Akoustis Technologies, Inc. (NASDAQ:AKTS) Q4 2019 Results Conference Call August 26, 2019 10:00 AM ET

Company Participants

Tom Sepenzis - VP, Corporate Development and IR
Jeff Shealy - Founder and CEO
Ken Boller - Interim CFO
Dave Aichele - VP, Business Development

Conference Call Participants

Anthony Stoss - Craig-Hallum Capital Group
Cody Acree - Loop Capital Markets
Matt Farrell - Piper Jaffray
Suji Desilva - ROTH Capital Partners
Wei Mok - Oppenheimer & Company

Operator

Good day, ladies and gentlemen and welcome to the Akoustis Technologies Business Update Conference Call. As a reminder, this conference call is being recorded. At the conclusion of the Company's presentation, Akoustis’ management will take questions. [Operator Instructions] A replay of the call will be available on the Investor Relations section of the Akoustis website.

I’ll now turn the call over to Tom Sepenzis, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Tom Sepenzis

Thank you, operator, and good morning to everyone on the call. Welcome to Akoustis fourth quarter fiscal 2019 business update conference call.

We are joined today by our Founder and CEO, Jeff Shealy; Interim CFO, Ken Boller and VP of Business Development, Dave Aichele.

Before we begin, please note that today's presentation includes forward-looking statements about our business outlook. All statements other than statements of historical facts included during this conference call including statements regarding our strategies, operations, cost, plans, and objectives, estimates of market size, and guidance regarding expected revenue for the current fiscal quarter are forward-looking statements. Such forward-looking statements are predictions based on the Company's expectations as of today and are subject to numerous risks and uncertainties. The Company and our management team assume no obligations to update any forward-looking statements, made on today’s call. Our SEC filings mention important factors that could cause actual results to differ materially. Please refer to our latest Form 10-K filed with the SEC to get a better understanding of those risks and uncertainties.

I would now like to turn the call over to Jeff Shealy, Founder and CEO of Akoustis.

Jeff Shealy

Thank you, Tom, and welcome everyone to our fourth fiscal quarter and year-end business update call. The June quarter capped an exciting fiscal year for Akoustis as we continue our transition from an R&D focused company to a commercial manufacturing company. With the recent design lock of our 5.6 gigahertz WiFi filter that we announced in July, we enter FY20 with the world’s first tandem 5 gigahertz WiFi BAW micro-filter solution, paving a path into high-volume filter market, with the goal of delivering significant revenue growth over the next 12 months and beyond.

We also took a significant step towards penetrating the mobile handset market, as we received our first 5G development order and delivered samples to a multi-billion dollar Tier 1 wireless telecommunications company that is a global leader in the handset industry. The mobile handset market is our largest potential BAW filter market opportunity by both unit volume and revenue. Given the performance of this first 5G mobile filter, our Tier 1 customer responded earlier this quarter with a new order to develop two additional 5G filters in the ultra-high band spectrum. To be clear, all three filters target the performance and form factor for the 5G handset market.

With respect to the call today, I have organized my comments into five sections: First, technology overview and market focus; second, a brief recap of the strategic highlights during the first half of calendar 2019; third, June quarter achievements and commentary; fourth, September quarter milestones; and finally, milestones beyond the September quarter. I will start with the technology overview and market focus.

Akoustis was founded in 2014 on the premise that by utilizing advanced single crystal piezoelectric material we could create a unique manufacturing process to produce a new class of high-performance BAW RF filters that would exhibit differentiated and superior performance in the ultra-high-band frequency spectrum. Today, Akoustis produces some of the most advanced piezoelectric materials and resonator to address high-performance RF filter application.

What differentiates Akoustis is a unique and patented materials and process technology, which we have branded and trademarked XBAW, a product currently target applications to operating in the 1 to 7 gigahertz frequency spectrum in the growing WiFi wireless network infrastructure, mobile handset and defense markets. Each application requiring characteristics that could include high-frequency, high-power handling, wide bandwidth, reduced form factor or any combination thereof.

Next, I’d like to briefly summarize highlights pertaining to our XBAW technology. First, XBAW is a unique and flexible RF filter wafer process technology, which can address a broad range of applications and frequencies. Our XBAW resonator process delivers wide bandwidth and low loss, supporting true coexistent performance at the high frequencies required for both WiFi and 5G. I'm pleased to report the continued expansion of our IP portfolio with the new foundational patent issued in mid-July related to the manufacturing process of our XBAW resonator filter technology which we produced exclusively in our New York wafer fab.

