OTC:POETF | TSX:PTK.V
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POET (OTC:POETF) (TSX:PTK.V) has been trying to show customers the radical improvements its platform can offer them and will be providing demos with its partner Siluxtek at its labs located near the China International Optoelectronics (CIOE) trade show. This show is being held September 16-18 in Shenzhen. It is the world’s leading optoelectronic exhibition and more than 3,200 exhibitors will present the entire optoelectronic ecosystem there including information and communication, precision optics, sensing, lasers, infrared and photonics.
At this show the two will demo the 400G FR4 transmit optical engine and samples will be available beginning in Q1 2022. Its 400G receive optical engine will also be demonstrated at the show. While the 100G CWDM products sold into China will generate the first revenues for the joint venture, the 400G FR4 product is expected to provide the first revenues direct to POET possibly by Q3 2022.
While POET’s 100G CWDM4 optical engine will be the first product to ship it will be the lower margin, higher volume product for the company as a transceiver module sells for about $150 in that market. POET’s solution could bring the transceiver price down to near $100 and might generate $50 - $75 per unit sold. However its LR4 engines (long range) are going into product that costs three times more and POET’s ASP will he much higher and margins will be much higher. Plus more than one of POET’s 100G LR4 engines can go in a module. A single 100G LR4 transceiver costs as much as $350, with POET’s pricing for its optical engine being about $150 per unit in low volumes. With two 100G optical engines that could be $300 and POET believes it can engineer up to 4 engines in a module for $500-$600. At a 50% margin is could make a gross margin of $250-$300 per unit compared a $25-$30 per unit gross margin of the 100G CWDM4.
According to LightCounting, both the 100G CWDM4 and the 100G LR4 annual market sizes were similar at $660 million for the former and $556 million for the latter. Given that POET has huge flexibility in pricing and its competition can not physically get their prices any lower because they do not have an integrated solution, POET expects to dominate the market for LR4. Besides the cost advantage POET’s design also uses 10% to 15% less power, and is smaller.
Q2 2021 Earnings Report
POET generated its first revenue, booking $209,100 in non-recurring engineering (NRE) fees for a specific optical interposer design project for the optical computing module.. We expect POET could book another NRE before year-end from a different customer in a different vertical market at a similar dollar amount. Product revenues might start in Q3 2022 from POET customers, not the joint venture customers, and might be orders from outside of China for LR4. Any orders received by the joint venture are expected to be reflected in “share of JV operations” not as revenue and could start being booked earlier than that, perhaps in Q2 2022.
R&D expenses were up $562,000 from last year and up $473,000 from Q1 2021. We expect them to be somewhat lumpy as different expenses hit different quarter as the company moves to production. Wages and benefits decreased by $222,732 (27%) to $593,280 in Q2 2021 from $816,012 in Q1 2021. In Q1 2021, the company paid a bonus of $250,000 to certain employees. Stock-based compensation was up $200,000 compared to last year. Total expenses were $4.1 million compared to $3.3 last year and $3.9 in Q1 2021. We expect the company to continue to increase spending as it approaches its production ramp.
In Q1 2021, the company paid $235,000 in interest expense, and that declined to $95,000 in Q2 as the convertible debentures converted. Since they are mostly gone, we expect interest expense to approach zero going forward.
The net loss was $4.2 million down from $6.2 million in Q2 2020. This resulted in an IFRS loss per share of $0.01 per share and a non-IFRS loss of $0.01 per share, compared to a loss of $0.02 and non-IFRS loss of $0.01 last year. Shares outstanding increased 10.8% to 345.3 million. As of August 11, 2021 there were 351 million shares outstanding, or 389 million shares fully diluted.
Balance Sheet
POET Technologies ended the June quarter with $21.9 million in cash and $171,185 in convertible debentures. Working capital was $19.7 million. POET received $1.6 million from the exercise of stock options and warrants during the quarter and convertible debenture holders converted $1 million of convertible debentures into 3.1 million units (one share plus one CN$0.50 warrant.)
If the company burns $3.5 million per quarter, that should get it six or seven quarters of runway even without any revenues. That would be beyond the end of 2022 by which time we expect it to be generating meaningful revenues. Any revenue between now and then will get it even further. There are now 351 million primary shares outstanding and 389 million fully diluted, as well as 70 million warrants and options outstanding that are in the money, which could raise an additional $24 million dollars. The company expects that at the least the $0.39 warrants which expire November 2nd will bring in an additional $5.5 million. It believes that it needs approximately $27 million in cash to get through the next two years.
The company has filed a $300 million shelf offering, is talking to bankers, and is on tracked to be listed on NASDAQ in Q4 2021 or Q1 2022.
During the Quarter
On April 6, 2021, POET granted 4,831,250 options, exercisable for 10 years, at CAD$1.19, to directors, employees and consultants.
On April 22, the company announced it had completed the design of a 100G LR4 (4 channel Long Reach) optical engine with a reach of 10 kilometers for client-side interconnects to data centers, enterprises, and edge computing networks.
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