Good day, ladies and gentlemen, and welcome to AmpliTech Group's quarterly investor update call, where the company will discuss its second quarter 2023 financial results. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to AmpliTech's Director of IR, Shan Sawant.

Thanks, everyone, for joining today's call to review the progress of AmpliTech's growth initiatives and to answer investor questions. On the call today are AmpliTech's Founder and CEO, Fawad Maqbool; the company's COO, Jorge Flores; and the company's CFO, Louisa Sanfratello; following initial management comments, we will open the call to investor questions. An archived replay of today's call will be posted to the IR section of AmpliTech's corporate website. and this call is taking place on Tuesday, August 15, 2023. Remarks that follow and answers to questions, including statements that the company believes to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as anticipate, believe, expect or words of similar importance. Likewise, statements that describe future plans, objectives or goals are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among others, matters that the company has described in its press releases and in its filings with the SEC. Except as described in these filings, the company disclaims any obligation to update forward-looking statements, which are made as of today's date. With that, let me turn the call over to our CEO, Fawad Maqbool.

Good afternoon, ladies and gentlemen. Thanks for joining our Q2 2020 review call today. Today we'll reflect on our performance in the second quarter of 2023 and discuss the company's growth outlook and market opportunities. In the second quarter, we reported a revenue of $4.1 million and a gross profit of $1.9 million translating to an increased and record gross profit margin of 47% despite facing inflationary pressures. Sales from our core low noise amplifier business grew by 23%. However, our semiconductor distribution sales saw a dip primarily due to the softening of international demand, which is evident in the broader semiconductor sector as well. We expect this sector to rebound nicely and are already seeing strength in excellence in the semi industrial role. Our Q2 loss stood at about $508,000. This can be attributed to our ongoing investments in research and development for new products, including new 5G wireless infrastructure products, MMIC designs. Our R&D initiatives total over nearly $700,000 for this quarter and $1.2 million for the 6 months ended June 30, 2023. We're confident that the investments we've been making in the new products will generate higher returns and profitability for the company when they are introduced to the market in 2024. They are designed not -- to be not only cutting edge, but also light touch labor. Light touch labor means less labor intensive, which is the source of most of our expenses in the products made here in the U.S.A. and it supported by our new automated quoting and other capabilities of the new multifunction CRM system that we implemented. Financially, our position remains robust. As of June 30, our cash and liquid marketable securities totaled $9.3 million, in addition to $2.5 billion in receivables. Working capital stood at $16.7 million at quarter end. We're…

[Operator Instructions] And our first question here will come from Jack Vander Aarde with Maxim Group.

Okay. Great. I appreciate the update and great to hear about the solid pipeline and record gross margins. It's great to see. Fawad, I want to start by touching on the core L&A business because those had a strong revenue quarter for you. It was up 23% year-over-year, it sounds like. So just what's the driver behind your core L&A strength? And is this sustainable?

Well, there's a need or more of a demand for all these, let's say, cloud-based systems right now, and they are actually ground stations that many companies like Viastat and CPI and all the big guys are also supplying to Amazon, Google, they're all creating their own cloud systems. So when they do these cloud systems, they have to communicate from the satellite ground station to the satellites. So that requires the most lowest noise figure amplifiers because range is very critical in all these satellite communications because lots of data is going through this. So the demand has increased in that way. So all these companies they're looking for the best solution possible and we have the best solution in the L&A core and L&A products. So that has increased. We're also picking up a lot of the business from competitors who have failed and do not have that performance. So we see an increase there. We will continue to see an increase also due to our new CRM system, which is really seeking out potential customers, potential new customers that we've never had before. So all of these things lead to growth and will continue to lead to growth in this business.

Okay. Great color there, Fawad. Most importantly, I really want to dig into the pipeline a bit more. Last quarter, it was around $66 million, it sounded like. And now you just provided an update. It sounds like it's grown. It's over $80 million so maybe just a couple of questions. I'll kind of go one by one. Just what's changed since last quarter that's contributing to that pipeline growth? Are you seeing more RFPs coming from prior trade shows? Are these larger customer orders than you previously thought? What's really been the difference there that's driving that increase since the last time we spoke?

Exactly a bit of both. We actually have gotten more RFQs, especially because of the -- we're turning over a lot more leads from our CRM system. It's finding the key people that are responsible for the technical development of their systems. So the satellite operators, they have all the engineers that we need to connect to and they see the performance of our amplifiers, so they see the need right there. So part of it is just having a very good AI system, CRM system that finds the right people to connect to that really need our products. So that's one very good reason why we're getting increased ARPU activity. And then closing some of those deals is the next part of it. So all of those deals have to start getting closed, and that's why we think that next year is going to be very pivotal for us. It takes time to build this kind of a base. It takes time to digest the $80 million. It's growing because every person gives us at actual discussion on what their needs are going to be. It's either the number of satellites, the number of radio stations, the number of radios that they need for their base stations. Services, MMICs that they're going to need thousands of MMICs in their application when they get contracts from defense, government or defense or private second-tier suppliers it trickles down to us and the value is there because that's going to increase our sales. So we're going to convert and start to convert all these leads which we didn't have before. We started to implement this, as we mentioned a couple of quarters ago.