Since the very early days at Akoustis, we have been amassing what we believe is both a substantial and valuable portfolio of intellectual property, which as of today includes, 23 patents granted to the Company, a license or option to three more granted patents, 49 patents pending, and numerous proprietary, unpublished trade secrets, and knowhow based upon a novel combination of high-performance, piezoelectric nano materials combined with our unique MEMS-based wafer manufacturing flow.

We believe our growing IP portfolio, both in issued and pending patents as well as unpublished trade secrets represents significant value for our shareholders.

Second, our single-crystal XBAW filters exhibit up to 2.3 times higher power handling capability over the same filters constructed using polycrystalline piezo material. Higher power handling is important because it translates into higher reliability and can enable new applications for micro-filter technology including used in new 5G network infrastructure.

Third, our highly engineered piezoelectric materials fabricated in our XBAW wafer process have recently produced the industry's first, 5.6 gigahertz WiFi coexistence filter, which exhibits a bandpass frequency of over 450 MHz in a form factor 23 times smaller than incumbent dielectric resonator or so called, DR filter technology.

We believe this high frequency wide bandwidth coexistence filters demonstrate the high-performance nature of our patented 5G filter technology, and we plan to publish these technical results in an industry form in the near future.

Akoustis operates an integrated device manufacturing or so-called IDM business model. Our model involves the design and manufacturing of XBAW RF filters and combines nano materials, novel MEMS wafer processing, high accuracy frequency trimming, acoustic device modeling and RF filter IC design. It allows cost-effective, turnkey integrated RF BAW filter solution to be developed quickly without margin stacking or risky supply chain delays. Our ability to deliver product with short-cycle time is a key attribute in our business model. Our products are sold both direct and through distribution channel.

Next, I will summarize our end-market focus. As I noted earlier, we are currently targeting applications in the growing WiFi access point, wireless network infrastructure, 5G mobile device and defense markets. Our product focus resides in the sub 7 gigahertz spectrum where we can provide superior selectivity using our coexistence RF filter solution. Our market model remains unchanged since last quarter where we estimated our total addressable market is approximately $3.7 billion in 2018 and is expected to rapidly expand to $5.4 billion by 2021, based upon Mobile Experts 2018 report, ABI 2018 report and Akoustis’ internal estimates.

The BAW filter market remains dominated by two multibillion-dollar RF module companies, which together have controlled 4G, LTE, wireless. However, it is worth noting that we are currently the only company in the world which is providing BAW RF filter solutions in several of the challenging 3 to 7 gigahertz bands, where 5G and WiFi are expected to rapidly grow.

Next, I would like to take a moment to recap some of the important milestones achieved during the first half of calendar 2019, as we continue our transition into a commercial stage product company with multiple attractive markets requiring premium performance RF filters. One of the most important milestones achieved in the first half of calendar 2019 was the commencement of commercial revenue from the sale of our 3.8 gigahertz filters for a defense radar application. We began with initial filter prototype revenue from this product in September 2018 to successfully shipping multiple production orders during first half of 2019.

Second, during the first half of calendar 2019, we have made tremendous progress on our 5.2 gigahertz filter with multiple preproduction and distribution shipment, multiple SoC engagement, signing on RF global leader channel partner and shipment in excess of 80,000 units. Our 5.2 gigahertz filter engagement supports reference designs up to 8x8 multiuser MIMO radio.

Third, we successfully transitioned from a first iteration wide band 5.6 gigahertz WiFi filter, which we started sampling last December, to a higher performing second iteration which exhibits a 450 megahertz wide passband and uses the identical supply chain as its 5.2 gigahertz tandem part. We recently announced this part as design lock and we are now focused on customer deliverables.

Fourth, in infrastructure, we have continued progressing with development of both small cell and massive MIMO filter solution. In March, we delivered our first iteration 5G CBRS 3.6 gigahertz filter solution to a customer. We expect to announce an update in the future on a higher forming second iteration CBRS filter design that we have engineered while the market and our engagements are developing.

Furthermore, the first half of 2019 also saw samples of our massive MIMO filter power chip to a multibillion dollar Tier 1 infrastructure OEM we announced during the second half of 2018. While we have been relatively quiet regarding this opportunity, I'm happy to report that now we see our engineering efforts paying off. The market insertion point for these 5G network filters is beginning to crystallize and we are focused on achieving material shipments of our unique high power 5G network filter solutions as early as mid-2020.

Finally, as we look back, I believe hindsight may show that the first half of calendar 2019 represented our first true 5G development in a chip scale package, which can be integrated into an RF front end. We believe this potential opportunity in mobile handsets traces back to our 5 gigahertz WiFi sampling activity in 2018 and is further proof of our technology leadership and ultra-high-band spectrum. Overall, as of today, we are tracking 14 priority filters through our new product introduction system compared to 12 filer products tracked at this time last quarter.

