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Edited Transcript of RVS.AX earnings conference call or presentation 30-Oct-19 10:00pm GMT

Q3 2019 Revasum Inc Earnings Call

Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Revasum Inc earnings conference call or presentation Wednesday, October 30, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jerauld J. Cutini

Revasum, Inc. - Executive Chairman, President & CEO

* Ryan A. Benton

Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director

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Conference Call Participants

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* Brendon Kelly

Moelis Australia Securities Pty Ltd, Research Division - Analyst

* Darren Vincent

Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators

* Marc Kennis

Pitt Street Research Pty Ltd. - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Revasum, Inc.'s September 2019 Quarterly Update and Appendix 4C Update Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I will now turn the conference over to Revasum's CFO, Ryan Benton. Please go ahead.

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [2]

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Thank you, operator. Good morning, everyone.

Before we begin, I remind everyone that during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties that are not guarantees of future performance or results. You are encouraged to review the safe harbor and disclaimer statements contained in today's materials as well as the other risks detailed from time to time in the company's regulatory filings with the ASX.

And with that, I'd like to turn the call over to Jerry. Jerry?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [3]

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Hello, everyone, and thank you for joining us on the September 4C call today.

On Slide 3, we see a summary of the highlights for the quarter. I'm going to skip over the first 3 bullets relating to cash flows as Ryan is going to cover that in more detail in a couple of minutes.

For the September quarter and subsequently, we have made great progress in bringing to market our first new silicon carbide polisher. The tool is producing fantastic results on the wafer, even better than we anticipated. We had a great launch event in Japan that had attendance by customers who represented virtually the entire silicon carbide market. We have many strategic customers already scheduled to run demos in the upcoming weeks.

And certainly, last but not least, we are very pleased to announce that we have signed a multiyear supply agreement with Cree, but we'll cover more of that in a little bit.

I will now turn the call over to Ryan to talk about the 4C. And when he is done, I'm going to give you more details and color on the events in the quarter.

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [4]

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Thanks, Jerry. This quarter, we had cash receipts from customers of $5.4 million. Cash outflows from operations were $3.4 million as we built significant inventory in anticipation of Q4 and Q1 shipments.

Investing cash outflows were $3.3 million, which consisted of CapEx spend, largely towards the 6EZ silicon carbide polisher systems, which we will retain for our use in our engineering and process labs as well as costs associated with the ongoing development of the 6EZ product itself. These outflows were offset somewhat as we drew down $2.5 million on our $10 million bank facility that was negotiated during the quarter with Bridge Bank. We finished September with $7.7 million in the bank.

We have always expected that at this point in time, where we transition from the reliance on the legacy silicon product lines to new silicon carbide products, will be the most challenging point in managing working capital. With the legacy business suffering a sharp downturn, in addition to securing the bank facility, we have been proactive and have taken and continue to take active measures to reduce our cash burn in the fourth quarter in order to make sure we can smoothly get through this period.

Put more simply, in addition to reducing spend, we have had to defer additional product development expenditures and other expenses until the business can generate the cash flow this quarter.

And with that, I'll turn the call back over to Jerry. Jerry?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [5]

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Thank you, Ryan. As you can see on Slide 5, the chart from SEMI, our trade association, indicates that the entire supply chain is reducing silicon shipments all the way through 2019. The trade tensions are clearly weighing heavily on the equipment industry and other downstream industries.

On a positive note, SEMI and many of the recent reporting semiconductor equipment companies believe that Q4 of 2019 will mark the bottom of the industry growth, with growth proceeding again in 2020 and beyond.

Although we've had to reduce our revenue guidance for the second half of 2019, it's important to remember that the reduction was related to our legacy silicon products. As we have moved through this quarter, many of our customers have been unable to get capital purchases approved. Orders were not lost, they have only moved to the right.

We have been building some of these machines in anticipation of those orders, thus, we have brought in inventory and applied labor to meet their original delivery dates. Now that those orders are moving to the right, we will complete some of those machines and hold them in finished goods. And when the orders come, and we believe they will come, we will be able to respond more quickly.

As I said earlier in the presentation, on Slide 7, we are very pleased to announce that yesterday, we signed a multiyear supply agreement with Cree and will begin delivery soon. Cree has previously announced a multiyear expansion of silicon carbide capacity that will see a 30x increase in the supply of silicon carbide substrates. Cree is the unquestioned leader in the silicon carbide wafer market, and Revasum is excited to be a preferred partner with Cree, and our plan is to fully support their expansion with the best possible products.

