Amplitech Group - Q4 2022

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to AmpliTech Group's quarterly investor update call, where the company will discuss its full year results for 2022. 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 is being recorded. I would now like to turn the call over to AmpliTech's Director of Corporate Communications, Shan Sawant.

Shan Sawant (Director of Corporate Communications)

Thanks. Thanks everyone for joining today's call to review the progress of AmpliTech's growth initiatives and to answer our investor questions. On the call today are AmpliTech's founder and CEO, Fawad Maqbool, the company's COO, Jorge Flores, and the company's CFO, Louisa Sanfratello. Following management's comments, we will open the call up to investor questions, I'll also take on some questions I was given through email. An archived replay of today's call will be posted to our investor relations section of AmpliTech's corporate website. Just a reminder, this call is taking place on Monday, April 10th, 2023. The remarks that follow and answers to questions include statements that 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 its filings with the Securities and Exchange Commission. Except as described in these filings, the company disclaims any obligation to update forward-looking statements which are made as of today's date. Again, thanks everyone for joining. With that, let me turn the call over to our CEO, Fawad Maqbool.

Fawad Maqbool (Founder, Chairman, President, and CEO)

Thank you, Shan. Ladies and gentlemen, thank you for joining us today on our 2022 review call. I'm delighted to have this opportunity to share some of the achievements and milestones that AmpliTech has accomplished over the past year. It's been a busy and productive year for our team, and I'd like to take a moment to highlight some of our key financial and operational successes, provide updates on our product development, and reflect on ambitious goals we've set for ourselves in 2023. Some key highlights over the past year include the revenue increased 267% to $19.4 million in fiscal year 2022, compared to $5.3 million in fiscal year 2021. Fiscal year 2022 gross profit grew to $8.9 million, an almost seven-fold increase from fiscal year 2021 gross profit of $3.1 million.

$1.3 million, excuse me. The gross profit margin nearly doubled to 46% compared to 24.5% a year ago. Fiscal year 2022 net loss was $677K compared to a fiscal year 2021 net loss of $4.8 million. A positive swing of approximately $4.1 million. The net loss includes a one-time revenue earn-out of approximately $816K as a result of Spectrum beating sales expectations for the years 2021 and 2022. This is a big plus for us because we got increased sales from Spectrum, which were exceeding whatever we expected. We look at this as a very positive signal. It's important to note that without this earn-out payment, the company would have been profitable for the fiscal year.

As of December 31, 2022, cash and equivalents totaled $13.3 million, and working capital was $20.3 million, which is sufficient capital for AmpliTech to fund all of its strategic growth initiatives. AmpliTech experienced great success at trade shows such as the SATELLITE 2022, IMS2022, the AOC 2022, and the APS March Meeting 2022, achieving positive customer engagement and setting company records at each event for the number of meetings with new and existing customers. All these shows are special trade shows that display the technology, the current technology that we are developing. Customers have begun to sample AGMDC's new MMIC chip products, which have received very positive praise and feedback. These include MMICs for 5G, quantum computing, and satellite applications, among others.

I'd now like to provide some insight into broader market conditions and their impact on our company. Demand for AmpliTech products remains robust. At the start of 2022, we set ambitious targets to grow revenue, expand margins, and develop the world's lowest noise MMIC amplifier. I'm incredibly proud of the AmpliTech team for making significant strides in achieving these objectives. As highlighted earlier, our annual revenue reached approximately $19.4 million in 2022, representing a nearly 4-fold increase from our 2021 revenue, which was approximately $5.3 million. This growth can be attributed to the addition of our semiconductor packaging distributor arm Spectrum, as well as the rising demand for our core LNA product line, which is the regular amplifiers, low noise amplifiers, modules, and assemblies. Spectrum as well had a rising demand for our core LNA product line.