Fantastic. And yes, just -- I mean, just for a relative context, I mean over $80 million of potential pipeline that's 4x larger than your revenue last year altogether. So I mean, it's significant increase for sure. Maybe just given for estimates sake and just near-term expectations, I know that conversion rates you're going to figure that out. But -- just in the near term, how does the third and the fourth quarter of this year kind of look relative to the first half of this year based on where you see things playing out?

But it looks like it's going to be consistent that we're going to still be around $4 million to $5 million per quarter. That's what it looks like right now. But we're going to see, obviously, an increase in bookings towards the middle of the fourth quarter or so because we're working on a lot of deals right now that would be booked, but the conversion to revenues will be really starting in '24 and our numbers indicate at least 136% growth from the previous year. So that's basically just an estimate, but it's based on our actual requirements with customers that have given their requirements. So all these numbers that we have, we have actual numbers are that as a result of these customers being very interested. So it's not just a number and you'll see that when they start converting. That's when you're going to really see that. But '24 is really an important year for us. It's really going to be the year where all of our best laid plans that we've done so far are going to come to fruition. This is what we've been doing. We've been trying to say that from the beginning. When we raised money, we never said we're going to be profitable or great the first year or the second year -- we had a 3-year to 5-year plan. We raised the money. We are building the foundation. We're almost complete now in this year -- end of this year. And as we complete that, the most important part of it is that in 2024, you'll see that result. You'll see the start of everything coming together. And that's going to continue for the next 3 years.

That's great. And you threw out a number there. I don't want to hold you to a specific number, but it sounds like you're pretty confident that wherever revenue ends up in 2023, it sounds like you're thinking it's going to more than double next year, over 100% growth. Is that a fair -- that's a fair assessment? Okay.

That's a fair assessment.

Okay. Excellent. And then just maybe one last question. Just help us understand maybe just the types of -- I want to quantify and just kind of get more context of the pipeline, over $80 million in the pipeline. What -- can you maybe just quantify or parse that out between what like outline what those opportunities are between 4G tower upgrades versus your core LNAs versus spectrum business? Just help us understand how it makes sense to your pipeline?

Sure. I can touch over these numbers. Basically, they're coming from various different sources. So we have our core L&A business, right? Basically, the core business and about -- in '24 or so we're going to have a lot of revenue coming from L&A business. Some -- we're going to have semiconductor materials. That's going to go up. The spectrum is growing because of the NGK business that we're adding to it. That's going to be a very good source. And in '24, we're still going to be about 29% to contribution from spectrum because we continue -- we expect that to grow, although it declined this year because of the international demand. We said that a couple of quarters ago also that we're going to make up an increase and scale up their business. By adding this -- the new product line, NGK, which has about 80% of the world's market for packages for RF microwave packages and then microwave packages feeds right directly into our Microwave MMICs. So it's working hand in hand. We'll have a 29% contribution of revenue in '24 from spectrum. Our core growth is going to grow as well, but mostly in '24 the AGTSS division should start showing revenue because there's a need for the customers, the MNOs, some large names I can't really say them right now. But they need these new radios. And we're in discussions with almost 7 or 8 different companies that need these 5G radios, our radio [indiscernible] in particular because of the advantages that it offers. And we're in discussions based on sites, the number of sites, the locations. We're conserving right now, we were saying the first year or so in 2024, we'll have about 10 sites that we will be supplying, then we'll grow to 50 sites the following year and maybe 100 sites in the next year, third year.

Just jump in right there and just ask you, 10 sites. What does that mean? What is that kind of opportunity?

Sure. So each site would have 3 of our radios in there. Right? So you'll see -- you've seen all those towers where they have triangular setup. The 3 radios cover 360 degrees. So where the new radios will go up, 3 radios for each site and each radio is approximately about $10,000 or so. That's just the hardware. And then along with that site, you also have revenue from installation charges. So we have revenue that we charge for installing the entire site, all the radios, then we have revenue, monthly revenue that comes from maintenance of all these sites so all of these are adding up total revenue, basically around $5 million or so in '24. That's our estimate. From just the AGTSS. Just 5G.

Fantastic. That's helpful color. Yes. And that's helpful. That's very helpful color. And just the pace, maybe it's too early to tell, but just the pace or the speed of which you can execute or achieve those upgrades? Like, let's say, for 10 sites. What would that take?