Cree's announcements follows a number of other announcements by many different automobile companies with their plans to massively increase the number of EV vehicles in their fleets. EVs will be the significant demand driver for silicon carbide for the foreseeable future.

Silicon carbide producers are announcing massive capacity expansions. I know it has been a bumpy ride this last couple of quarters with our legacy silicon business. Myself and the management team have lost a lot of sleep over that. We are confident the legacy business, which is cyclical, will turn around next year. More importantly, though, we feel great about the position we are in, in what will become a booming silicon carbide market.

As I mentioned earlier this month, we launched the newest product, the 6EZ single-wafer polishing machine, to an audience of more than 100 people at the Silicon Carbide Materials Conference in Kyoto. Many thanks to the sales and marketing team who've put a tremendous amount of effort into that event. The event could not have gone better, and it was extremely well received.

Now the most important thing, for the first time, we are able to tell everyone why we are so excited about this machine. In very simple terms, the 6EZ is faster and delivers a cleaner wafer than any other polishing system in the world. Our polish rate per wafer is 50% faster than our competitor. Not only that, the wafer comes out cleaner with less defects. This gives our customers a better finished wafer that simplifies the production flow for the customer and allows them to sell more premium quality wafers.

This is why our customers are excited. The result is that our demonstration machines are now running in our factory, and our customers are scheduling visits for the month of November, December and beyond. We are expecting to announce multiple orders and shipments before year-end.

In summary, we have the very best silicon carbide grinding machine in the world, and we believe we've launched the very best silicon carbide polishing machine in the world. By making both silicon carbide specific grind and polish machines, we can optimize our processes to work together and achieve incredible results and deliver incredible value to our customers. I expect 2020 to be a significant year for Revasum, and I'm excited about the opportunities we have in front of us.

And now operator, I think we're ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Darren Vincent, Shaw and Partners.

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Darren Vincent, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators [2]

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Just a couple of questions around the Cree announcement this morning. Obviously, there's no -- you haven't included any quantification of numbers of machines that you expect to supply. Cognizant of that, I'm going to try and ask a question that might help give us a little bit of insight. With a $1 billion expansion by Cree, what does that imply in terms of the numbers of grinders and polishers that Cree may need?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [3]

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Well, that's a -- hi, Darren, good to talk to you. Look, those are details that we don't have, those are Cree details. We were happy that we got this VPA signed. It's a framework for a relationship that includes terms and forecasts, but it's not appropriate for me to talk about what I think Cree may do. So I would say, follow them when they talk about how their capacity is going to go, but we don't have anything to comment on that.

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Darren Vincent, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators [4]

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Okay, fair enough. And secondly, I noticed the announcements about grinding machines. Can you talk -- once again, maybe you can't, but can you add any color in terms of expectations where your polishers are going into Cree?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [5]

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Well, right now, we don't have it, and we have to respect our customers' confidentiality. Look, I think I've made it clear that we want to be a good supplier to everybody. But when we have announcements to make about the polisher, we'll tell you. We will probably not mention customer names going forward. We felt this was important. It is strategic, but we can't really disclose much more than we have.

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Operator [6]

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Your next question comes from Mike Kennis, Pitt Street Research.

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Marc Kennis, Pitt Street Research Pty Ltd. - Analyst [7]

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It's actually Marc, but that's all right. Just a follow-up on Cree. I understand it's hard to talk about customer specifics in your backlog. But maybe just sort of more general on your silicon carbide guidance. Can you talk a little bit about some -- how many clients sort of make up that number? And also, if you could talk a little bit about the breakout between the grinding and the new polisher in that, in the silicon carbide in your guidance there?

And also, another question I have, I thought the guidance from Cree overnight will be great for the next quarter. Do you expect any impact there? Or is this -- of course, it's a long-term deal you have with them, but did this push out some of their purchases in the very near term?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [8]

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So let me try to touch on a few of these things. The guidance that we have includes about 4 to 5 different customers in the year, kind of depending, and I think it will end up at the high end. Whether those are full purchase orders or evaluation purchase orders for the polisher, we still don't know. But we've got a pretty good, broad customer base growing in silicon carbide.

Again, I don't really want to say anything about what I think about the Cree's numbers. I saw that they released them, but it's not appropriate for me to really comment much about that. I just think that the trend -- look, the trend is clear, right? They're going to increase capacity. Car companies are increasing capacity. In our little world here, this signals to us that they're pretty confident in what we do. And we're just going to keep plugging along and try to do the best job we can do for them.