Despite the industry-wide challenge of escalating material costs, we successfully nearly doubled our gross margins from 24.5% to 46% through strategic inventory purchasing, optimizing manufacturing methods, and tightening processes across the organization. In terms of profitability, we achieved a net operating profit during our fiscal year of 2022. We did incur a net loss of $677K, this was due to a one-time $816K revenue earn-out, as I mentioned before. This was part of the deal with the Spectrum acquisition. Spectrum exceeded sales estimates for 2021 and 2022. This represents an improvement of over $4 million during the fiscal year of 2022. AmpliTech remains well-capitalized for our ongoing initiatives, bolstered by robust cash reserves and healthy working capital of $20.3 million.

Consequently, we currently have no need to raise additional funds. As other companies face rising costs of capital due to interest rate hikes, we do not foresee a necessity to take on debt given our ample existing capital and how low cash burn rate. That said, we continue to closely monitor the market conditions, which are constantly evolving. We will be providing our revenue guidance and updated backlog numbers for fiscal year 2023 during our Q1 conference call in mid-May. I'd like to take a moment to discuss the state of today's industry communications infrastructure and the vast opportunities that we see in this dynamic market. As we highlighted during our last quarterly call, the industry's existing communication infrastructure requires a significant enhancements to power the next-generation technologies.

We believe that the gap between current performance levels and what's anticipated presents an extraordinary opportunity for our company. As technology evolves and demand for high-performance communication systems escalates, the necessity for more efficient and compact MMIC amplifiers, that's monolithic microwave integrated circuits, is intensifying. Advanced MMIC amplifier chips with superior signal-to-noise ratios have the capability to unlock higher data transmission rates, reduce latency, and enhance connectivity for 5G, 6G networks, as well as more dependable long-distance communication for satellite systems. Moreover, these chips can improve the accuracy of target detection and tracking in radar systems used in defense, aerospace, and weather monitoring. In the realm of IoT, Internet of Things, multi-trillion dollar market, where size, weight, and power constraints are critical, highly integrated components like our new MMIC amplifier chips are essential.

We expect MMIC sales to account for a growing portion of our revenue mix going forward and contribute to the sustained profitability of the company. We're proud of the cutting-edge technology and product line that our team has developed in a remarkably short period of time. These products address the industry's most pressing technical challenges for the communications infrastructure. The overwhelmingly positive response we received while showcasing these products at events such as SATELLITE, IMS, AOC validates our market alignment. In summary, the evolution of high-performance MMIC amplifiers is vital to meeting the ever-increasing demands of modern communication systems and emerging technologies. At AmpliTech, our unwavering commitment lies in continuously pushing the boundaries of MMIC technology and LNA technology, paving the way for faster and more efficient communication systems that will revolutionize various industries. These are very large industries.

Fully autonomous vehicles, satellite communication systems, 5G, 6G, towers, microcells, they're abounding by the minute. I'd like to extend my heartfelt congratulations to the entire AmpliTech team for their exceptional efforts in executing this year, both financially and operationally. Together, we have ventured into new domains that have long been part of our vision. We eagerly embrace the challenges that lie ahead as we continue to shape the future of communication. Back to you, Shan.

Shan Sawant (Director of Corporate Communications)

That concludes the Q&A session. I will now turn the call over back to Fawad. Sorry. Let's actually start with the Q&A session. Yeah.

Fawad Maqbool (Founder, Chairman, President, and CEO)

If any of you have any questions on the results or anything, please ask them now.

Operator (participant)

To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Vander Aarde with Maxim Group. Please go ahead.

Jack Vander Aarde (VP and Senior Equity Research Analyst)

Okay, great. Thanks, guys. I appreciate the update and congrats on the strong finish to 2022. You know, I'll start with a question for Fawad. You know, you guys clearly had success in your, in your more recent trade shows or in past trade shows, and it seems like the success is growing in terms of number of meetings. Wondering if you can give me a sense of, or give us a sense of how RFPs are coming in or potential for RFPs and as well as actual orders as well from these trade shows. We'd just like to get some extra color there. Thanks.

