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POET: POET Sees the Light at the End of the Tunnel as Product Revenues Are Expected This Year


By Lisa Thompson



POET (NASDAQ:POET) is getting closer to showing product revenue after spending 2022 working with customers developing products for their launches. POET-designed optical engines released to production have been produced by SPX and provided to its customers, but none of those samples have been booked as revenue. POET will begin booking product revenue when it sends interposer wafers to SPX that are incorporated into products bought by SPX’s end-user customers, or when POET ships advanced products, such as its packaged light sources for AI accelerators to customers from its Singapore location. We expect this will happen in Q3. SPX should then show its first revenues in Q4 as it ships products to its Chinese module customers. As the interposer is a third or less of the cost of an optical engine, every $1 in revenue for POET is $3 or more for SPX. So, if POET books $10 million in sales in 2024, SPX would book at least $30 million. The value of POET would then be both that of a company generating $10 million in sales and 80% of a company generating $30 million in revenues.

In addition to orders from SPX, POET should also be booking product revenues from at least Celestial AI and ADVA by year-end. While Celestial has already been generating NREs for POET, we expect that it will start to buy product to build inventory for its product launches. POET will be providing Celestial AI LightBar modules. Each accelerator Celestial AI sells has four POET chips. At $200 per chip, Celestial could represent $800 million in potential revenues by itself. We believe most if not everything Celestial is planning to sell contains POET. Due to the market's new interest in AI, we expect Celestial is getting exceptional interest. Hopefully, some of that interest will rub off on POET. Back in February 2022, Celestial raised $56 million in a Series A round at a $150 million post-money valuation, bringing its total capital raised to over $64 million. We expect its current valuation is much higher than that due to its progress and the recent excitement over AI. According to MarketsandMarkets the global AI chipset market size was $7.6 billion in 2020 and is likely to reach $57.8 billion by 2026, yielding a CAGR of 40.1% during the forecast period.

ADVA has already announced the MicroMux Quattro, a product that uses POET’s technology and that product is expected to be in production in the fall. To build inventory, we expect ADVA should also start generating revenues for POET this year.

SPX is Generating Interest From Investors Abroad

SPX is getting interest from overseas investors in China and Singapore as it is expected to have larger near-term revenues than POET and also is in a geographic area where valuations are much higher than in the US (by 5X). While the JV is still officially only valued at $50 million, we expect that once it starts generating revenue its perceived value should jump and could be as high as $200 million by year-end based on current Asian valuations. If it were to take outside investment, that would raise the value of SPX and likely result in a gain on investment for POET as well as prove its value. Ultimately SPX could also become a public company providing liquidity for POET.

During the Quarter

On November 14, 2022, POET announced it will use high-speed directly modulated laser (DML) technology from Lumentum in its transmit optical engines to enable high volume, low power, and cost-efficient 400G, 800G, and 1.6T pluggable transceivers for hyperscale data centers. Since this announcement, all the large module makers have taken notice of POET and are considering whether to redesign their current products to take advantage of the cost savings from using POET as that would be the only path to significant product cost reduction for them.

Q4 2022 Earnings Report

Q4 revenues were $199,559 and came from NREs paid by AI Celestial and others versus no revenue in Q4 2021. We expect the company to book NREs again in Q1.

Total operating expenses were $6.1 million compared to $4.7 last year. This included stock-based compensation of $1.6 million compared to $1.2 million last year. SM&A expenses increased by $530,000 to $2.6 million from $2.1 million last year. R&D expenses increased to $3.5 million from $2.6 million last year. In R&D expense contract manufacturer costs increased by $1,150,618 from $75,624 in Q4 2021. Stock-based compensation increased by $407,331 (34%) to $1.6 million in Q4 2022 from $1.2 million in Q4 2021.

80.7% of the joint venture generated a loss of $1.7 million in the quarter. Most of the increase was from the JV starting to add depreciation expense, all of which was put in Q4 for the 2022 year. POET also recognized a gain of $1.3 million from its contribution of IP to the JV in the quarter. Every time its partner adds cash to the project, the valuation increases, net of the JV’s losses.

The net loss was $6.3 million up from $3.7 million in Q4 2021. This resulted in an IFRS loss per share of $0.17 per share and a non-IFRS loss of $0.12 per share, compared to a loss of $0.10 and a non-IFRS loss of $0.07 last year. The total common shares outstanding on December 31, 2022, were 37.8 million, and there were 42.7 million shares fully diluted.

Balance Sheet

POET Technologies ended the December quarter with $9.2 million in cash and marketable securities, no convertible debentures, and no debt. On Dec. 2nd, POET sold 1,126,635 units at C$3.81 (US$2.78) per unit for gross proceeds of C$4,292,479.35 (US$3,132,045.30). Each unit was comprised of one share and a one-half warrant exercisable at C$4.95 (US$3.61) for three years.

Working capital was $5.8 million. The company had a negative cash flow (excluding changes in working capital) of $3.9 million and a negative free cash flow of $5.5 million. The company is burning about $1.3 million a month. We expect that the required conversion of debentures between April and September of 2023 should add another $3.5 million to POET’s coffers and augment its runway.

In Q1, as of March 22nd, the company had received $5.5 million (CAD$7.5 million) from the exercise of 1,758,716 warrants. On March 22, 2023, there were 39,629,166 shares outstanding.

At its current burn rate, the company has a potential of nine months of cash ($9.2 million December cash balance + $5.5 million in Q1 as of March 22nd +$3.5 million from conversion minus three months of burn of $4 million = $14.2) from today. We expect it needs to do another capital raise which should get easier as it starts to generate product revenues in Q3. As revenues ramp, we expect the burn rate to decline.

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