Amplitec's Q2 2023 revenue reaches $4.1M with a 47% gross margin; strong pipeline suggests over 136% growth expected in 2024 despite current losses.

OPERATOR - (00:00:00)

Good day ladies and gentlemen and welcome to AmpliTech Group's quarterly Investor Update call where the Company will discuss its second quarter 2023 financial results. @ 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 IR, Shawn Sawant.

Shawn Sawant - Director of Investor Relations - (00:00:27)

Thanks everyone for joining today's call to review the progress of AmpliTech's growth initiatives and to answer questions. On the call today are AmpliTech's Founder and CEO Fouad Maqool, the Company's COO Jorge Flores, and the Company's CFO Luisa San Fratello. Following initial management comments, we will open the call to investor questions. An archived replay of today's call will be posted to the IR section of AmpliTech's corporate website and this call is taking place on Tuesday, August 15, 2023. Remarks to follow and answers to questions including statements that the Company believes to be forward looking within the means 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 sec. Except as described in these filings, the Company disclaims any obligation to update forward looking statements which are made as of today's date. With that, let me turn the call over to our CEO, Fouad Maqool.

Fouad Maqool - (00:01:52)

Good afternoon ladies and gentlemen. Thank you for joining our Q2 2023 review call today. Today we'll reflect on our performance in the second quarter of 2023 and discuss the Company's growth outlook and market opportunities. The second quarter we reported a revenue of 4.1 million at a gross profit of $1.9 million, translating to an increased and record gross profit margin of 47%. Despite facing inflationary pressures, sales from our core low noise amplifier business grew by 23%. However, our semiconductor distribution sales saw a dip primarily due to the softening of international demand which is evident in the broader semiconductor sector as well. We expect this sector to rebound nicely and are already seeing strengthening signs in the semi industry. Overall, our Q2 loss stood at about 508,000. This can be attributed to our ongoing investments in research and development for new products, including new 5G wireless infrastructure products, Monolithic Microwave Integrated Circuit (MMIC) designs, our R and D initiatives total over nearly 700k for this quarter and 1.2 million for the six month ended June 30, 2023. We're confident that the investments we've been making in the new products will generate higher returns and profitability for the company when they are introduced to the market in 2024. They are designed to be not only cutting edge but also light touch labor. Light touch labor means less labor intensive which is the source of most of our expenses in the products made here in the usa and it will be supported by our new automated quoting and other capabilities of the new multifunction CRM system that we implemented. Financially, our position remains robust. As of June 30, our cash and liquid marketable securities totaled 9.3 million in addition to 2.5 million in receivables. Working capital stood at 16.7 million at quarter end. We're confident that these balances will provide us with the capital necessary to support our current strategic growth initiatives. The surge in LNA's sales and demand underscores the market's recognition of our products value and the strong competitive advantage with clear differentiators that position us for continued growth. Most of the growth in this quarter was from our SATCOM clients who utilized our super low noise AmpliTech's, enabling their systems to achieve unmatched performance levels. Amplitec's offerings enhance overall SATCOM systems including satellites, Earth stations, gateways, transponders. This ensures signals traveling farther, connections are more dependable and systems run more efficiently considering signal performance and bandwidth. The effective isotropic radiative power, which is eirp, gauges the signal strength and the satellite can transmit to Earth for a steady connection. If an amplifier introduces excessive noise, the EIRP required escalates. For instance, direct to home services might necessitate EIRPs between 50 to 55 DBW. That's a measure of power and wattage for transparent reception. Therefore, most importantly, if you minimize system noise, the satellite will use less energy and provide a broader coverage area. This is a key parameter for satellites and size and weight are critical for cost and reliability in every system, especially all the new LEOs and MEOs that are being launched for the Internet in the sky. In terms of reliability, the junction temperature of a device like an amplifier is pivotal. Exceeding this amplifier temperature can result in malfunction. A study conducted by NASA's Jet Propulsion Labs indicated that for every 10 degree rise in operating temperature the life expectancy of a standard electronic component may plummet by 50%. Our AmpliTech's facilitate the transmission of identical signals at much cooler temperatures, leading to longer system lifetime and higher mean time between failures. This is also a very key parameter that differentiates us from our competitors. Less failures means longer connectivity and improved signal performance over a period of time. Our low noise AmpliTech's are the lowest power disk painting on the market and can help a system be safer, more energy efficient and subsequently more cost efficient. Considering all these points as a whole, this illustrates the value proposition that we bring to our many Fortune 500 customers. Differentiating ourselves from our competitors As I mentioned earlier, we have continued to invest for future growth. This is very important to note and we're excited to share that our ongoing R and D project centered around 5G O ran massive MIMO radio units, among others, are progressing very well and are on track with our expectations. Through the utilization of massive MIMO coupled with beamforming technology, we are enabling a precise and efficient solution for true 5G category B base station radios. These are the units that go on top of the towers. This breakthrough approach is addressing existing performance limitations, facilitating support for a larger user base within each cell and enhancing the overall end user experience in densely populated areas. These are city urban areas. Our cutting edge 5G O Ran radios are also set to showcase our proprietary Low noise amplifier 5G mmic chips, mmic meaning monolithic microwave integrated circuits. The massive MIMOS require arrays. Arrays require tiny small AmpliTech's and these are best done in a Monolithic Microwave Integrated Circuit (MMIC) form. Therefore, our new technology for Monolithic Microwave Integrated Circuit (MMIC)S is very important to these 5G radio development and all sorts of antenna development. This technology, characterized by an exceptional low noise figure, provides a strong competitive advantage as it will enable an increased coverage range while providing near 1 gigabit per second speed capability. That's 100 times what we have currently. As a result, this innovation reduces the requisite number of radios in a true 5G network, leading to an opportunity to enhance the return on investment for every deployment site. This is very important for MNOs and private 5G networks. We anticipate the receipt of initial prototype units by our AG TGSS division in the fourth quarter of this year. As such, we are currently in discussions with mobile network operators, MNOs and many private corporations that are seeking the advantages provided by our new 5G Oran compliant cat B radios. The robust investments we have made in these new technological endeavors are paving the way for the introduction of novel product solutions. This is a key note. We are making this R and D investment for a particular Reason is to separate us from what exists now and to bring the future of the fifth 5G technology now, which does not exist. We believe that these solutions are poised to elevate the company to new heights when they're introduced and available to the market, which we expect in 2024. We have a lot of interest from current MNOs and customers already. We're in discussions as we move through the third quarter and as a result of our newly implemented CRM and AI engines, we're addressing a surge in request for quotes for our low noise AmpliTech's and 5G networks. We anticipate a portion of these to convert into sales in the coming quarters. We're also continuing our efforts to add NGK product line to our Spectrum division. This is a deal we made last year to add very special microwave packages to our Spectrum division which we expect to complete by the end of our fiscal year 2023. We also expect NGK electronics RF microarray packages to start contributing to our top line sales number early in 2024. As we roll out our new leading edge products next year, we believe that 2024 will be a transformative and pivotal year for amphotech and stakeholders. Our CRM now indicates over $85 million in potential opportunities. In closing, we're proud that our products enhance our clients entire systems as our commitment remains unwavering to aid our clients in shaping the future of communications. Thank you. We'll now open the call for questions.

