BluGlass (ASX:BLG) Annual General Meeting, November 2021

Company Presentations

BluGlass Limited (ASX:BLG) Executive Chair James Walker and President Jim Haden present at the 2021 BluGlass Annual General Meeting.

James Walker: Online with me today in Sydney we have Stephe Wilks, fellow director, Ian Mann, our CTO and COO, Stef Winwood, head of IR, and in the US we have Vivek Rao and Jean-Michel Pelaprat, our non-executive directors based in the US, as well as Jim Haden, our new president based in BluGlass. In Perth, we have Emmanuel, our company secretary. Representatives of our auditors, Grant Thornton, are also present.

So with that, I'd like to get started on the actual presentation itself, so we'll have the slides open for that.

So 2021, an interesting year. We had several challenges this year, as you're all aware, but we also achieved several key milestones, as we continue to transition from an R&D company to a product development and manufacturing business. We'll spend a little bit of time talking about those today.

One of the early highlights in the beginning of the year was the commissioning of the BLG-500, our first large-scale reactor that could be used for manufacturing processes. This will allow us to significantly scale our manufacturing in the future.

We also demonstrated, a few months ago, our first tunnel junction RPCVD laser diode, which showed good lasing behaviours and world's first proof of concept. This is an important milestone for us as a company and the commercial validation of what BluGlass has been generating now for a long time. We're very excited that we'll be producing RPCVD laser diodes some time in the future.

During the year you will also notice that we strengthened the team with a more laser diode focus. Jean-Michel joined us on the board in May, and Jim Haden joined us in September, only two months ago, to help fill out the laser diode experience in BluGlass itself. I'm very excited to have both of them on, and you'll hear Jim talk about his experiences and his plans for laser.

We also continue to lead innovation in this area with laser diode with the winning of the DARPA contract with Yale University. This allows us to develop novel laser applications in addition to our own product plans and helps with our own product development. In June this year, June-July, we completed a capital raise where we raised $8.4 million. Thank you once again to our shareholders and our new shareholders for your continued support as we continue to develop these products. That $8.4 million was both a rights issue to existing shareholders and we also welcomed two new shareholders to the register, and that will allow us to continue to develop, as I said earlier. In addition, we all know that IP is particularly important for a company like BluGlass. We had 11 new patents granted during the year, which brought our total patent portfolio to 86 patents around the globe.

Moving on to the next slide. 2021 was also a year of challenges. Like many companies, BluGlass had some challenges this year. Of course, COVID had an impact on our supply chain and our foundry business, but our key challenge this year was product reliability, which led to a delay in the launch of our laser diode products. We are continuing to work through those, and we'll talk more about that as the meeting goes on. Reliability testing of our laser diode prototypes showed flaws in both the degradation of the optical facets of high power, which means we have to improve our facets as well as our metallisation of laser diodes. We talk about that later on.

These technical challenges are post our epitaxy. So, as you know and as we will explain later on, we start making the laser diodes with the epitaxy process here in Silverwater. We then rely on our contract manufacturers to help do the downstream processing, where we then lead to the final QA and reliability testing in our facility in the US. These issues that we're working through on the product development side and reliability, we're working quite closely with our contract manufacturing partners to help solve these problems, and will continue to work with them as we're progressing.

What I will say is we were definitely disappointed this year in June when we announced that we weren't going to have a product ready to launch and that reliability was causing our main challenge this year. Laser diodes are complex, we will be one of four gallium nitride laser diode manufacturers in the world. These are real issues that we're facing, that the industry has faced and continues to face, but these are also issues that the industry has solved, and that led to a change in the team, where we brought in someone who's got experience in solving these issues that we are facing right now. And clearly with Jean-Michel coming on in the board, that helped give us some experience in the laser diode industry, particularly in the US market. And then with Jim coming on board and leading as the President of BluGlass, we now have someone on the day-to-day involved in the business leading the team through solving these issues. Jim has extensive experience in this space, has worked with multiple companies in this industry, and has a history of solving these reliability problems that we are now facing, and he'll talk to that when he speaks shortly.