Fawad Maqbool (Founder, Chairman, President, and CEO)

Yes, Jack. Thanks for the question. Yes, we've had a large response at these meetings. I mean, it's all a result of our CRM efforts and our business development efforts. At the last meeting, I think we broke our record at the last Satellite Show. We had over 100 meetings, and at least 80%, 80 of those meetings are led to RFQ activity. We have seen an increase in RFQ activity in all areas of communications, and particularly satellite. It seems that the satellite market is growing very fast. The LEO constellations and the MEO constellations that are going up are very important now. They're all looking for higher data rates and revamping their older infrastructure. They don't want to be obsolete in a couple of years.

This is a big market for us because we've already been in the space business for many years, and satellites are space-qualified hardware. That takes a lot of experience. It really blends in well with our past experience. All the MMICs that we're making right now are specifically geared towards satellite and space-qualified hardware. It is very good for us. We expect an increase in the RFQ activity as well as subsequent sales because we do not have that much competition in terms of performance for all these systems, satellite systems as well as the 5G systems and the ground stations, because it's both on the ground as well as on towers that there's communication with satellites.

Jack Vander Aarde (VP and Senior Equity Research Analyst)

Great. I appreciate the color there. If I were to just follow up, kind of more of a housekeeping question. I think in the past you typically provide a customer orders or customer backlog at the end of the period. Did you provide that this time around? If not, is there kind of a general sense you could provide for us in terms of where the back orders are?

Fawad Maqbool (Founder, Chairman, President, and CEO)

Yeah, we're gonna give full guidance to the revenue in our next quarterly call. Right now we don't have all the numbers yet, but we are going to provide that guidance in the next call.

Jack Vander Aarde (VP and Senior Equity Research Analyst)

Okay, great. Then, maybe just another follow-up question in general. I think in the past, you've talked about the seasonality of the two kind of businesses between your core business and Spectrum. Is there a seasonal stronger period in the first half of this year expected, or is that something you would cover on your next earnings call as well? any insight there would be helpful.

Fawad Maqbool (Founder, Chairman, President, and CEO)

Yeah, no, as I mentioned before, there is some seasonality. Usually, the first quarter is never indicative of how the rest of the year is going to be because of all the different, you know, holidays and everything that happened. The first quarter is just everybody gearing up for the future business. This year we haven't had any big decline. It is less than we had last year at the same time, but it's not indicative of the future because we're getting a lot more RFQ activity than we ever did before.

Jack Vander Aarde (VP and Senior Equity Research Analyst)

Excellent. Okay. I think that's it for me. Great, great results, guys, and I look forward to the next earnings call as well when you provide your outlook. Thanks, Fawad.

Fawad Maqbool (Founder, Chairman, President, and CEO)

Thanks, Jack.

Operator (participant)

As a reminder, if you have a question, please press star then one to be joined into the queue. The next question comes from Richard Greulich from REG Capital Advisors. Please go ahead.

Richard Greulich (President and CEO)

Thank you. If you could refresh my memory, did the revenue payout that occurred, was that at the end of it, so it was just for 2021 and 2022? Is there any more continuing into 2023?

Fawad Maqbool (Founder, Chairman, President, and CEO)

Louise, I think can answer that.

Louisa Sanfratello (CFO, Secretary, and Director,)

No, that revenue earn-out was based on 20, 21 and 2022 revenue numbers for Spectrum only. The reason we have the earn-out in 2022 was because Spectrum exceeded their sales numbers. Based on the purchase agreement, anything over-

Richard Greulich (President and CEO)

Great.

Louisa Sanfratello (CFO, Secretary, and Director,)

- $20 million, they got a revenue earn-out. You will not see that in 2023. We're pretty much wrapped up with the Spectrum acquisition.

Richard Greulich (President and CEO)

Great. Thank you.

Louisa Sanfratello (CFO, Secretary, and Director,)

You're welcome.

Operator (participant)

This concludes our question-and-answer session. I would like to turn the conference back over to Fawad Maqbool for any closing remarks.