OPERATOR - (00:11:35)

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up the handset before pressing the keys. And to withdraw a question, please press Star then two. At this time we will pause just momentarily to assemble our roster and our first question here will come from Jack Vanderaarde with Maxim Group. Please go ahead.

Jack Vanderaarde - Analyst - (00:12:07)

Okay, great. I appreciate the update and great to hear about the solid pipeline and record gross margins. It's great to see. Fouad, I want to start by touching on the core LNA business because I had a strong revenue quarter for you. It was up 23% year over year it sounds like. So just what's the driver behind your core LNA strength and is this sustainable?

Fouad Maqool - (00:12:32)

Well, there's a need or more of a demand for all these, let's say cloud based systems. Right now they're actually ground stations that many companies like ViaSat and CPI and all the big guys are also supplying to Amazon, Google, they're all creating their own cloud systems. So when they do these cloud systems, they have to communicate from the satellite ground station to the satellites. So that requires the most, lowest noise figure amplifiers because range is very critical on all these satellite communications because lots of data is going through this. So the demand has increased in that way. So all these companies, they're looking for the best solution possible and we have the best solution in these LNA Core, LNA products. So that has increased. We're also picking up a lot of the business from competitors who have failed and do not have that performance. So we see an increase there. We will continue to see an increase also due to our new CRM system which is really seeking out potential customers, potential new customers that we've never had before. So all of these things lead to growth and will continue to lead to growth in this business.