So, it's been a challenging year. What has that meant for us financially? Actually, our numbers aren't a lot different than they were the year before. So, we had an operating loss of 6.2 million this year, compared to a loss of 5.99 million last year. Not a lot different, expenses were up slightly, R&D, government grants were up slightly, and therefore the loss was very similar. Of that loss, our cash burn was just over $4.8 million last year, similar to the before. With our net cash burn last year and the completion of the capital raise that we did in July and the R&D grant refund that we received in this month or last year, we are now well funded. We have over $8 million in the bank as of today, and that will see is funded through to the release of a product next year. So, that's where we are financially for this year just gone.

Moving on to the IP, I touched briefly on that before, so I'm not going to spend a lot of time talking about the IP. We continue to protect our intellectual property with patents. We had 11 further patents granted this year, as I've already said, and we continue to look for more IP protection opportunities as we continue to develop the technology. As you all know, RPCVD tunnel junction is our unique technology which we've been working on for a while. The commercialisation of the RPCVD tunnel junction laser diode which we've done in the proof of concept a couple of months ago will be the enabler that will allow us to produce brighter and better-performing laser diodes in the future. And this ability to have brighter and more efficient laser diodes will be the application that gives us significant commercial advantage in this industry as we move forward.

So what does FY22 look like and beyond? While we didn't have the year that we were planning in FY21, we did make a lot of a lot of positive moves. We strengthened the team. We continue to spend money on our R&D and developing the product. We started the process of moving through to how to become a product development and manufacturing business. We are focused on delivering three products in three different wavelengths. We believe those products have good opportunity for us in the markets that we're focused on. We proved that our technology, through the reactors we have in Silverwater, are scalable. We have significant capacity in Silverwater to make, through the epitaxy process, a significant number of laser diodes and capture market share, which we'll come to later on in this deck. And then with the world's first proof of concept for the RPCVD tunnel junction laser diode, we can see how this will allow us to enter new markets in the laser diode space as we continue.

So, from me and the year that we've just had, I would like to thank our existing shareholders and our new shareholders for your continuing support, and the support financially through the rights issue in June, July last year, and thank you for your patience. We remain confident that, with the delivery of a laser diode product where we are delivering that direct to market, that we have the opportunity to be a sustainable, profitable business in the future.

So, on that note, I'd like to also thank the team this year for their efforts. It's been a challenging year, but I think we now have a clear path forward. We have the right team in place to help us on that journey to delivering products to the market next year.

And, on that basis, I'll hand over to Jim to run through the operational update for the business. Jim.

Jim Haden: Thank you, James. For those of you who haven't met me, my name is Jim Haden. I'm pleased to speaking with you today, and I'd like to welcome each of you for joining this call. As James mentioned earlier, I have over three decades of experience in this industry, and I just want to assure you that I've seen many of these problems before, and they've been solved at other companies in the industry, leaders such as Spectra Diodes, JDS Uniphase, Coherent and others

It's an exciting time for BluGlass to be in this industry with a lot of growth in the area of gallium nitride. You can see here that indeed we have a very large and growing market. In the last decade it's tripled. From 2009 to 2019, it's gone from a five billion market to a US$16 billion, and it's promising in the next six years or so to grow to $25 billion. And it's an interesting time because gallium nitride is getting inroads and will be consuming some of the market spaces contained by other lasers.

And you can see here the global market by segment, and you can see that 42 per cent of that growth is in the industrial laser market. Also in the photolithography areas, with micro and macro laser processing. And this industrial portion accounts for a full third of the market alone in 2025 and better, with photolithography making 1.3 billion and the industrial being 5 billion in the 2025 timeframe. So these markets are key to our growth and key to our focus.

Next. Next we look at the segments as we look at where GaN will play in this overall market, and we continue to see that 10 per cent of that market will be where our technology can play. And again, you can see that the industrial... The display sensors, medical, all areas that we are interested in, and the context of why GaN is important is, in industrial processing, copper plays a really important part in the electronics sector, and what we find is that the blue light absorbs on the order of 50 per cent of the incident light, whereas the incumbent technology of infrared is only 2 to 5 per cent, making blue the superior choice in much of the material-processing sectors. So GaN could grow more quickly than the overall laser market by consuming IR processes that are already out there. Back in 2008, the output powers from blue diodes were limited to around 60 milliwatts with an efficiency of only 15 per cent. By 2017, these figures had leaped to about 3.5 watts and 44 per cent, while, in the past year or so, companies reported even higher efficiencies, like 46 per cent and powers at five blocks per chip.

