Akoustis: Still Bullish On Its Speculative Growth Thesis (NASDAQ:AKTS)

Granted, the current macro-investment environment does not favor a speculative high-tech high-growth company like Akoustis Technologies (NASDAQ:AKTS). After all, AKTS is still unprofitable and is competing head-on against some well-established and well-entrenched giants. As a result, I am upside-down in my personal position in AKTS shares. However, I bought at about half the average price of $15.32/share that investors paid when management took advantage of a big jump in the stock price to execute at-the-market and direct offerings that raised $35.6 million in February of 2021 (see chart below).

With the stock currently priced at just over $4/share, those investors obviously got burned. But the other side of the coin is this: management’s excellent timing enabled AKTS to build out its manufacturing capacity to 500 million units annually and to fund its ongoing design & expansion plans in order to secure market share gains in the global RF-filter market.

Investment Thesis

In my previous Seeking Alpha articles on AKTS (see here, here, and here), I explained how Akoustis is attempting to disrupt the global high-power, high-frequency, and ultra-wideband RF market by offering solutions that have superior performance metrics with respect to:

• Filter bandwidth & quality
• Power dissipation
• Size & speed

AKTS’s proprietary XBAW filter solutions have already achieved some impressive design wins in the huge 4G/5G and Wi-Fi 6/6E/7 markets. As a result, Akoustis has (finally…) begun growing revenue at an accelerated rate:

As the graphic below from Akoustis’ May 2022 “At A Glance” presentation indicates, the TAM opportunity here is huge and is expected to grow to nearly $7 billion by 2024:

Earnings

Despite the drop in its stock price, the company itself has arguably been executing and performing quite well (which is why I still own it).

For Q3 FY2022 (the period just ended on March 31, 2022), Akoustis grew revenue by 25% sequentially to a record $4.6 million. Based on “robust activity” in both sales and the design-win pipeline (in 5G Mobile, Wi-Fi CPE, 5G Infrastructure), the company expects to grow top-line revenue by 30%+ in the current quarter (or to an estimated ~$6+ million).

Business development highlights during the quarter were very impressive across multiple key initiatives:

As can be seen, these highlights included a tier-1 order for development of XBAW filters for a mobile 5G smartphone and shipment of a second design to a tier-1 RF component customer. Both filters use the company’s in-house wafer-level packaging technology with production of the first filter expected to ramp-up in early 2023.

In addition, Akoustis won two more Wi-Fi 6E designs, bringing AKTS’s total number of Wi-Fi design wins to 15, with production already ramping up with 5 of those customers.

The XBAW patent portfolio is now up to 58 issued with another 100 patents pending.

Importantly, the company ended Q3 with no debt and $55.9 million in cash (~$1.01/share).

Going Forward

On the Q3 conference call, CEO Jeff Shealy announced multiple important and very positive developments in various market initiatives:

I am also pleased to announce that we fully qualified our 5.5 gigahertz and 6.5 gigahertz WiFi 6E XBAW filter products over the past few months and expect to qualify and release into production for additional WiFi 6E/7 filters in the current June quarter. Additionally, we continue to advance the progress of our WiFi 7 diplexer, which we are currently developing for one of the largest PC chipset makers in the world. The first design of this new diplexer was shipped to this Fortune 100 customer in December and we received positive feedback on that design. The initial diplexer performed well and enabled the customer to characterize in their system providing valuable technical feedback for the next design iteration, which was just released into our New York fab facility. We expect to ship the new iteration sample filter to the customer by the end of the current June quarter. We remain on schedule for commercialization of this extremely exciting product and have received interest from other OEMs for diplexer, triplexer and other multiplexer products.

Last month, Akoustis announced a multi-year, multi-million contract with the Defense Advanced Projects Research Agency (“DARPA”) to develop advanced XBAW technology at frequencies up to 18 GHz. This funding not only will help AKTS develop its state-of-the-art technology but it is also, in my opinion, validation of AKTS’ XBAW technology as being a global leader (perhaps the global leader… ) in the high-end RF filter field.