But I -- at the end of the day, they allocate capital, and we cannot control that. All we can do is when they're ready, we perform. So we don't have visibility on how our companies are going to spend their capital or when.

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Operator [9]

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Your next question comes from Brendon Kelly, Moelis.

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Brendon Kelly, Moelis Australia Securities Pty Ltd, Research Division - Analyst [10]

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Just on the -- building on the question around the silicon carbide guidance for the second half. Can you just help us understand the key variables there that -- between the top and bottom range of the guidance? Like is it more a function of production? Or is it more a function of customers doing their demonstrations?

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [11]

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Yes. Well, I think -- mate, this is Ryan. I'll just kind of jump in. I think mathematically, it's simply whether we -- and we talked about whether we have 2 of the new polishers or 1 of the new polishers makes up a big swing factor. And obviously, the grinders are less expensive, and so there could be a mix question there.

In terms of the kind of the probability of outcomes of whether those get out the door, I think Jerry has been tremendously transparent about talking about what we -- there's kind of everything under the sun in terms of, you mentioned there, that we are inventing new technology. That's a fantastic leap forward in terms of technology engineering, and it's happening. And people working a lot of times to get there. And we're -- it's scheduling of customers in to come and have demonstration and running demo wafers, and it takes a long time and takes about a week to do those demonstrations and just getting all that to happen [and all we'll catch early].

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [12]

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We've got 4 or 5 different companies planned between now and Christmas, and we're trying to tell everybody's had travel to plan. We got wafers to ship. It's -- we're squeezing a lot into a short period of time, but everybody here is breaking their backs to accommodate these schedules.

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [13]

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Yes. And mate, look, I think that this kind of gets to a point that Jerry and I had to raise and what we -- I think everyone knows we're -- as we lowered the guidance here based on the timing of some of these things and the complexity of these activities. But none of that -- none of those reasons take away the fact that from the silicon carbide perspective, we feel increasingly confident about the market, everything we see says the market is going up faster and validate the strategic decisions.

I think the takeaway from today's announcement is that, as Jerry said, we feel that we have the best silicon carbide grinder on the planet, and we are proud of that technology. And we've invested heavily to have a polisher that could be married with that. And Jerry, I think, commented about how we feel about the technology, and that's -- at the end of the day, that's what's going to win.

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [14]

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I could not be more excited about the results I see coming off that machine. I just walked upstairs before this, and I'm watching it run wafers. And our ability to integrate the grind and the polish process is unmatched. I have no concerns about that. We are always worried about competition and we always fight competition. But I'll tell you, when I see the results off of wafers that we ground ourselves and polished ourselves, they are superb. At the end of the day, we got to sell machines. And so we are doing everything we can to get these things out the door, and the proof will be in the pudding. But we're pretty -- we are very, very happy with what we see on the wafer.

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Operator [15]

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Your next question comes from [Nishal Gina], private investor.

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Unidentified Participant, [16]

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Well done on the Cree supply agreement. It's a testament to your team and your products, so well done. My question is around...

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [17]

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Thank you, Nishal.

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Unidentified Participant, [18]

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Yes, you're welcome. My question is around the -- your production capacity to meet the increased demand from both Cree and your potential new customers going forward. Could you describe that, please?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [19]

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Yes, that's a very good question. So we are working with -- first of all, we have capacity in-house to deliver a respectable number of machines. Throughout 2020, what you're going to see is us talking about the manufacturing of these machines being made by a very large contract manufacturer that specializes in semiconductor capital equipment almost exclusively. So I think we're very, very good at developing machines and getting the first few out. I think that when it comes to putting volumes of machines out, tens of things, we will probably rely on a contract manufacturer to help us. And in fact, they are in-house as we speak, learning the documentation and getting ready to take over manufacturing at some point next year.

So that is a long process. It takes 6 to 9 months to teach somebody how to make one of these machines. And you can imagine the polishers, brand new, you can imagine that there are changes going on every day as we tweak things and improve things. So I would expect that the early part of next year, we're going to deliver everything out of our factory. By the latter half of the year, as volumes increase, they're going to come from a contract manufacturer or some mix of them and us.

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Operator [20]

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As I'm showing no additional questions in the queue at this time, I will now turn the call back to Mr. Cutini for closing remarks.

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [21]

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Well, thank you, everyone, for getting on the call today. We appreciate everyone's support. We look forward to seeing everybody again soon when we come down to Australia. Goodbye.

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Operator [22]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.