So, these forecasts show that GaN segment will account for 10 per cent of the 2.5 billion and that it's growing faster than originally predicted by market experts.

Next. Thank you. Now we look at our product roadmap and the platforms that we are specifically targeting to go into these markets. And, with our roadmap, our addressable market is likely to reach US$735 million by 2025. The industrial, scientific and biotech are key verticals for our initial focus, and they make up about 75 per cent of the addressable market. Further, we've estimated that, of the 735 million out there, it will require 460 megawatts of power, and if we look at the increased average power per chip or assume an increasing average power for chip and a decreasing average selling price per watt, without concerning downstream capacity constraints, and assuming mature laser diode yields like we see in the industry, we can deduce that we already have in place the installed EPI capacity to meet about 25 to 35 per cent of the need or equivalent about 170 million in revenue by 2025.

You can see that there's five key GaN market verticals that we see -- the industrial markets, scientific, bio, life, display and lighting. These are arranged in the most interesting to us to the least interesting. And, across those, we have interesting wavelengths of 405, 450, 525, 490 and so forth. The thing that is exciting about this is that many of these key applications across these sectors require these wavelengths that we've already demonstrated, and we've got results in our feasibility studies at 405, 420 and 450.

You can see that we've focused on the far left of that chart, the industrial, scientific and biotech. Together, they comprise of 380 million, and these markets have broad applications that can be directly met with the wavelengths that we've already demonstrated. These include industrial welding, 3D printing, micro electronics, semiconductor, forensics, endoscopy and medical diagnostics.

When we look at this, we find there are several key challenges and economic drivers influencing our product development roadmap. What we've seen, customers are indicating that they need more manufacturing flexibility, they're looking for cost-effective solutions that are easy to integrate, and these are not readily available in the market today. Further, within those solutions, the customers require a combination of greater power, brightness and efficiency per dollar invested. Similar to the computing industry, where they're driving higher computing power each year, every 18 months the computing power doubles for a given price point. Similarly, we see the dollar per watt figure being driven down year over year. However, another aspect, the counter aspect to that is customers are willing to pay higher prices for brighter sources. So, we are trying to look for overall combination of brightness with higher powers. Again, we believe that our RPCVD technology will lead to higher efficiency as well, and this is a key economic driver for a few reasons. Higher efficiency means you can run cooler, which leads to more reliable sources, but it also means that you are consuming less power, which yields basically lower cost of ownership because you're not paying for as much wasted energy.

And then, finally, all of this comes together with customer integration. We want to provide modules that provide brighter solutions and ease of integration for our customers. This will decrease their burden, decrease the material labour and overhead costs.

So, looking at these economic drivers and understanding the unmet needs of our customers, it paints a picture of how BluGlass can compete with large incumbent players such as Nichia and ams OSRAM. Our target market position leverages manufacturing flexibility to provide plug-and-play easy-to-use light. We aim to achieve this by offering unique form factors and integrated packages. Vertically integrating packages mean combining our laser diodes with components that will pull the heat away and make the light easier to use, so optical and mechanical components. And we'll do this through a system of flexible and custom manufacturing, internal and with contractors.

They've asked why is there a need for BluGlass? It's simple. Our proposition addresses a key customer challenge. They're telling us that they cannot get what they need from these large players. The existing players do not provide the flexible form factors, which means the customers need to undertake significant and expensive customisations themselves. And this post-purchase packaging is a burden to them, and we can ease that problem. In the short term, we're focusing on addressing underserved wavelength needs, as we've mentioned in the 405 to 450 nanometer laser diodes, and we're doing this with more standard packages. But in the long term we'd like to address expanded wavelengths and deliver novel laser architectures, multi-chip modules, and through this we'll deliver higher powers, higher brightness and we'll reduce our customer integration costs.

To achieve this market position, we need to transition from a research and licensing company to a sustainable profit and development and production company. And in order to be profitable and to have good production, we need to have a competitive advantage, and we're going to do this by combining a strategic positioning and operational effectiveness. Strategic positioning is having core competencies and using those core competencies in ways that set us apart from our competitors, and an example would be our proprietary and patented epitaxial growth techniques. Further, the operational effectiveness will come into play with the developing processes that we can perform similar competencies better than our competitors, and we will do this beginning with supply chain management and then deciding what to insource to develop further advantages, such as we have with our RPCVD technology.