The big picture here is that AKTS continues to execute very well across numerous high-growth markets and, as a result, expects revenue to grow 30%+ this quarter. Note that last year AKTS reported its FY Q42021 results on August 30 and I would expect a similar date again this year – though it has yet to be announced. Obviously, I expect another very strong report – both from a financial perspective and from continuing business development and contract wins.

Risks

In my opinion, the main risk with AKTS is that the company has yet to be profitable and, based on my earlier reporting of management comments, likely won’t be until quarterly revenue reaches the neighborhood of ~$15 million – which will likely be more than double the current Q4 results. That being the case, profitability is still a ways off (perhaps the 2H calendar 2023) and that is tough in a macro-investment environment (higher interest rates, high inflation, slowing global growth, etc.) which is shunning speculative high-tech high-growth companies by generally rewarding them with low valuation levels. Note that AKTS has a current market cap of only $220 million, and if you back out its end-of-quarter net-cash position of $55.9 million, you’re down to ~$164 million for a company that has a TAM opportunity that runs into the multi-billions of dollars.

Secondly, note that a competitor, Qorvo, Inc. (QRVO), filed a legal complaint against AKTS in October of last year, alleging unfair competition and false advertisement. You can read CEO Jeff Shealy’s response to the filing here. Note that 4 members of AKTS’s board-of-directors are former RFMD employees (now owned by Qorvo) or worked directly for Qorvo (see page 24). The executive management team also has several additional RFMD/Qorvo employees. From my perspective, this means these professionals had enough faith in CEO Shealy’s leadership and in AKTS’s technology to jump ship and take a chance on a new and upcoming growth company with superior technology. I previously mentioned AKTS’s greatly expanded patent-portfolio as well as the recent DARPA contract which, in my opinion, along with the number of design wins, all validate Akoustis’ technology and manufacturing prowess.

Upside risks include a buyout of the entire company for its proprietary technology and patent portfolio. Note that the aforementioned Qorvo has a market-cap of $10.6 billion. It could easily swallow Akoustis, although it would likely be a “sour grapes” transaction. Broadcom (AVGO) is huge in the RF-filter business but I have heard chatter for years that customers are not happy with the prices they are paying for AVGO’s filters because they are typically bundled with other associated technology solutions from Broadcom. While it might seem that a small company like Akoustis wouldn’t move the needle for Broadcom (market-cap $205 billion), if CEO Hock Tan feels his entrenched business in RF-Filters (which likely does have a material impact on AVGO) is threatened from a proprietary technology perspective, it wouldn’t surprise me in the least if AVGO swooped up AKTS to obtain ownership of its technology. Ditto for leading RF-filter maker Murata (OTCPK:MRAAY) (OTCPK:MRAAF), which has a market-cap of $34.5 billion.

Summary & Conclusion

It’s tough to own a speculative high-growth high-tech company in the current bear market. In fact, I am underwater in my position in AKTS. However, I have not sold any shares and I don’t even think about selling them. But I do think about buying more… and that’s because Akoustis is executing its business plan very well and is actually doing even better, and doing so even faster, than I had expected. I am still bullish on the company and expect it to announce stellar Q4 results around August 30th. Sequential revenue growth will be 30%+ and I also expect continued progress across numerous market niches as well as additional design win announcements.

I’ll end with a 5-year stock price chart and note that AKTS is now trading significantly below where it was in the 2018-2020 time-frame. And that was before it had any tier-1 contract wins, before it had expanded manufacturing capacity to 500 million units annually, before it had significant revenue and accelerated revenue growth, before it had such a robust patents-issued portfolio, before it acquired wafer-level-packaging expertise, and before it landed a multi-year multi-million-dollar DARPA contract:

That being the case, AKTS is a BUY.