READ THE FULL POET RESEARCH REPORT
Despite the performance of the stock price, POET (NASDAQ:POET) continued to make technical progress in Q2 and attract more actual and potential customers. It announced the availability of samples of its 400G FR4 and 800G (2x400G FR4) Receive (RX) Optical Engines as well as its 200G FR4 Transmit (TX) and Receive (RX) Optical Engines. The company has a number of customers who are actively designing products using POET's platform. They are designated "Contracted" or "Committed" on the chart below. The others that are labeled "Engaged" have taken samples on an evaluation board and are analyzing POET's platform. The chart also shows that for packaged light source products, both the SPX joint venture and POET expect to book revenues. This is because POET will design and provide custom packaging for the customer, and SPX will manufacture and provide the engine—in effect acting as a subcontractor.
Once the first customers have product available, future sales should be much easier as the technology will be proven and the question of price and performance will be settled. Given the advantages, industry players could then quickly move to adopt POET's platform just to stay competitive. In addition, 100G customers will have already done the hard work and can more easily migrate to faster speeds. POET's solution becomes increasingly more competitive at 400G and once it reaches 800G and above its solution seems to be the ONLY solution due to size constraints and complexity.
POET's business model would make it similar to fabless semiconductor companies. The group we look at now trade at 6.9xs enterprise value to estimated 2022 revenues. Currently POET trades at an enterprise value of $147 million using a fully diluted share count. We need to look further out to where we think revenues would be by 2025. If we say the joint venture is able to reach $200 million in revenues by then and the rest of the business can ramp to $100 million that would be $200 million in revenues for POET in 2025. Using 6.9xs gives us an enterprise valuation of $1.4 billion. Today's fully diluted share count is 42.0 million shares. We know that the company will probably raise money next year so we are adding 3.75 million shares to the total ($30 million at $8 per share.) $1.4 billion divided by 45.75 million shares is $30.15 per share by 2025. This would be a present value of US$13.75 or CN$17.70 per share discounted by 30% per year.
Q2 2022 Earnings Report
Q2 revenues were $120,261 and came from NREs paid by AI Celestial versus NRE revenues of $209,100 in Q2 2021. We expect the company to book NREs again in Q3 and Q4. In Q4 we also expect POET to finally book product revenues which are expected to come from selling beta samples to AI Celestial. We also expect the joint venture to start booking revenues from the first of its ten customers in Q4 which will be reported separately on the SPX joint venture income statement.
Total expenses were $5.4 million compared to $4.5 last year and $5.4 in Q1 2022. This included a (non-cash) expense of $745,313 from the joint venture that did not exist in 2020. This loss was more than the $430,000 loss of the joint venture in Q1 2022. POET still owns 88.5% of the joint venture. R&D expenses were flat with last year at $1.8 million from $1.8 million. Stock-based compensation was down to $970,000 compared to last year's $1.2 million. Wages & benefits increased to $728,000 this quarter compared to $624,000 last year. During the quarter POET hired a new VP Product Line Management. Also adding to the total were the wages of the GM in China is which were reclassified as administrative wages from R&D in Q2 2021. General expenses increased to $552,000 from $382,000 in the year ago quarter mainly from the NASDAQ listing that increased the cost for directors and officers insurance. In Q2 2022, the company paid $12,627 in (non-cash) interest expense compared to $95,000 in Q2 2021 due to the reduction in convertible debentures.
The net loss was $5.3 million up from $4.4 million in Q2 2021. This resulted in an IFRS loss per share of $0.14 per share and a non-IFRS loss of $0.12 per share, compared to a loss of $0.13 and non-IFRS loss of $0.09 last year. Shares outstanding increased 6.3% to 36.7 million. As of August 8, 2022 there were still 36.7 million shares outstanding, and approximately 42.0 million shares fully diluted.
Balance Sheet
POET Technologies ended the June quarter with $13.8 million in cash and marketable securities, no convertible debentures and no debt. Working capital was $12.4 million. The company had negative cash flow (excluding changes in working capital) of $4.0 million and negative free cash flow of $4.5 million. The company is burning about $1.25 million a month. We expect that the required conversion of debentures between April and September of next year should add another $4.1 million to POET's coffers and augment its runway. At its current burn rate, the company has four to five quarters of cash. As revenues ramp, we expect the burn rate to decline. We expect the company will have to raise some more cash between now and cash flow breakeven, which could occur at a revenue level of $20 million per quarter.
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