Jack Vanderaarde - Analyst - (00:13:50)

Okay, great, great color there, Fuad. You know, next, most importantly, I really want to dig into the pipeline a bit more. You know, last quarter was around 66 million it sounded like. And now you just provided an update, sounds like it's grown, it's over 80 million. So maybe just a couple questions, I'll kind of go one by one. Just what's changed since last quarter that's contributing to that pipeline growth? Are you seeing more RFPs come in from prior trade shows? Are these larger customer orders than you previously thought? What's really been the difference there that's driving that increase since last time we spoke?

Fouad Maqool - (00:14:27)

Exactly a bit of both. We actually have gotten more RFQ, especially because of the. We're turning over a lot more leads from our CRM system. It's finding the key people that are responsible for the technical development of their systems. So the satellite operators, they have all the engineers that we need to connect to and they see the performance of our amplifiers, so they see the need right there. So part of it is just having a very good AI system, CRM system that finds the right people to connect to that really need our product. So that's one very good reason why we're getting increased RFQ activity and then closing some of those deals is the next part of it. So all of those deals have to start getting closed. And that's why we think that next year is going to be very pivotal for us. It takes time to build this kind of a base, takes time to digest the 80 million. It's growing because every person gives us an actual discussion on what their needs are going to be. It's either the number of satellites, the number of radio stations, number of radios that they need for their base stations, services Mimics that they're going to need thousands of MMICs in their application. When they get contracts from defense government or defense or private, you know, second tier suppliers, it trickles down to us and the value is there because that's going to increase our sales. So we're going to convert and start to convert all these leads which we didn't have before we started to implement this as we mentioned, you know, a couple of quarters ago.

Jack Vanderaarde - Analyst - (00:16:08)

Fantastic. And yeah, just, I mean just for a relative context, I mean over 80 million of potential pipelines, you know, that's, that's four times larger than your revenue last year altogether. So I mean it's significant increase for sure. Maybe just, just given for, for estimates sake and just near term expectations. I know that conversion rates are going to, you know, you're going to figure that out. But just in the near term, how does the third and the fourth quarter of this year kind of look relative to the first half of this year? Based on where you, where you see things playing out.

Fouad Maqool - (00:16:45)

But it looks like it's going to be consistent. We're going to still be around 4 to 5 million per quarter. That's what it looks like right now. But we're going to see obviously an increase in bookings towards the middle of the fourth quarter or so because we're working on a lot of deals right now that will be booked. But the conversion to revenues will be really starting in 24. And our numbers indicate at least 136% growth from the previous year. So that's basically just an estimate, but it's based on our actual requirements with customers that have given their requirements. So all these numbers that we have, we have actual numbers that are result of these customers being very interested. So it's not just a number. And you'll see that when these start converting, that's when you're going to really see that. But 24 is really an important year for us. It's really going to be the year where all of our best laid plans that we've done so far are going to come to fruition. This is what we've been doing. We've been trying to say that from the beginning when we raised money. We never said we're going to be profitable or great the first year or the second year. We had a three year to five year plan, we raised the money, we're building the foundation. We're almost complete now in this year for end of this year. And as we complete that, the most important part of it is that in 2024 you'll see that result. You'll see the start everything coming together and that's going to continue for the next three years.

Jack Vanderaarde - Analyst - (00:18:22)

That's great. And you just, you threw out a number there. I don't want to hold you to a specific number, but it sounds like you're pretty confident. Wherever revenue ends up in 2023, it sounds like you're thinking it's going to more than double next year. Over 100% growth. Is, is that a fair. Okay, that's a fair assessment.

Fouad Maqool - (00:18:39)

Okay, that's really excellent.

Jack Vanderaarde - Analyst - (00:18:44)

And then just maybe one, one last question. Just help us understand maybe just what the types of. I want to quantify and just kind of get more context of the pipeline. Over 80 million in the pipeline. Can you maybe just quantify or parse that out between what, like outline what those opportunities are between, you know, 4G tower upgrades versus your core LNA's versus Spectrum business. Just help us understand how we make sense of your pipeline.