Next, I'd like to move on to achievements during the June quarter. For the June 2019 quarter, we previously highlighted the following five milestones. First, for our WiFi coexistence filters, we stated that we expect to deliver fully qualifiable 5.6 gigahertz filters by the end of the June quarter and ship our first preproduction order. While we were unable to achieve this milestone by June 30th, we did announce our design lock by the end of July and are currently shipping preproduction 5.6 gigahertz filters in tandem with our 5.2 gigahertz co-existent filters to our first 10 potential customers. As of now, we offer the industry’s first and only tandem 5.2 gigahertz, 5.6 gigahertz BAW, WiFi coexistence filters for tri-band routers and other devices, opening the door to our first high-volume consumer market.

Second, in 5G mobile, we stated that we would receive a sub-6 gigahertz RF filter development order for 5G handsets. I'm happy to report that we were able to deliver this milestone in early May with the bonus of also delivering our first 5G filter samples to the customer before the end of June. As I discussed earlier on the call, we recently received a follow-on order for two new additional 5G mobile filters from this customer. We’re currently exploring ways to work together to deliver high-volume filters for the 5G mobile market.

We also stated that we would deliver our first working demonstrator of our wafer level package technology with the 5.2 gigahertz filter by the end of the June quarter. While we did successfully receive early mechanical sample from our packaging supplier, during the June quarter, we have made the decision to switch the production of our wafer level packaging or WLP to an alternative supplier that specializes in in-house WLP manufacturing. We expect to have the WLP samples in the next three months, with fully qualifiable versions long before we need them for the mobile handset market. It is worth noting that we see opportunities to leverage our mobile customer’s micro package solution, which would increase our confidence in achieving this milestone.

Our third objective was to deliver 5G infrastructure samples to potential customers. Our 5G network infrastructure opportunity began with one multi-billion dollar Tier 1 customer we began working with in 2018 that has since helped us from the development of small cell massive MIMO XBAW filters. That customer selected Akoustis in large part, due to our superior power handling capabilities. We are currently negotiating specs with this customer and identifying the customer’s product platforms and timing for XBAW filter insertion.

During the June quarter, we were approached by an additional 5G network infrastructure provider, looking to supplement carrier networks with small cell base stations that are smaller than massive MIMO base stations. These small cell base stations are expected to operate short distance and more densely populated areas. From early conversations, we believe that filtering requirements for small cell base stations are not as stringent as those for massive MIMO, nor is demanding in terms of power handling. We expect to comment about product sampling and design wins in future updates.

Our fourth milestone for the June quarter was the delivery of our 3.8 gigahertz filters against all open production orders from our defense customer. I'm happy to report that our supply chain is now aligned with this customer’s requirement and we were able to deliver all outstanding orders for the 3.8 gigahertz filter. We expect new orders in the future for the current 3.8 gigahertz product. And we plan to support this customer with this product in new defense programs as well.

Our last milestone for the June quarter involves receiving a new order from our defense customer for a new band. I'm equally pleased that after successfully delivering the 3.8 gigahertz product and fulfilling all open orders, our defense customer decided to expand our relationship, and in mid-July ordered the development of five new S-band XBAW filters that will operate in the 2 to 4 gigahertz spectrum. We expect to develop these filters during the second half of calendar 2019 and expect delivery for preproduction in early calendar 2020.

I would now like to touch on our new investor milestones for the September quarter. At the beginning of each quarter, our management team assembles key objectives for the current quarter. Here are the top five objectives for the September quarter. First, we plan to deliver fully qualifiable 5.6 gigahertz WiFi filters by the end of the September quarter. The 5.6 gigahertz filter remains the most important near-term product to position us to penetrate the WiFi CPE market as the 5.6 gigahertz filter works in tandem with our existing 5.2 gigahertz WiFi product. We have significant interest in our tandem XBAW filter solutions from multiple OEMs, ODMs and SOC companies. While this was originally slated to be completed by June 30th, I'm pleased to report that we were able to deliver a lock design by the end of July.

Second, we expect to ship our first two preproduction orders for our 5.6 gigahertz WiFi filters by the end of the September quarter. These orders include the 50,000-unit order from a leading global RF manufacturer as well as a multibillion dollar global SOC vendor in WiFi and other devices.