Shan Sawant (Director of Corporate Communications)

Sorry, operator, I actually have a couple of questions here, submitted, maybe we can go over those. Yeah, I have a question here for you. Maybe, Fawad, you could take this. Does the company foresee maintaining or even improving upon the 46% gross margins you reported for annual year 2022?

Fawad Maqbool (Founder, Chairman, President, and CEO)

Well, I'm glad to share that information. Our recent improvement in the margins from 26.5% to 46% year-over-year was made possible through strategic combination of several initiatives. First, we shifted our focus to high margin products, which will help us increase our overall gross profit margin. Second, we developed in-house capabilities to assemble and test our products, which allowed us to maintain tighter control over our supply chain and thus reduce our costs. Finally, we have focused on maintaining a niche inventory of high margin products through our semiconductor distribution arm, Spectrum. We're continuing to improve our margins. The main opportunity for us at the moment would come from increasing sales of higher margin products, which we are focusing on strategically. All our products are now higher margin products such as the space and satellite and MMICs and quantum computing.

All those are very high margin. We do very special jobs for our ground station customers. They're also high margin products that no one else really can do. We'll continue to focus on developing and promoting these products to our customers while maintaining our current initiatives to improve the margins at all times. At AmpliTech, we're always committed to pursuing sustainable growth while maintaining strong focus on profitability. Does that answer your question?

Shan Sawant (Director of Corporate Communications)

Thanks for that. Yep, thanks for that, Fawad. Just gonna read a few more that I got in here. Okay. Actually this plays in well, too. You mentioned some markets here. What technology sectors are providing exciting opportunities? Anything in, you know, you mentioned quantum, AI, those things?

Fawad Maqbool (Founder, Chairman, President, and CEO)

Yes. All of those areas are actually we're getting a lot of RFQ activity form. The amplifiers that we make, the low-noise amplifiers, are a core component of all these systems. They're enabling quantum computing. It's a core component that's used in all the qubits. They're enabling artificial intelligence in terms of the communication and data and wireless data transfer. We have a bunch of pipeline opportunities in the quantum, the AI, the 5G and satellite communication industries. That's very exciting for the company.

Shan Sawant (Director of Corporate Communications)

Got it. Thanks for that one. Okay, here's another one. If there's a perception among management that the company is undervalued, are insider purchases and/or share buybacks being considered?

Fawad Maqbool (Founder, Chairman, President, and CEO)

No. We don't think that's an effective use of our capital at this time. We believe that we are focusing and using that capital to grow our existing technology and our product base and support our customers' increasing demands. Using the capital to buybacks and all right now is not really in our strategic focus.

Shan Sawant (Director of Corporate Communications)

Okay, great. Maybe I can do one more here. Generally speaking, how has calendar Q1 gone? Is there an idea of when we might be seeing results?

Fawad Maqbool (Founder, Chairman, President, and CEO)

Sorry, can you repeat that?

Shan Sawant (Director of Corporate Communications)

Okay. Generally speaking, how has calendar quarter Q1 gone? When will we be seeing results on that?

Fawad Maqbool (Founder, Chairman, President, and CEO)

We've not released that right now to the public. We can't comment on them yet. We'll have a conference call on schedule, as I said, mid-May to go over the Q1 results.

Shan Sawant (Director of Corporate Communications)

Okay. Yeah, I think we are good on questions for now. Yeah, thanks again for everyone who sent in those questions. If any further questions, feel free to reach out to our investors email and we will happy to get back to you with an answer as soon as possible. Yeah, thanks a lot for taking the time to answer those.

Fawad Maqbool (Founder, Chairman, President, and CEO)

All right. Thanks everyone for joining our call today to hear about the progress we've made and the plan we have to further our company's mission of providing the communication systems of tomorrow, today. We look forward to updating you further with our Q1 financial results in mid-May 2023. As always, we welcome the opportunity to speak directly with interested investors and meet at conferences and other IR events. Should you have any questions or wish to schedule a call with management, please contact our communications director, whose contact information is listed at the bottom of our press releases.

Operator (participant)

This concludes our conference call today. Thank you. You may now disconnect.