Fouad Maqool - (00:19:11)

Sure. I can, I can touch over these, these numbers. Basically they're, they're coming from a various different sources. So we have our core LNA business. Right. Basically the corridor business. And about in 24 or so we're going to have a lot of revenue coming from LNA business. Some we're going to have semiconductor materials. That's going to go up. Spectrum is growing because of the NGK Electronics business that we're adding to it. That's going to be a very good Source. And in 24 we're still going to be about 29% contribution from spectrum because we continue, we expect that to grow, although it declined this year because of the international demand. We said that a couple of quarters ago. Also that we're going to make up and increase and scale up their business by adding this, the new product line NGK Electronics, which has about 80% of the world's market for packages for RF microwave packages. And that microwave packages feeds right directly into our microwave mimics. So it's working hand in hand. We'll have a 29% contribution of revenue in 24 from spectrum. Our core growth is going to grow as well, but mostly in 24. The AGTSS division should start showing revenue because there's a need for the customers. The MNOs. Some large names, I can't really say them right now, but they need these new radios. And we're in discussions with almost seven or eight different companies that need these 5G radios. Our radio itself in particular because of the advantages that it offers. And we're in discussion based on sites the number of sites, the locations. We're conservative right now. We were saying the first year or so, in 2024, we'll have about 10 sites that we will be supplying. Then we'll go to 50 sites the following year, and maybe 100 sites in the next year, third year. Each one of those sites, I'll just say.

Jack Vanderaarde - Analyst - (00:21:15)

Can I jump in right there and just ask you, you know, 10 sites, what does that mean? What is that kind of opportunity?

Fouad Maqool - (00:21:22)

Sure. So each site would have three of our radios in there. Right. So you'll see. You've seen all those towers where they have the triangular setup. The three radios cover 360 degrees. So where the new radios will go up. Three radios for each site, and each radio is approximately about $10,000 or so. That's just the hardware. And along with that site, you also have revenue from installation charges. So we have revenue that we charge for installing the entire site, all the radios. Then we have revenue, monthly revenue that comes from maintenance of all these sites. So all of these are adding up total revenue, basically around 5 million or so in 24. That's our estimate from AG. Just the AG TSS, just 5G.

Jack Vanderaarde - Analyst - (00:22:17)

Fantastic. That's helpful. Color. Yep, that's. And that's helpful. That's very helpful color. And just the pace. Maybe it's too early to tell, but just the pace or the speed of which you can execute or achieve those upgrades, like, let's say 10 for 10 sites. What's. How long would that take?

Fouad Maqool - (00:22:36)

So each site installation roughly is around three to four minutes, three to four months. But we can do several sites in parallel. And we're building our team to be able to service that. That's why we're very conservative here. Although we may book a lot more than doing the site, we may have booked much more than that, because sometimes some sites require maybe 1,000 radios. They want the whole thing. And eventually it'll take time to cover all those sites. But we're building our forest to do all that. But we have also relationships and collaborations that we've set up to help us achieve all this. We're not doing all of this by ourselves. We have partners that do the hardware, the software, the system integrators that actually go up there and put the radios in. So it's all a team effort. It's not that simple. But we have all of that planned out, and that's why it's taken a while to do. But it will happen. All start happening next year. And we also have revenue that we projected from Our new products, our RD has gone into making lots of new products that are actually lower cost per unit but lower labor cost. We've reduced the labor because we've taken our mimics, our very advanced mimics that no one really has with the low noise figures that we can use in our amplifiers themselves. So that reduces the labor that we put into each one of our amplifiers. That also translates into more profit. So every time we lower a cost, it will be more profit per product. And our entire goal, our strategy and these numbers will show that is to increase our top line, increase our gross margins and go after all the products that have higher gross margins, which in turn will give us higher bottom line.

Jack Vanderaarde - Analyst - (00:24:25)

Okay, that's great color. And if I can ask just one more question, then I'll hop back in the queue again. It's about the pipeline. I know obviously I respect that some customers and the potential orders in there want to be kept confidential, but can you just maybe give us a sense of how many total customers, how many individual customers that actually represents in the pipeline? Is it a handful? Is it 12, is it 30, is it 50? Just to give a sense?

Fouad Maqool - (00:24:54)

Well, these are all large customers, so we're not going after consumers right now. So they're basically large MNOs and large corporations that want private 5G networks. I would say between 15 and 20, roughly.

Jack Vanderaarde - Analyst - (00:25:07)

Okay.

Fouad Maqool - (00:25:08)

To begin with. And this is not limited to United States. We're doing global, global retrofits.