Third, we expect to demonstrate our first wafer level packaging or WLP solution using our 5.2 gigahertz WiFi filter solution. We view that delivering WLP capability is a crucial step in delivering solutions that are ideally sized for the mobile handset market where space is an absolute premium. Today, WiFi in mobile handsets is limited to dual-band as there is no BAW filter solution that allows tri-band coexistence. We believe we are on a path to provide the tri-band microfilter solution compatible for handsets. While this milestone was originally slated for the June quarter, it was deprioritized for two reasons. First, our packaging partner was outsourcing process steps to a third-party, which increased cost. At this point, our partner is now moving to in-source process steps for XBAW, and we currently expect WLP RF filters later this calendar year. Second, our 5G mobile Tier 1 wireless telecom customer offered us their internal package solution, and we expect to take advantage of this proven and qualified technology.

Fourth, we expected to receive a development order for at least one additional 5G mobile frequency from our existing telecommunications customer. Our initial samples were well-received, and we believe this 5G customer would expand the relationship to include at least one additional 5G mobile frequency in the September quarter. I'm happy to report that we announced a purchase order for two new filter designs from our first 5G mobile customer in early August. We expect to deliver these new filter samples to the customer by the end of December.

As the ultra-high band 5G new radio frequencies reside between 3 gigahertz and 5 gigahertz and WiFi resides between 5 gigahertz and 6 gigahertz, future filter solutions to resolve coexistence issues in 5G mobile handsets are right in our sweet spot. We have already developed commercial filter product at 3.8 gigahertz, 5.2 gigahertz and 5.6 gigahertz, proving that we can produce BAW RF filters at the higher frequencies associated with 5G. As a result, we are in discussions with multiple large mobile handset companies seeking access to high frequency coexistence filters technology for 5G mobile applications.

Finally, we expect to ship samples of our XBAW 5G infrastructure filter to our Tier 1 wireless customer for massive MIMO base stations. We have been in development with this customer for over six months and continue to produce new samples as we improve our filter and power performance, in line with the customer’s stringent specifications. The customer met with our engineering and operations team earlier this quarter. As a result of that meeting, I'm happy to report, we are currently working together to identify one or more platforms for product insertion of one or more of our 5G infrastructure filters.

Next, I will touch on our long range milestones. We are focused on initially ramping and achieving substantial revenue growth in WiFi and network infrastructure filters with future revenue opportunities from 5G mobile handset applications in 2020 and beyond.

First, we expect success in WiFi by completing commercialization of our tandem 5.2 gigahertz and 5.6 gigahertz filter solution, which positions us to address the tri-band WiFi AP market. We believe that our solution is the first tandem BAW micro filter solution available in the market. We plan to leverage our existing sales and marketing groundwork to secure one or more OEM product design wins in the coming months and expect to go into production with one or more customers in the first half of calendar 2020.

Second, our path to succeeding in the 4G and 5G network infrastructure market begins with the execution of the ongoing customer-funded filter development program. We have demonstrated success in small cell with the shipment of our first 5G CBRS filter samples in March. As a result of our filter sampling in CBRS small cell, LTE infrastructure and 5G massive MIMO products, we have received interest from other leading infrastructure providers to develop new filters for ultra-high band. We plan to expand on our progress in this area soon as we move through the sampling phase.

On the mobile handset front, we are deepening our engagement with our Tier 1 customer. We are now working a second and third design, and we are pushing for engagement to enable penetration into 5G mobile handsets. Beyond our lead customer in mobile, we plan to expand into mobile handsets with key 5G filters matched to our internal WLP technology. We have ongoing discussions with several Tier 1 and Tier 2 mobile handset OEMs and front-end module companies for new and difficult 5G bands, which require high frequencies, wide bandwidth and high power handling, all of which aligned well with our XBAW technology and which we believe may be challenging for incumbent filter technologies.

Finally, we expect to announce one or two new market applications for our XBAW technology. Our technology leadership in the 3 to 7 gigahertz frequency spectrum is attracting a broad set of potential customers in our current four priority markets. We have received interest in additional markets that leverage the capabilities of our XBAW building blocks and/or RF filters. Stay tuned for updates in the future.

To summarize our long-term strategy, we see the fastest path to meaningful revenue lies in WiFi, network infrastructure and defense, while positioning the Company to participate in 5G mobile handsets, which represent our largest revenue opportunities. Our opportunities in 5G mobile continue to gain traction given recent expansion of our engagement with our current mobile customers. In addition, we are also seeing increased interest from multiple Tier 2 handset OEMs for ultra-high band filters.

Next, I want to mention select financials from the June quarter. We expect our 10-K to be filed by the September 13th deadline. Therefore, any Q4 2019 financial information referenced on this call will be preliminary and unaudited.

Our management team continues to control cost while investing in key RF filter product developments and wafer band capacity expansion to support expected future WiFi, network, infrastructure, and defense revenue ramp.

For the fourth quarter ended June 30th, we expect to report net sales of 569,000, which is above the midpoint of our previous guidance. During the quarter, we used approximately $4.5 million in cash including $0.3 million of CapEx for capacity expansion in our New York wafer fab. We ended the quarter with approximately $30.2 million of cash on the balance sheet.

