellite show, it was evident that the communications industry is moving towards launching thousands of satellites in the coming years, totaling 140,000. In this sphere, key players are seeking to ensure their technology remains relevant and effective. We believe our technology stands out due to its superior data rates and reliability backed by our extensive experience. Companies are viewing us as a strong contender due to our past performance, and we can enhance their competitiveness. We anticipate solid growth in this sector, both in space technologies and ground systems, as both require high-performance two-way communication solutions. Our MMIC development aligns well with this, as MMICs are just a small component compared to the larger coaxial parts we manufacture. This shift allows us to sell 1,000 amplifiers instead of just hundreds, translating into significantly higher gross margins. The impact of this will be substantial for our revenue and profitability as we move ahead with our strategies across all these technologies.

That's great. And then just maybe a follow-up comment more than anything is I'm reading in the 10-K, your 10-K filing that you believe you have enough liquidity and cash flow on hand or capital on hand to last throughout 2022 to achieve these growth initiatives. So it sounds like you're well-capitalized and it's just time to execute. So that's encouraging to hear.

Yes. I mean, we have plenty of cash. Cash is king. We know that, but we're very frugal about our cash. We've invested our cash into specific focused surgical growth initiatives. And that's building our business development team and building our key technology teams to support our technology and manufacturing. We are not planning on becoming a giant manufacturing company. We have a good business model that keeps our overhead low and our productivity high. The key is to make everything more efficient, and the organization itself, we're implementing a full system to effectively manage our buying and inventory. We have the money now to stock and prevent stock parts and mitigate the effects of the shortages, although we'll still be affected by it. It's a worldwide problem, but we don't expect to be affected too much by it. If we keep everything in stock and use our cash to have a volume distribution network as well.

Fantastic, I appreciate the update, Fawad. I'll hop back in the queue. Thank you.

Very good.

Our next question comes from Eric Beder from SCC Research. Please go ahead with your question.

I want to talk to you about MMIC. When you look at the backlog of over 9 million for the next six months, are there any MMIC contracts included in that backlog?

No, Eric, currently, they're not, but what I mentioned before about the leads that we have right now, we have a significant amount of leads and many of them do involve the development of special customized MMIC products. The advantage that we have is that we're agile enough that we can develop these MMICs with the process that we've perfected over the last year or so. We already got the amplified technology in place. What we now do is just go to our MMIC design center with the experts and transfer into there and make a custom MMIC for all these satellite manufacturers and quantum providers so that they can have a product at larger volumes at lower costs, but we can still maintain our gross margins. So, that's the key. The key is that we can put our technology into MMIC, and it is in demand in the leads that we've obtained so far. We are building custom MMICs for our customers. And that's the advantage because these other big companies like Qorvo, Skyworks, and all the companies will not do these kinds of small applications or customizations that all these customers need now for the new technology. That's our advantage, that's our lead and that's going to help us get more business.

So that 9 million is secure either way. And then MMIC is on top of that. When do you expect to start rolling out MMIC products?

We anticipate most production towards the end of the year, either in the third or fourth quarter, but we aim to achieve this sooner rather than later. However, it is essential for us to ensure that our product is flawless and that all liabilities are addressed.

So, that's going to be our big catalyst in the back half I think even March in 2023.

Yes, this is going to happen this year.

Great, spectrum. So, you've owned it now for about four months. So what has been positive? What has surprised you? And are you still as excited about it as you saw before and why?

Yes, this is Jorge. Definitely, we are extremely excited about being able to scale up the operations and the top sales at our Spectrum Semiconductor Materials division. When we looked at them prior to the acquisition, we were very happy to see their numbers. And now, we are even happier because they are sustaining the demand that we are seeing. We do believe that we will be able to repeat the higher gross margins from them, which also drive a very healthy bottom-line profit for us. So, definitely, we remain very excited about their prospects. In addition to that, Eric, we are actively putting in play, scaling up their business operations. We recognize that the previous ownership were a private company, which were focused on distributions of their profits, but we are reinvesting these profits into their business so we can make them grow and produce better top-line and bottom-line numbers for us.

Well, that's exciting. Do you believe that, I know, you mentioned adding MMIC to spectrum business will help that business going forward? Are there other opportunities in terms of potential alliances with other products that can be distributed that spectrum doesn't have right now where you look like you expand that business even more?

Absolutely, and we are making that part of the strategy. We re-identified a few aspects of their business that they were lacking. I'm not going to go into details due to the competitive nature of distribution, but we have already identified opportunities and we are actively working on putting those opportunities into play. So, hopefully within this year, we will be able to announce some of the projects that we have for them as an accomplishment.

And ladies and gentlemen, at this time, we’ll end today's question and answer session. I'd like to turn the floor back over to the management team for any closing remarks.

Well, we're just happy that everybody's able to join us. We plan on having more investor calls in the future. We don't know if it's going to be every quarter or not, but we definitely plan to have a lot of dynamic announcements coming in this year and next year because, as we said, we're a dynamically changing company. We've changed the face of the Company from what it was a year ago. So, you can expect to hear from AmpliTech and all these developments in the near future. Please stay tuned.

Thank you, ladies and gentlemen. With that, we will conclude today's conference call. We do thank you for attending. You may now disconnect your lines.