So each site installation roughly is around 3 to 4 months. But we can do several sites in parallel. And we're building our teams to be able to service that. That's why we're very conservative here, although we may book a lot more than doing the 10 site, we may have booked much more than that because sometimes some sites require maybe 1,000 radios. They want the whole thing and eventually, it will take time to cover all those sites. But we're building our force to do all that, but we have also relationships and collaborations that we've set up to help us achieve all this. We're not doing all of this by ourselves. We have partners that do the hardware, the software, the system integrators that actually go up there and put the radios in. So it's all a team effort. It's not that simple. But we have all of that planned out, and that's why it's taken a while to do, but it will happen all start happening next year. And we also have revenue that we projected from our new products our R&D has gone into making lots of new products that are actually lower cost per unit, but lower labor cost. We've reduced the labor because we've taken our MMICs, our very advanced MMICs that no one really has with the low noise figures that we can use in our amplifiers themselves. So that reduces the labor that we put into each one of our amplifiers. That also translates into more and more profit. So every time we lower our costs, it will be more profit per product. And our entire goal, our strategy and these numbers will show that is to increase our top line, increase our gross margins and go after all the products that have higher gross margins, which in turn will give us higher bottom line.

Okay. That's great color. And if I can ask just one more question, and then I'll hop back in the queue. Again, it's about the pipeline. I know, obviously, I respect that some customers and the potential orders in there want to be kept confidential. But can you just maybe give us a sense of how many total customers, like how many individual customers that actually represents in the pipeline? Is it a handful? Is it 12? Is it 30? Is it 50? Just to give a sense.

Well, these are all large customers. So we're not going after consumers right now. So they're basically large MNOs and large corporations that want private 5G networks. So I would say between 15 or 20 roughly? To begin with. And this is not limited to United States. We're doing global retrofits.

Got it. That makes a lot of sense. Well, congrats on the strong momentum, and I look forward to watching you guys execute. That's it for me.

Well, I appreciate it. I know everybody is waiting for the good fantastic results. But we're working as we have said so we're going to be doing the milestones exactly as we have planned. This year was a little bit of a downturn, but that's expected to be up and down. But it's all part of building the bigger company, building and changing the face of this company so that we can be a much broader-based solution provider.

[Operator Instructions] I'd like to turn the call over to Shan Sawant. Please go ahead, sir.

Thanks for the question, Jeff Kobylarz from Diamond Bridge Capital. I'll be reading off your questions. Okay. So it's a 2-part here. I'll start with the first one. So Jeff is asking, did NGK contribute at all to revenue or when -- or when will that distribution agreement result in revenue and what is the materiality of that distribution agreement, Jorge, maybe you might be the best to answer this one?

Okay. Yes. Up to this point, no, we are in full preparation after we ink the deal with them earlier this year. So we are doing a lot of feasibility studies for customer modifications on their housings. Also in [indiscernible] Developing marketing campaigns, we are doing website updates, sales staff training and this is also working directly with NGK, so a lot of items have to be in close coordination with their team as well. So all of these preparations, we believe we're going to be closing in by the end of 2023. So we are definitely going to be able to release the first purchase orders to NGK by the end of the year and we expect deliveries to occur early in 2024. So definitely, we believe that we will have meaningful educated sales to occur in 2024.

Okay. Following up on these questions, I also see company you mentioned in the past that pre-perspective customers were beta testing MMICs what were the results of those tests?

Well, we have had a few companies that have approached to us and actually bought like some smaller quantities of the MMICs they are still doing their own in-process design at their own factors as well, though we do have visibility into many of their programs, many of their projects but you know, though, that at the qualification and system design that takes a long cycle. So we are definitely patiently waiting for them to finish their efforts. Like once they win, we will be designing and then we will be ready to fill any orders that they need.

This includes base application.

It includes base applications, yes.

Great. And then we can move on to this one on the pipeline, the sales opportunity of $66 million. Of course, this has changed since then. When will these contracts be awarded to the winning bidder?

Well, so what was mentioned in today, we do have conversations with a lot of them. And in many cases, too, we know that if they win, we will win as well. Some of them we'll see in the near term, but some of them though are pushing out to the right, it's also because of the qualification beta testing that they themselves need to do with their own products. So it's very dynamic, though. It's a very dynamic sales funnel that we have, but we do believe and we do expect that to be able to start closing some deals by the end of the year.

And we have one last question here. So given the weaker market for semis, the spectrum division should investors expect sales to decline year-over-year for the second half as well.

Yes. So far, though, Shan, if you've seen in the semiconductor industry, the market is down at least 11% this year. So this definitely has affected our Spectrum division itself. However, though, at the industry economies though they do believe that this semiconductor industry is going to be bouncing nicely by about 18% in 2024. So we do believe that our Spectrum division is going to be able to recover some of the lost sales due to the softer demand, and we are also in [indiscernible] with the NGK opportunity.

Thanks for clarifying on those. So that concludes Q&A I had in my e-mail. Joe will turn it back over to you. Thank you.

And that will also conclude the live Q&A portion for today's call. I will now turn the call back over to Fawad Maqbool for any closing remarks.

Thank you. And thanks to everyone who joined today's call to hear about the progress we've made and the plans we have to further our company's mission of providing the communication systems of tomorrow today. We look forward to updating you further on our Q3 financial results call in mid-November. Until then, please contact us directly should you have any questions or wish to schedule a call with management. Our Investor Relations team can be reached at the contact information listed at the bottom of our press release. Thank you, and be well.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.