For the September quarter, given our current visibility, we expect overall revenues to be flat quarter-over-quarter. However, it is important to note that as expected, our non-core legacy MEMS foundry revenue is dramatically declining in the September quarter. We expect little to no legacy foundry revenue in the December quarter and beyond as we focus 100% on our efforts on our XBAW filter business. On a true comparison basis, our core BAW filter revenue is expected to increase more than 50% sequentially in September, and quarterly filter related revenue is expected to grow sequentially for the remainder of FY20. As we are confident with our growing product portfolio, our mid to long term outlook remains unchanged.

As we discussed in our previous passive call, in order to support our current engagements in emerging sales opportunities, we are investing to increase manufacturing capacity by upto five folds over the next 15 months to produce hundreds of millions of XBAW filters per year. Beyond our current expansion, the Company expects to be able to scale our New York wafer fab to produce upto 5 billion XBAW filters per year when fully equipped.

In conclusion, we are working diligently to achieve each of our stated objectives, and we plan to update you on execution against these objectives, each quarter going forward. I would like to thank those, who have joined us today on this call.

We continue to build the Company on four solid pillars including strong management and technical staff, patented XBAW technology, large and growing volume market with limited historical competition in the high-band and ultra-high-band spectrum, and our qualified wafer manufacturing operation, which is expanding to address high-growth opportunities in our target end markets.

We are now positioned favorably to penetrate the WiFi market with the world’s first tandem 5.2 and 5.6 gigahertz high-band BAW filter solution. Beyond, we have 5G engagements in network infrastructure and mobile handsets with global market leaders, providing our Company with strong growth opportunities in high-performance coexistence BAW RF filters.

Before ending my remarks, I would like to congratulate and thank our employees for their hard work and commitment to our mission and our shareholders who continue to support the Company.

And with that I would like to open the call for questions from the investment community. Operator, please go ahead with the first question.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Anthony Stoss with Craig-Hallum Capital Group. Please proceed with your question.

Anthony Stoss

Good morning, guys. Congrats on the continued progress. Jeff, maybe can you shed a little bit light, now the 5.6 gigahertz is locked down. The interest from the WiFi customers is that larger interest more on the combined solution and in tandem with the 5.2 or is it still a combination of that plus discreet? And then, secondly, your commentary regarding additional large mobile potential customers, any kind of timeframes you can throw around it? I know the Tier 1 telecommunications or renounced customer; I think you're hopeful to kind of ramp production late in 2020. Any timeframes with those would be helpful. Thank you.

Jeff Shealy

Good morning, Tony, and thanks for your questions. Regarding the 5.6, it is locked, we announced that in July. And as we said in the prepared comments, we've got as far as out to at least 10 customers. And in a moment, I'll have David kind of comment on the reception of that. The interest is on the combined solution as we've been vocal on the 5.2 and the 5.6 are bundled in these routers, and if you tear open a router and take a look at one, you can see the DR filter technology currently occupies the 5.2 and the 5.6 slots and in the triband architectures that we've looked at. So, I'll have Dave comment on that in a minute.

In terms of additional large mobile, we’ve had engagements on the Tier 2 front and ongoing engagements on the Tier 1 front, which I'll let Dave outline. Regarding timeframe, what we have stated is what we're aligning to is really late 2020 type horizon. And with that, let me let Dave comment. And if I missed any part of your question, please welcome to follow up. But, Dave go ahead.

Dave Aichele

Hi, Tony. This is Dave Aichele. So a recent trip through northern California and through Asia, sampling latest 5.6, very positive reception from the WiFi OEMs and ODMs. And I think as Jeff highlighted and you made a comment on, the preference is to have the tandem solution because they don't want a hybrid approach where they have mixed technology with the BAW filter and the DR filter. So, the reception is very positive. It's now timing on identifying platforms that we can start getting the design win. I mean, we gave visibility to one or two that are moving forward in that path and that will continue to accelerate with time. So, we're just going to continue to support their customer base with that. And we’re targeting to have this fully qualifiable by the end of this quarter, to meet obviously production ramps that we’re highlighting, first half and next year.

With regard to the mobile market, also had a opportunity, we've stayed engaged with some of the Tier 1s looking at technology and then new visibility within the Tier 2 China market, where there's some discrete opportunities with particularly the 5G bands that are getting deployed there. So, we're working on the technology to be able to support the Tier 2 with WLP. And also the good thing is some of the frequencies that are targeting are already ones that we've got in development. So, from a filter solution standpoint, our plan is to be able to sample and support obviously some of the architectures that we’d be targeting towards later half of next year.