So, our short-term priority is the development and launch of our initial laser diode solution. We are targeting areas of the market that are not being sufficiently addressed by the big players. We'll then continue to improve our baseline products and putting the company on a path of continuous improvement. Our long-term strategy is to grow from there and to provide a stream of products to the market to provide profitability, a secure environment for our employees and also to provide satisfaction to the market and our communities.

So, as we transition from a company that, as I said, has been more of licensing and technology company to a production company, we need to focus on product, culture and talent. We are looking at, as I said, a continuous flow of products to the market, and these need to be winning products. So we, in order to do that, need to deliver on four key ingredients -- the EPI, the metals, the facets and the bonds, and I'll get to more detail to each of these later. But, in order to launch our first laser diode, we're putting scorecards together to tell us how we're doing at each of those four areas. In doing so, we are capitalising on our foundation, that is in epitaxy, and we are conducting what we're calling non-product short loops. And we're doing this to qualify our contract manufacturers, and we're getting short-term metrics in line before we have a product that's completed that tell us that that product is looking good. Some of this is done on engineering experiments, but it's also some that are direct measurements on the product itself as it's moving through the line. In the longer term, we will develop a structured phase gate product to augment and to help the flow of the products into the line.

On culture and talents, as we transition, we want to move to a world-class innovation, and we in order to do that we want to continue to capitalise on our culture of entrepreneurial spirit and design innovation that has led to the patents that James referred to. But, in addition to that, we want to instil a culture of discipline, and this production discipline is different in that it needs to have standard industry protocols, statistical process control called SPC, yield correlation, Six Sigma and other types of techniques that are known throughout the industry. And I already mentioned that some of those are module metrics for early warning success indicators. In order to do this, we need to continually attain and retain world-class talent, and so we are right now working to make sure that we have talent that's optimised based on our needs and our funding levels.

Many of you have already seen our product flow, but I do want to walk through this a little bit. One of the things you'll notice are some with a different colour background. Those indicate areas with our logo that are being done internally, and the others are where we're doing it at our contract manufacturing. The design and modelling of our epitaxial lasers is the first and key step through those four modules. So, you have the epitaxial growth, and there are processes that we do internally to tell us that they indicate that the quality is good before moving on. We also have the wafer fabrication, where we do the epitaxial side and the backside after thinning, and those are the metallisation steps that we are working on solving. The next module is the cleave and coat, and that's the facet area of our focus, and then we have the chip on submount, where that is the bond. And so those are the four key areas – EPI, metal, facet and bonds. And once we get those metrics, we are able to do the reliability testing. We have initial reliability at the pilot level already in-house.

Next, we have the form factors that we're offering, starting with the single emitter that you saw on the previous slide, and the array in the lower-left corner are called bars. Our focus is on the single emitter and submount, which we take a single emitter, we put it on the submount, you can see in the next one, the chip on submount is a typical design where you have a chip that is bonded to what you call a heat sink or a submount that then goes on to an even larger heat sink, and that submount can then go on to standard individually packaged devices or into multi-chip modules. So, it's a platform where you're going from left to right, that shows more difficult and higher levels of integration required from our customers to easier to use multi-chip modules on the right. You can see on the lower right hand corner there are many chips in a package. Each of those chips would have lenses that are placed by equipment that then focus the light into a fibre. You can think of a fibre optic as like a garden hose where you put more and more water through a hose, you can put more and more light through a fibre, and that fibre is easier to integrate into our customer's system then the light that would be coming out of an individual emitter.

