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Akoustis 1Q24 results and more debt tremors -3

08:52 13-Nov-23

The Akoustis conference call started late and ended early.  Management is targeting 20% OpEx reduction, which should be fully realized by March.  However, it could not specify a revenue level for breakeven due to uncertain product mix.

For government interaction, the DoD did not select tech hub proposal from the company, but it is a member of the upstate NY tech hub consortium that did win.  The company's pre-application to Dept. of Commerce for expansion requires revision, and the ITC tax refund should be in the high $3M range over the next 18 months.  There is also a Phase II DARPA contract for $4.8M through end of next year.

Management characterized activity in the private sector as strong for CBRS, but slow otherwise, though it expects 5g to recover in March.  I'm more inclined to trust MACom's outlook, which sees no end in sight to current weakness.  In particular, an American tier 1 milestone moved back due to delayed marketing by the customer, which is quite possibly the WiFi 7 router for Lumen's fiber.  There were no new shipments to the tier 1 customer in China, which underscores my concerns about that market.  No WiFi 7 retail router activity is expected until 2H24, which is unfortunate since those can have quadruple the # of filters we'd see in WiFI 6 counterparts.

In summary, AKTS deserves its sub-dollar pricing, and though it's possible it could plow through to profitability on its own, I continue to think external funding is the best hope for shareholders.  That said, I think the current pricing also accurately reflects the prospects, and thus I am holding my remaining GRoDT-sized positions.

Akoustis has reported results for its fiscal first quarter:

• a loss of 27 cents per share misses by 9 cents
  
• from $7.0M of revenue, which misses by $0.1M
• guides 2Q24 to flat revenue followed by 18-25%, which misses by $0.2M
• guides 3Q24 revenue to $8.5M, which misses by $0.2M

Cost control is coming somewhat late, but more importantly, revenue has flattened since the China scare.  That's going to be tough to overcome without external funding since China has supported its real economy by building out 5G infrastructure to an extent that is unprecedented among large nations. 

The contrast with the American economy, which is largely based on services of questionable value, is unmistakable.  On Friday night, Moody's changed its outlook on American debt to negative.  It is the last major agency with a top credit rating for the country.  There's no doubt about the debt situation, and currencies showing showing no real response just below €/$1.07 affirms that this is priced in.

It may actually be vaguely good for stocks as an alternative to government debt, but I'm talking profitable companies with solid balance sheets and yield to offer, not Akoustis, which is down to $25.8M in cash, from $43.1M last quarter.  However, management says the burn rate should be below $8M this quarter and $6M for March.  This in combination with growth and an ITC Chips refund is supposed to get the company to cash flow breakeven in under a year.  I note from the 10-Q that while product sales are still dominated by Asia, fabrication services in the Americas did jump this quarter, lending at least a little credibility to that story.

For the broader market, tomorrow's CPI will matter much more for the general market, because governments can change rates at will any time.  That in combination with monthly options expiration and the possibility of Congress shutting down the government may still lead to extra volatility this week.

The conference call is at 8am, and I am likely to follow up on at least the ITC refund which management did not specify the amount of.

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