Akoustis Technologies(AKTS) - 2022 Q4 - Annual Report

Part I Business Akoustis Technologies, Inc. develops and manufactures RF filter solutions using proprietary XBAW™ technology for wireless applications, operating as a pure-play supplier - The company's core business is developing and manufacturing RF filter solutions using its proprietary XBAW™ technology for high-frequency applications like 5G and WiFi[19] - Akoustis operates an integrated device manufacturing (IDM) model with its own 120,000-square foot wafer-manufacturing facility in Canandaigua, New York[19][21] - The acquisition of RFM Integrated Device, Inc. (RFMi) expanded the company's portfolio to include complementary SAW resonators, crystal oscillators, and other components, operating under a fabless model[19][254] - As of August 31, 2022, the company's intellectual property portfolio included 67 issued patents and 117 pending patent applications covering its XBAW RF filter technology[22][72] - The company's commercialization strategy involves providing standardized catalog filters, designing custom filters to customer specifications, and offering design kits for customers to create their own filters using Akoustis's technology[23][25] Recent Developments Akoustis achieved key milestones in FY2022-Q1FY2023, including 5G mobile filter shipments, WiFi 6E design wins, RFMi acquisition, and a new DARPA contract - Shipped first 5G mobile filters using advanced wafer-level-packaging to a tier-1 RF component company[29] - Received multiple design wins and volume orders for WiFi 6 and WiFi 6E XBAW™ filters from various customers, including a tier-1 personal computing chipset customer[29][30][31] - Acquired a majority position in RFMi, a fabless supplier of acoustic wave resonators and filters, in October 2021[30] - Received purchase orders from new tier-1 5G mobile customers and engaged with a third mobile customer, an RF front-end module maker[30][31] - Signed a new multi-year Defense Advanced Research Projects Agency (DARPA) contract in June 2022 to advance XBAW technology[32] Financing The company funded operations in FY2022 through $28.2 million from ATM equity offerings and $44.0 million from convertible notes, with current cash sufficient for over twelve months - In fiscal year 2022, the company sold 4,178,318 shares of common stock through its ATM Equity Offering Programs, raising aggregate gross proceeds of approximately $28.2 million[35] - In June 2022, the company issued $44.0 million of 6.0% Convertible Senior Notes due 2027, with an initial conversion price of approximately $4.71 per share[36] - The company expects that its current cash and cash equivalents are sufficient to fund operations for more than twelve months from the filing date of this report[34] Research and Development R&D expenses increased to $35.7 million in FY2022, driving advancements in 5G, WiFi, and defense markets, securing thirteen WiFi design wins and a second DARPA contract R&D Expense Trend | Fiscal Year | R&D Expense (in millions) | | :--- | :--- | | 2022 | $35.7 | | 2021 | $24.1 | - The company has five active customer engagements in the 5G mobile sector, including with tier-1 and tier-2 RF module makers, with pre-production expected to begin in early calendar 2023 for the first filter[56] - Significant progress was made in the Wi-Fi portfolio, with the number of Wi-Fi design wins increasing to thirteen by January 2022, driven by the new spectrum available for Wi-Fi 6E[58][59] - In the defense market, the company was awarded a second DARPA contract in April 2022 to advance its XBAW technology to 18 GHz[63] - As of the report date, Akoustis has 21 commercial XBAW filters in its product catalog, targeting Wi-Fi, 5G infrastructure, and defense applications[64] Competition The RF filter market is dominated by Broadcom and Qorvo, with Akoustis competing as a pure-play supplier, while RFMi targets niche Xtal markets like Industrial IoT - The high-band BAW filter market is dominated by Broadcom Corporation and Qorvo, Inc[75] - Akoustis competes by positioning itself as a pure-play filter supplier, aiming to offer performance advantages over the full frequency range at competitive costs[76] - The Xtal market is more mature and competitive; RFMi products focus on niche markets like Industrial IoT and professional audio to reduce direct competition with larger players[78] Risk Factors The company faces significant risks in business operations, intellectual property, financial condition, and regulatory environment, including limited operating history, high competition, and ongoing litigation Risks Related to our Business and the Industry The company's business faces risks including limited operating history, persistent losses, intense competition, manufacturing challenges, and supply chain disruptions from COVID-19 - The company has a limited operating history and has incurred operating losses since inception, making it difficult to forecast future prospects[92][95] - The COVID-19 pandemic has negatively impacted