Jeff Shealy

And Tony, this is Jeff again. I just want to piggyback Dave's comment on WiFi and just emphasize, in addition to qualifiable samples by the end of September, we actually have a couple of open orders, which we did emphasize in the script that we plan to ship those this quarter as well. So, its samples and beyond samples and actual shipment are the part. And I think what we have stated there is in excess of 50,000 units is the plan for shipments on a 5.6 this quarter, in the September quarter.

Anthony Stoss

And then, Jeff, if I could squeeze one more question, you're talking about 5x the amount of production you have right now over the next 15 months. Is that half model, half other or how would you kind of parse out, what you expect?

Jeff Shealy

Yes. So, if you look at our -- our model has not changed there. I think we have -- if you look at our business plan moving forward, and as we emphasized in the script, we are focused on ramping WiFi and infrastructure. And so, what we've geared the capacity plan for the factory has been around those two markets with regards to -- we haven't had changed over this past quarter significant increase in activity on mobile, and we’ve been pretty clear what that means in the prepared comments. So, anything -- any upside with regard to capacity requirement would be driven by engagement on the mobile front likely with the strategic partner for the Tier 1.

Operator

Thank you. Our next question comes from the line of Cody Acree with Loop Capital Markets. Please proceed with your question.

Cody Acree

Yes. Congratulations, guys, on the progress and thanks for taking my questions. Let me just follow up on that question, Jeff. So, if you are working at that kind of a ramp pace, to get to that kind of capacity over the next several months and years, what does your CapEx requirement look like? I know you're talking about strategic partner, but what kind of volumes of CapEx are you looking for?

Jeff Shealy

So, the CapEx plan we’ve been driving from, right now -- and I'll get Ken to jump in here. But, we’ve not changed the CapEx plan thus far. And, Ken will share what we have remained in the CapEx over the next 15 months, and then we be happy to -- any follow up you have.

Ken Boller

Good morning, Cody. This is Ken Boller. Just to follow up on that, we have said in the past that we're looking to increase that capacity 5 times from tens of millions of filters to hundreds of millions of filters. In that 15 months, we have approximately $15 million to $17 million of additional CapEx required to meet that capacity.

Cody Acree

Okay…

Jeff Shealy

Go ahead...

Cody Acree

No. Please go ahead.

Jeff Shealy

Okay. So, to be clear, anything on -- any acceleration plans that we’ve been clear what the required some type of strategic engagement and also strategic investments from a partner to push us into an acceleration of that CapEx plan. We’ve been extremely clear that our view is -- we’re not going to straddle the shareholders with a capital expansion without some sort of partnership and agreement in place.

Cody Acree

Great, thank you. And then, just a follow-up is just how should we think about revenue going forward? I guess, 562,000 [ph] this quarter, how much of that is [ph] repeatable, how much of that is actual units that you’ve shipped, that you’re getting paid for, and then, how does that translate in your flat revenue, does this become a baseline or if there is still a lot of volatility in it?

Jeff Shealy

So, from that vantage point, what I have to direct you to is we’ve not filed our 10-K and we felt it’s important to maintain cadence on the investor call. But, as you’re aware, we’ve filing 10-K this quarter. The breakdown to that will be provided in the 10-K there. What I will tell you is that, we have open orders in for filters which include shipping product. We mainly mentioned in the script that we’ve cleared all of the backlog on the 3.8. We also have incremental product orders in the 5.2, which I believe were filled out. And then, the current open orders on the 5.6 which we were clear that those are planned for shipment this quarter. There is also NRE, that’s overlaid there. And you asked, overall how you should think about revenue is -- you see our guidance and we plan on growing our filter revenue quarter-over-quarter. I think, we mentioned in prepared comments, to try to give you some color, we expect that filter revenue to -- filter related revenue to increase by approximately 50% in the September quarter. So, we’re focusing on filters and we’re focusing on additional -- we’re focused on new product introduction and shipments of 5.2 and 5.6, and we’re going to have our first shipment load of 5.6 in the September quarter. Hope that helps.

Cody Acree

Yes. Thank you very much.

Jeff Shealy

Thank you

Operator

Thank you. Our next question comes from the line of Harsh Kumar with Piper Jaffray. Please proceed with your question.

Matt Farrell

Hey, guys. This is Matt Farrell on for Harsh. Congrats on the progress across all fronts. I want to follow up on some of the previous questions. Do you guys have any update on the Company’s path to break even? Given the continued interest across all markets do you see any changes to cost structure in order to rank revenue?

Jeff Shealy

Okay. So, in terms of the Company's path to break even, in terms of the overall revenue requirement to break even, we stay consistent that our breakeven point is $12 million to $15 million per quarter. And in terms of the timing of that, we're not adjusting any long-term guidance to our plan.