So, next we have the four key ingredients for reliable commercial laser diodes. Again, that's EPI, metals, facets and bonds. In the EPI area, we are developing quick turn epitaxial diagnostics. We have feedback loops that we can do with simple structures in Silverwood or test to the grown lasers themselves. And we are looking at our reactor strategy and continuing to refine and revise that if necessary. And, as I mentioned earlier, our estimates suggest that we have epitaxial capacity to reach 20 to 25 per cent of the 2025 serviceable available market. That's US$735 million. In the metals area, we are designing low-resistance N metals and P metals, and these are required for high-efficiency operations for many reasons. One, it's the first step to creating a good thermal bond. Second, the low resistance is necessary for the high efficiency that we spoke about earlier. Currently, we're refining cleaning and annealing processes with our contract manufacturers. And what this will do is allow nice uniform injection of current into the laser and that uniform injection is key to having a reliable device. If you can't get the current in a good pattern, you could get uneven heating that stresses the laser, and it's not good for longevity. Next, we have the facets. And the facets, we are focusing with our vendors to get clean cleaves and low-loss anti-reflective and highly reflective coatings. We have observed facet damage and we are taking the feedback from our failure analysis that we're doing in the New Hampshire site, and we're working with our supply chain to refine the processes in these areas. Finally, we have the bonds. A sound thermal bond is necessary to enable the heat flow away from the laser. This mechanical bond needs to withstand the heating and cooling, as lasers are either turned off or turned on in CW mode, or even in normal cycling of lasers where they pulse them on and off for different process. They cool and heat even more quickly. But, in these events, the laser needs to hold together, and the bonds are key in doing that. So, these are our all areas that we're focused on to improve reliability.

So, here's our laser diode product in our operations timelines, and so just working at a high level, we've we've demonstrated devices in two key demonstrations in this year. Our first prototype of unbounded single mode devices are achieving performance that are similar to bonded chips from our competitors, and we've also demonstrated the world's first RPCVD tunnel junction laser. And then you can see the next area of focus are our four key areas, the metal, the thermal, the EPI and the facet validation. And over these next two to three quarters, we're working through all of the changes and the process improvements that I mentioned, through both the short loop and the full laser processing. Those will position us for what we call beta sampling to customers in the mid of next year and pilots in the second half of the calendar year, our product production leading to volume ramps in 2023. Again, we are working with outsource and looking for potential insourcing multi-chip modules, and we are extending our wavelengths and tunnel junctions throughout the next couple of years.

Finally, we have our economic scenarios, and you can see here, again, that we have our key target markets of industrial, scientific and biotech, and these scenarios show what they might look like as we build our market share. It's not a revenue forecast, but these three economic scenarios take into account factors such as the delivery of our technical milestones, customer demand and product sales. As you can see, we expect industrial, scientific and biotech customers will be our early adopters, and we are leaving room for display in the future, as we may use our RPCVD as an advantage in the green laser diode space. And then, as we launch our multi-chip modules, we expect to see even greater contribution from the industrial markets and continued in the biotech and scientific.

So, solving the reliability problem and launching our first laser diode to market is our primary objective, and in order to do so, we are concentrating on delivering the four key elements that we need to achieve reliable commercial products. And those, again, are the epitaxy, the metals, the facets and the bonds. Strategically, we are focused on providing products to address significant unmet needs, where the big players are just not doing things that many of our customers are asking for, and these are unique form factors with vertical integration, novel laser architectures, including multi-chip modules and RPCVD-enhanced lasers. Next we are targeting growth markets, and we are solving these problems for our customers by providing plug-and-play easy-to-use light, and these are the solutions that aren't provided by our largest competitors.

Now, before I hand back to James to commence the official business of today's meeting, I'd like to reassure the shareholders that our reliability challenges are common in the industry. While they're new to BluGlass, they are not new to me. I've personally experienced and solved many of these pitfalls for other companies throughout my career.

I'd like to thank you, our shareholders, our stakeholders and our customers for your support. I'd like to acknowledge the hard work of the BluGlass technology team, the support staff and the health and safety committee for their dedicated efforts over the past year with its challenges, including the global impact of the COVID-19.

I'll now hand you back to James.

James Walker: Great, thanks Jim. There was quite a few new terms that many of our shareholders wouldn't have heard before in any of the BluGlass presentations historically. We have attached a glossary of the industry terms with the ASX announcement there was lodged about an hour ago. So, please have a look at the glossary attached if there was any terms that are new to you or you're not sure.

So, this now brings us to the Q&A section of the AGM. Please feel free to ask any questions that you may have from today in relation to the resolutions or the actual business update itself. I'll just give you a little bit of time to ask any questions you may have.

Okay, Manny, I'm not seeing any questions coming up? Is that the case?

Emmanuel Correia: Correct, James. Nothing's been submitted.

James Walker: Okay. Well, I mean, as shareholders you know you can reach out to me any time anyway, so please feel free to ask me any questions after today if you feel that there are questions that come out of this process.


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