the business by disrupting the supply chain, altering sales activities, and causing delays in customer product development[107][108][111] - The semiconductor industry is highly competitive and subject to rapid technological change, requiring constant innovation to avoid product obsolescence[112][113] - The company faces risks associated with operating its single manufacturing facility in Canandaigua, NY, including challenges in scaling production, maintaining yields, and managing fixed costs[118][134] - Global semiconductor supply shortages have disrupted the supply chain, leading to increased lead times and higher costs for necessary components like wafers and substrates[122][123] Risks Related to Our Intellectual Property Akoustis's success depends on protecting its intellectual property, facing risks from unissued patents, potential infringement claims, and ongoing litigation with Qorvo, Inc - The company's long-term success depends on its ability to obtain, maintain, and enforce its intellectual property rights, but there is no guarantee that its pending patent applications will result in issued patents[170][171] - The company is subject to claims of infringement from third parties. On October 4, 2021, Qorvo, Inc. filed a lawsuit alleging patent infringement, false advertising, and unfair competition[186][188] - An adverse outcome in the Qorvo litigation could require Akoustis to pay substantial damages, cease manufacturing certain products, or obtain a license, which may not be available on reasonable terms[187][188] Risks Related to our Financial Condition The company has a history of losses and increasing expenses, requiring substantial additional funding and facing challenges servicing its $44.0 million convertible debt - The company has a history of losses and expects operating expenses to increase, requiring substantial additional funding to continue operations[191][192] - The company incurred $44.0 million of indebtedness through a convertible note offering in June 2022, and servicing this debt could strain cash flow and restrict business activities[195] - Future capital raising efforts may not be available on acceptable terms, and if achieved through equity sales, could result in significant dilution to existing stockholders[194] Properties Akoustis's corporate headquarters is in Huntersville, NC, with a wholly-owned MEMS fabrication facility in Canandaigua, NY, and additional leased properties in Texas and Taiwan through RFMi - The company's headquarters is located in a 22,400 sq. ft. leased facility in Huntersville, NC[237] - Akoustis owns a 120,000 sq. ft. MEMS fabrication facility in Canandaigua, NY, acquired in June 2017[237] - Additional leased properties include facilities in Carrollton, Texas, and Taiwan, assumed through the RFMi acquisition and a new lease agreement[237][238] Legal Proceedings The company is involved in a significant legal proceeding initiated by Qorvo, Inc. on October 4, 2021, alleging patent infringement and unfair competition, which Akoustis intends to vigorously defend - The company is a defendant in a lawsuit filed by Qorvo, Inc. on October 4, 2021, alleging patent infringement and other claims[239][434] - Qorvo seeks an injunction and unspecified damages. Akoustis considers the lawsuit to be without merit and is defending against it vigorously[434] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities The company's common stock trades on Nasdaq under "AKTS", with 57,204,697 shares outstanding as of September 6, 2022, and no dividends anticipated, with earnings retained for growth - As of September 6, 2022, there were 57,204,697 shares of common stock issued and outstanding[242] - The company has never paid cash dividends and does not plan to in the foreseeable future[243] Outstanding Equity Awards as of June 30, 2022 | Award Type | Number of Shares | | :--- | :--- | | Warrants | 41,103 | | Options | 3,020,002 | | Restricted Stock Units | 2,177,585 | Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, revenue increased to $15.4 million while net loss widened to $59.0 million due to higher costs and R&D, though $80.5 million cash provides over twelve months of liquidity Results of Operations For FY2022, revenue increased 133% to $15.4 million, but net loss widened to $59.0 million due to higher cost of revenue, 48% increased R&D, and rising G&A expenses Fiscal Year 2022 vs. 2021 Financial Results (in millions) | Metric | FY 2022 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $15.4 | $6.6 | +$8.8 | | Cost of Revenue | $19.5 | $10.7 | +$8.8 | | R&D Expenses | $35.7 | $24.1 | +$11.6 | | G&A Expenses | $20.7 | $13.3 | +$7.4 | | Net Loss | ($59.0) | ($44.2) | +($14.8) | - The $8.8 million revenue increase was primarily due to a 258% increase in RF product revenue, which includes sales from the acquired RFMi business[270] - R&D expenses grew by 48% year-over-year, driven by a $5.0 million increase in personnel costs, a $2.7 million increase in facility costs, and a $4.2 million increase in material