With regards to cost structure, we've made significant progress in terms of cost structure. We continue -- the capital equipment that we are adding in the factory is production equipment, much of that equipment shortened certain processes, and so that gives us more capacity as well as higher throughput. In the back end, we’ve made significant progress on testing. But, we’re the only or certainly one of very few that do filter testing overseas. And we’ve made significant efforts in terms of high-volume test in overseas packaging, packaging houses. And the fact that we're using overseas packaging houses, we get the benefit of pretty significant volume running through those. So, I would quantify that as being kind of the cost structure progress that we’ve made.

Matt Farrell

Thanks. And then, as a follow-up, more broadly speaking, can you guys just kind of talk about customer conversations in kind of hazy, uncertain current macro environment? Have you seen any major changes in customer behavior or any push-out or delays of any 5G infrastructure or mobile handsets, given kind of just everything that's going on out there? Thanks.

Jeff Shealy

I'll give a kind of a cloud view and then, I'll let Dave jump in here on some specifics. Regarding customer behavior for us, we have had -- we've seen the acceleration in the mobile market that we've outlined pretty clearly and we executed on that. I would say the timeframes that customer requires from us, were a pretty quick term. And I think the follow on activity with that same customer is also as a pretty quick term requirement associated with it. Other behavior that I think from my view is on 5G infrastructure, significant acceleration of locking down design. And beyond that, Dave can give you a little more color.

Dave Aichele

Yes. Hi, Matt. This is Dave Aichele. The customer behavior has all been positive, at least what we're seeing for Akoustis. And I'll touch on four points. One is just on massive MIMO. The massive MIMO, if you look at that architecture requires 32-array, 64-array, so that's putting demands on the supply chain for traditional type filters that were used in macro base stations. So, having a technology that is smaller form factor and able to handle higher power in a semiconductor base is a good opportunity for us; it's just requiring more engineering to look at the system architecture in addition to obviously filter technology to meet that. So, that opportunity is -- the demand from the 5G is actually helping here.

In addition to on the small cell, what’s actually -- we're getting a lot of pull from the small cell market, primarily out of China, when you look at the bands that are getting deployed and the amount of investment that's going in the 5G. China market for China Mobile, China Unicom, China Telecom, meeting a coexist, small form factor filter is -- at high volume is a good opportunity for us. And so, we're leveraging the work that we've been doing on the WiFi.

And then, on the handset side, we're seeing the new architectures particularly with again the China market requiring a coexist between n79, which is up at 4.9 and also WiFi 5.15 gigahertz. So, there are opportunities for discrete filters in these architectures, these Tier 2 phones. So, these are all customer behaviors that are changed in favor and also the market conditions that are changed in favor of Akoustis, we are leveraging and staying focused on that.

Operator

Thank you. Our next question comes from the line of Suji Desilva with ROTH Capital Partners. Please proceed with your question.

Suji Desilva

Hi, Jeff. Good morning, Jeff, Dave, Ken. Congrats on the progress here. So, on infrastructure revenue line, if you look at kind of in aggregate, for the next 12 months, does it feel like it’s binary around the Tier 1 global program, launching or not launching or are there kind of multiple facets to that it can ramp up there?

Jeff Shealy

Good morning, Suji. And I’m going let Dave jump right into that one.

Dave Aichele

So, the good thing is that we’ve got a Tier 1 that we’ve announced that we're aligned with. And the architecture we're talking about here is more involved. So, we've spent 6 to 9 months working on that and still bullish on that there will be something ramping in second half of next year and expect other Tier 1 architectures to do the same on follow-on. That takes a little bit longer from a development standpoint. But, the near-term opportunity which is accelerating is more for these small cell type deployments in the 5G. And as I mentioned earlier in the other comment is that the bands that we're talking about there, bands that we've already been investing in at 3.5 and at 4.9 or 5 gigahertz. So, these are easier designs, even though my engineering team would obviously want to make sure that they deliver to that spec that we're targeting and the timeframe that we have highlighted, which is first half of next year. So, things are aligning well with us there.

Jeff Shealy

So, I'll piggyback that by saying, it’s -- we don't view the infrastructure as a go, no go with one customer. We're seeing interest on massive MIMO beyond just one customer. We're also seeing on the small cell side, as Dave mentioned amongst multiple customers. And certainly CBRS from the North America standpoint is also -- we've got significant interest there as well.

Suji Desilva

Okay, great. I appreciate the color, Jeff and Dave. And then, also, can you just recap or cover the wafer level production supplier? I guess, you switched it, right? So, just trying to understand what the benefit is, which were the motivations and does that put you kind of off-schedule, or what’s the benefit kind of the new supplier, or just recap, that would be helpful.

