READ THE FULL POET RESEARCH REPORT
Despite the lack of revenues, POET (NASDAQ:POET) continues to make progress and already has signed six projects. Three for custom products (European customer and Celestial AI) and three for off the shelf products. The off the shelf, or standard products are: 100G and 200G CWDM4, LR4, FR4, and 400G receive optical engines, to which will be added 400G FR4 4 and DR4 transmit engines later this year. The standard products are to be sold through the joint venture as the three customers are Fibertop and two other unnamed Chinese customers. First revenues at the JV are starting in Q4 2022 and revenues to POET from its European customer are also expected to start in Q4 2022. This leading network systems company is offering a unique multi-engine design for 100G CWDM4 and 100G LR4 Optical Engines based on the POET Optical Interposer. This company announced its product at OFC and we believe it already has orders from its customers although it is not expected to begin to deliver product until the end of the year. The combined value of the NRE and the purchase order for initial units exceeds $1.2 million. We expect the remainder of the NRE from this customer to be recognized in Q2 upon the fulfillment of accounting requirements. In addition to the six signed projects the company has two more development agreements that are expected to turn into two customers. Both of these development projects are for Light Bar to be used in AI accelerator chips that would provide eight channels or more with multiplexed signal out of each channel.
POET's business model makes it similar to fabless semiconductor companies. Third parties would provide the production of its devices and we expect it would have margins similar to those companies below. They now trade at lower valuation resulting at an average of 8.7xs enterprise value to estimated 2022 revenues. Currently POET trades at an enterprise value of $222 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 8.7xs gives us an enterprise valuation of $1.74 billion, a market value of $1.76 billion or $46.00 per share by 2025 using today's fully diluted share count of 38.3 million shares. This would be a present value of US$20.94 or CN$26.87 per share discounted by 30% per year.
Q4 2021 Earnings Report
Total expenses were $3.7 million compared to $4.8 last year and $3.7 in Q3 2021. This included a reduction in expenses of $1.0 million from the joint venture that did not exist in 2020. This $1 million consisted of a $1.5 million gain on contribution to the joint venture as well as the return of $508,000 of the loss of the joint venture in the quarter. As of December 31, POET owned 88.5% of the joint venture. Decreased spending in the fourth quarter of 2021 compared to the fourth quarter of 2020 was driven by the current contraction in the global semiconductor chip supply chain that resulted in slower deliveries of orders made by POET. We expect the company to continue to increase spending as it approaches its production ramp.
R&D expenses were down $218,000 from last year but up $779,000 from Q3 2021. We expect them to be somewhat lumpy as different expenses hit different quarter as the company moves to production. Wages and benefits decreased by $110,449 to $624,000 in Q4 2021 from $721,000 in Q4 2020. Stock-based compensation increased $288,000 compared to last year.
In Q4 2020, the company paid $249,000 in interest expense, and that declined to $16,000 in Q4 2021. Since debt is gone, we expect interest expense to be zero going forward; the company should be earning interest income.
The net loss was $3.7 million down from $5.0 million in Q4 2020. This resulted in an IFRS loss per share of $0.10 per share and a non-IFRS loss of $0.07 per share, compared to a loss of $0.17 and non-IFRS loss of $0.14 last year. Shares outstanding increased 23.8% to 36.4 million. As of April 26, 2022 there were 36.7 million shares outstanding, and approximately 38.3 million shares fully diluted.
During the Quarter
On November 2, 2021, POET announced that it agreed on the first phase of a supply agreement with a leading global supplier of lasers. The companies will collaborate on the design and production of flip-chippable Continuous Wave (CW) high power lasers for use in POET's 400G Optical Engines. Lasers combined with a silicon photonics-based modulator will be incorporated in transmit Optical Engines operating at 400G speeds and beyond.
Balance Sheet
POET Technologies ended the December quarter with $21.3 million in cash and marketable securities, no convertible debentures and no debt. Working capital was $19.9 million. During the December quarter, POET received $4,270,544 from the exercise of 10,265,732 warrants that would have expired on November 2, 2021, exercisable at $0.416 (CAD$0.52).
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