costs[272] Liquidity and Capital Resources As of June 30, 2022, cash was $80.5 million, a $7.8 million decrease, driven by operating and investing outflows offset by $27.6 million from stock and $43.7 million from convertible notes Cash Position and Working Capital (in millions) | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Cash on Hand | $80.5 | $88.3 | | Current Assets | $91.7 | $93.2 | | Current Liabilities | $12.4 | $7.2 | | Stockholders' Equity | $103.4 | $117.4 | Cash Flow Summary (in millions) | Activity | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating | ($45.2) | ($29.4) | | Net Cash Used in Investing | ($34.9) | ($12.5) | | Net Cash Provided by Financing | $72.3 | $85.8 | - Financing activities in FY2022 included $28.2 million in gross proceeds from ATM equity offerings and $44.0 million from a convertible note issuance[281][282] Financial Statements and Supplemental Data Audited consolidated financial statements for FY2022 and FY2021 detail the company's financial position, operations, equity changes, and cash flows, reflecting the RFMi acquisition and financing activities Consolidated Balance Sheets As of June 30, 2022, total assets increased to $161.3 million from $125.0 million due to property, goodwill, and intangibles from RFMi, while liabilities rose to $57.9 million primarily from convertible notes Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $80,485 | $88,322 | | Total current assets | $91,731 | $93,196 | | Property and equipment, net | $51,157 | $30,730 | | Goodwill | $8,051 | $0 | | Total Assets | $161,338 | $124,994 | | Liabilities & Equity | | | | Total current liabilities | $12,658 | $7,265 | | Convertible notes payable, net | $43,731 | $0 | | Total Liabilities | $57,908 | $7,584 | | Total Stockholders' Equity | $103,430 | $117,410 | Consolidated Statements of Operations For FY2022, revenues were $15.4 million with a net loss of $59.0 million ($1.09 per share), compared to FY2021 revenues of $6.6 million and a net loss of $44.2 million ($1.02 per share), driven by increased operating expenses Consolidated Statement of Operations Summary (in thousands, except per share data) | Account | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Revenue | $15,350 | $6,618 | | Gross profit (loss) | ($4,137) | ($4,033) | | Research and development | $35,708 | $24,076 | | General and administrative | $20,710 | $13,285 | | Loss from operations | ($60,555) | ($41,394) | | Net Loss attributable to common stockholders | ($59,027) | ($44,156) | | Net loss per common share | ($1.09) | ($1.02) | Consolidated Statements of Cash Flows For FY2022, net cash used in operating activities was $45.2 million and investing activities $34.9 million, offset by $72.3 million from financing, resulting in a $7.8 million cash decrease to $80.5 million Consolidated Statement of Cash Flows Summary (in thousands) | Cash Flow Activity | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($45,195) | ($29,364) | | Net Cash Used in Investing Activities | ($34,942) | ($12,491) | | Net Cash Provided by Financing Activities | $72,300 | $85,769 | | Net (Decrease) Increase in Cash | ($7,837) | $43,914 | | Cash at End of Period | $80,485 | $88,322 | Note 7. Business Acquisition Akoustis acquired 100% of RFMi in two tranches for $14.8 million, allocating the purchase price to intangible assets and goodwill, with the acquisition contributing $5.7 million in revenue in FY2022 - The company acquired 100% of RFMi in two tranches (Oct 2021 and Apr 2022) for a total consideration of $14.8 million[376][379] Purchase Price Allocation (in thousands) | Item | Value | | :--- | :--- | | Total consideration | $14,761 | | Intangible assets | $9,452 | | Goodwill | $8,051 | | Net tangible assets acquired | ($854) | - The acquisition contributed approximately $5.7 million in revenue and a loss from operations of approximately $0.4 million in fiscal year 2022[384] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 30, 2022, with no material changes during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[469] - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2022, based on the COSO framework[471] - No material changes were made to the internal control over financial reporting during the quarter ended June 30, 2022[472] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information for Items 10-14, covering directors, executive officers, corporate governance, compensation, security ownership, and related transactions, is incorporated by reference from the company's 2022 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) is incorporated by reference from the company's 2022 Proxy Statement[474][475][476][477] Part IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and an index of all exhibits filed with the Form 10-K, with financial statement schedules omitted as not applicable - This part contains the list of financial statements, financial statement schedules (which are omitted), and an index of exhibits filed with the Form 10-K[479][481][484]