Jeff Shealy

Okay. So, as we stated, let me just kind of summarize that. We did receive mechanical samples from our supplier, in turns out that particular supplier was outsourcing part of the process and there were significant NRE costs with given that outsourced. Those we did not -- we were not pleased with those, long term, and that supplier had agreed to bring that external manufacturing in-house and so we jumped on to that path. In addition, there is a second supplier that’s also overseas, which also gives us a second source overseas, which we’re looking at. In terms of some of the planning of that, we viewed some of the NRE costs were just excessive that were being asked, and we decided that given that the Tier 1 customer that came in has their own packaging source and they specifically design the filters to use their own. It was viewed as less critical near term and we view -- we will have this by the end of the year, and we’ve got parallel paths to address both Tier 2 market -- or excuse me, to address the Tier 2 market and we’ve got a Tier 1 customer who has their own. So, I do view it as a low risk approach. We are managing it based upon data. But I think with any new supply chain, you want to make sure you have a solid supply chain when you’re finished. And I view it largely as just some -- as we’re just making progress towards ultimately a solid supply chain. And we made some decisions associated with that and also had a customer come in that has their own, and that took some of the pressure off of having it near term.

Suji Desilva

Okay. I appreciate the clarification, guys. Thanks.

Jeff Shealy

Thank you.

Operator

Thank you. Ladies and gentlemen, we have time for one final question. Our last question comes from the line of Rick Schafer with Oppenheimer & Company. Please proceed with your question.

Wei Mok

Hi. Good morning. This is Wei Mok on the call for Rick Schafer. Congrats on the Company’s milestones and the progress made this quarter. So, my question is -- my first question is with regards to the comment that you made when you recapped the first half of this year. You mentioned, if I'm not mistaken, a power chip that you’re making for a massive MIMO opportunity that you should be shipping this product in mid-2020. So, can you tell us more about this product and what’s the market opportunity?

Jeff Shealy

Yes. Hi. Good morning, Wei, and thanks for your questions. The power chip that we referred to is the power filter for the massive MIMO requirement. In terms of how we see that unfolding towards mid-2020, I’ll ask Dave to comment.

Dave Aichele

Yes. This is -- hi Wei, Dave Aichele. This traditional -- again, traditional filters that are used in the macro base stations are large cavity type filters that are fairly expensive and difficult from the manufacturing high volume. So, the new architectures that go into these massive MIMO, where they’re doing an array of 32 and array of 64 and the element of each of the array is smaller. They’re trying to come down to a type of semiconductor micro acoustic filter that can meet the form factor but be produced a high volume from an SMB or surface mount manufacturability and not requiring a hand-tuning.

So, the power requirements are in the watts, when you’re looking at the filters, and traditional ball filters are below a watt. So, the advantage with our technology is being able to handle lots of power. So, we're working closely with this OEM to develop the solution, specific for their application as they're looking to change obviously their architecture to accommodate this new type of filter and what that again will enable is a platform that can produce in high volume and potentially the millions per month of demand starting second half of next year. And so, this is what we're focused on. And we’ll provide updates as we make progress.

Wei Mok

Okay, great. Thanks. And so, as far as my second question, I wanted to know a little bit more about your follow-on orders with the wireless customer. How does this follow-on order affect the timeline of when you expect to announce the design win, and what's the strategy you guys are approaching in order to design and do module, [ph] do you see like a strategic partner or do a design directly to a handset OEM?

Jeff Shealy

Let me first answer the last part of your question. I think, Dave had mentioned in his comments that the Tier 2 market has significant discrete requirements near term. And so, the Tier 2 market that we would address directly would be through discrete. But, in terms of the follow-on, you asked about the follow-on, on the Tier 1, we are -- as we did mention -- we did ship those products on the first order rather quickly that's borne on a second follow-on order for two additional filters. We expect those to be delivered I think we said by the end of the calendar year. In terms of how we view that affecting the relationship, we view the best approach is to execute on the business and then we'll let the, any strategic conversation take place and we'll react accordingly. We're not announcing anything in that area today, only that the existence of the orders and that our intent is to execute as we did with the first order, which was successfully deliver the XBAW filter to the customer's requirement as we do with all customers. And we fully take that approach on the current order.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Shealy for any final comments.

Jeff Shealy

I’d like to thank everyone for your time today. We're progressing towards our objectives for the September quarter and we plan to update you on further progress as our quarter moves ahead. We look forward to speaking with you during our next update call to discuss the current quarter execution against our milestones and future expectations. With that I'd like to thank everybody again. Good bye.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.