Jack Vanderaarde - Analyst - (00:25:18)

Got it. That makes a lot of sense. Well, congrats on the, on the strong. Momentum and I, and I look forward. To watching you guys execute. That's it for me.

Fouad Maqool - (00:25:25)

I appreciate it. I know everybody's waiting for, you know, the good, fantastic results. But we're working as we said, so we're going to be doing the milestones exactly as we have planned. You know, this year was a little bit of downturn, but that's, you know, that's expected to be up and down. But it's all part of building the bigger company, building and changing the pace of this corporate company so that we can be a much broader based solution provider.

OPERATOR - (00:25:58)

Again, if you have a question, you may press Star then one to join. The queue. While we assemble our roster. I'd like to turn the call over to Sean Sawant, please. Go ahead, sir.

Jeff Kobulars - (00:26:13)

Hey, thanks for the question. Jeff Kobulars from Diamond Bridge Capital. I'll be reading off your questions. Okay, so it's a two parter here. I'll start with the first one. So Jeff is asking, did NGK contribute at all to revenue or when or when will that distribution agreement result in revenue and what is the materiality of that distribution agreement? George, maybe you might be the best to answer this one.

George - (00:26:43)

Okay, yes, up to this point, you. Know we are in full preparation after. We inked the deal with them earlier this year. So we are doing a lot of feasibility studies for custom modifications on their housings. Also in roca, developing marketing campaigns, we are doing website updates, sales staff training and this is also working directly with ngk. So in norca a lot of items have to be in close coordination with. Their team as well. So all of these preparations, we believe we're going to be closing in by the end of 2023. So we are definite going to be able to release the first purchase orders to NGK by the end of the year and we expect deliveries to occur early in 2024. So definitely we believe that we will have meaningful NGK sales to occur in 2024.

Jeff Kobulars - (00:27:45)

Okay, thanks George. Following up on these questions, I also see company mentioned in the past that prospective customers were beta testing mimics. What were the results of those tests?

George - (00:28:05)

Well we have had a few companies that have approached us and actually bought some smaller quantities of the MMICs. They are still doing their own in process design at their own factories as well though we do have visibility into many of their programs, many of their projects. But you know though that you know the qualification and system design though takes takes a long cycle. So we are definitely patiently waiting for them to finish their efforts. Once they win we will be designing and then we will be ready to fill any orders that they need. This includes space applications, includes base applications. Yes.

Jeff Kobulars - (00:28:54)

Great. And then we can move on to this one on the pipeline, the sales opportunity of 66 million. Of course this has changed since then. When will these contracts be awarded to the winning bidder?

George - (00:29:10)

Well so what was mentioning too doynorca, we do have conversations with a lot of them and in many cases doy norca. We know that if they win, we. Will win as well.

Rose - (00:29:22)

Some of them we'll see in the near term but some of them are pushing out to the right. It's also because of the qualification beta testing that they themselves need to do with their own products. So it's very dynamic though, you know it's a very dynamic sales funnel that we have. But we do believe and we do expect that to be able to start closing some deals by the end of the year.

Jeff Kobulars - (00:29:49)

Thanks Rose. And we have one last question here. So given the weaker market for semis, the spectrum division should investors expect sales to decline year over year for the second half as well?

George - (00:30:04)

Yeah. So far though, Sean, if you've just seen in the semiconductors industry, the market is down at least 11% this year, so this definitely has affected our Spectrum Division cells. However, though, you know, look at the industry economists though, they do believe that this semiconductor industry is going to be bouncing nicely by about 18% in 2024. So we do believe that our Spectrum Division is going to be able to recover some of the lost sales due to the software demand, and we are also scaling them up with the NGK opportunities.

Jeff Kobulars - (00:30:46)

Thanks for clarifying on those. So with that, that concludes the Q and A I had in my email. Joe, I'll turn it back over to you.

OPERATOR - (00:30:56)

Thank you. And that will also conclude the live Q and A portion for today's call. I will now turn the call back over to Fawad macbool for any closing remarks.

Fouad Maqool - (00:31:06)

Thank you and thanks to everyone who joined today's call to hear about 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 on our Q3 financial results call in mid November. Until then, please contact us directly should you have any questions or wish to schedule a call with management. Our investor relations team can be reached at the contact information listed at the bottom of our press releases. Thank you and be well.

OPERATOR - (00:31:40)

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.