Company Overview: BrainChip Holdings Limited, formerly Aziana Limited, is an Australia-based company, which is engaged in the development of neural computing technology. The Company focuses on its spiking neuron adaptive processor (SNAP) technology and licensing the SNAP technology with technology partners. The Company operates through the technological development of designs segment. The Company's SNAP offer a complete development solution for companies entering the neuromorphic semiconductor chip market. SNAP is a core enabling technology in Neuromorphic semiconductor chips that possesses various applications, such as gaming, cyber security, robotic technology and stock market forecasting, among others. SNAP also implements learning rules in hardware, enabling autonomous features extraction (AFE) directly from input data without the need for any software processing. Its subsidiaries include BrainChip Inc., AZK Merger Subsidiary Inc., Aziana Exploration Corporation and Eternal Resources Pty Ltd.
 

BRN Details

BrainChip Holdings Ltd (ASX: BRN) is becoming a leading name as a software and hardware accelerated solutions’ provider for Advanced Artificial Intelligence (AI) products and has developed Spiking Neuron Adaptive Processor (SNAP) which has an ability to learn autonomously. BRN aims to give customers with a development kit that empowers them to customize SNAP for a specific application, for example, voice recognition on cell phones, further increasing the efficiency of the chip. Besides this, the group has also developed a revolutionary new “spiking neural network” (SNN) technology which is a type of neuromorphic computing and has an ability to learn autonomously, develop and relate the information just like a human brain. This state-of-the-art technology is ideally suited for the low-light, noisy environments of casinos and will provide growth for the company in future. BRN has existing video analytics products on the market which demonstrate SNN technology. In the past six months, BrainChip Studio and BrainChip Accelerator have been recognized globally as the most advanced video analytical offerings for the law enforcement and were recognized by the Security Today Magazine in the United States along with Milipol Innovation Award in France. Based on recurring positive feedback from customers, BRN will continue to enhance its products to expand its applications and capabilities. It performed well in 2017 and has established a foundation for growth and the Management is helping to build an enduring brand in the Artificial Intelligence market. We expect that the aforesaid developments will provide an opportunity for the group to grow further.


Video Analytics’ Market Size (Source: Company Report)

Akida - the next growth driver: In August 2017, the group announced the commencement of development of AKIDA, system-on-a-chip Neuromorphic Processor Unit (NSoC); and in October 2017, the Company shipped its first BrainChip Accelerator card to a major European automobile manufacturer. General Processing Unit is based on a patented SNN which uses an unsupervised learning method i.e. it can train itself to recognize patterns, search data and identify images at a much lower cost. We expect that this product could be a leader in the emerging neuromorphic computing market as it has a wide range of applications such as robotics, gaming, surveillance, cybersecurity, financial technology, IoT, and autonomous vehicles (including ADAS). The Neuromorphic integrated semiconductor market is expected to be around US$ 4.8 Bn in 2022 with a CAGR growth of 26.3% between 2016 and 2022. Given the scenario, Akida is gripping the advantages of low-latency and low-power features and is expected to enable the company to capture significant market share in the high-growth arena.


Market size of Neuromorphic Chips – AKIDA (Source: Company Reports)

Quarterly Cash Flow Update (31 March 2018): The Company released its Quarterly Cashflow report for the quarter ended 31 March 2018 wherein cash outflow from operation recorded US$1.8 million which was down by around 5% as compared to the previous quarter. The decrease in cash outflows was mainly due to higher receipts, offset in part by higher administrative and corporate costs associated with the launch of BrainChip Studio and Accelerator. The Company had US$13.9 million in cash at the end of the March 2018 quarter. Total cash receipts during the same period were US$500k (A$650K).Further, the group estimated cash outflow for the next quarter of approximately $2.6 Mn, comprising of R&D expenses, product manufacturing cost, advertising and marketing cost, employee cost, and administrative and corporate costs.


Next Quarter Cash Outflow Estimates (Source: Company Reports)

Synergy through Agreements is leading to product mix growth: Tie-up with Veritone Inc, Gaming Partners International Corporation, and Safran Electrical & Power will help BRN to increase the topline growth of the company in years to come at the back of revenue sharing agreement, manufacturing and developing product mix, and expanding footprint into the market.
 

1) Strategic Agreement with Veritone Inc: The group has recently signed an agreement with Veritone Inc to integrate its AI-powered BrainChip Studio with the Veritone aiWARE platform. With the collaboration with Veritone, the group is adding a new distribution channel for BrainChip’s spiking neural network technology. Furthermore, the Veritone aiWARE platform is basically future-proofing AI with a complementary and continuously-growing portfolio of cognitive engines and applications that can serve a strong solution to both parties’ customers.

2) Partnership with Gaming Partners International Corporation: The group has entered into a global licensing, development and revenue sharing agreement with Gaming Partners International Corporation with the objective of expanding its customer base, premier global sales. This deal is related to the joint development of video analytic products for worldwide deployment in casino currency security, game table operations and player behaviour applications. As per market reports, the table gaming industry has a wide opportunity at over 3,500 casinos worldwide and universal addressable market of over US$200 Mn annually for video analytic solutions has been indicated. Under the agreement, the group will receive a total of US$ 500,000 as a license fee, US100,000 as a non-recurring engineering fee for products development, and long-term revenue sharing for the sale of the developed technology.

3) Collaboration with Safran: The Group is collaborating with French multinational company, Safran Electrical & Power with the objective of working together on the development of machine vision inspection system for harnessing production activities. Safran purchased a new license during the March 2018 quarter.

Highly Experienced Team: The company’s management team has extensive experience in the technology sector. The members of its senior management team have over 30 years of experience in the technology field and possess an in-depth understanding of the specific industry, products and geographic regions being covered, which we believe will enable them to support and provide guidance to employees and grow the business. Currently, the group is headed by Louis DiNardo- the Chairman. He has a sound track-record to work in growing publicly listed and privately-owned technology businesses.

Financial Performance: FY17 was a year of great progress and the Group executed its strategic and tactical plans efficiently. The Group raised its capital from two sources and the total cash injections amounted to $20,888,073 which helped the Company to build a sustainable business in selected target markets for the Civil and Commercial Surveillance and for Public Safety. The Board utilised these funds to further advance the research, development and commercialisation of products and technology and towards repayment of various loans and advances which were held by the Group. The Group reported a net loss after income tax of $13,774,013 for the year 2017 and whereas for 2016 it was $5,098,102. This increase was due to the share-based expenses and increase in Administrative expense. As on 31 December 17, the Group had consolidated net assets of $18,066,470 (2016: 5,266,618) which included the cash reserves of $16,049,330 (2016: $3,593,951).


FY17 - Consolidate P&L (Source: Company Reports)

High Quality Customer Base: The company sells its product through original equipment manufacturers, integrators, and other partners. This capital efficient model is expected to accelerate sales and reduce the capital required to build a large direct sales force. Moreover, the company has strong clientele base across the globe. Some of the high-quality customers are: Police Nationale, Advisian, Rockwell Collins, Cisco, Airbus, Safran, etc.


Strong Clientele Base (Source: Company Reports)

Intellectual property protects its market position: In 2008, BRN was the first company to file a patent describing a learning digital neuromorphic chip design. As of now, the group has only 1 patent granted (i.e. Patent number 8,250,011) and 6 patents are in pending status. However, the group seeks to obtain more patent protection for its innovations which will help to sustain its business in the long run.

Other key Updates: According to the Annual General Meeting, the shareholders of the company have approved several resolutions such as approval of 10% placement facility, increase in Non-Executive Directors’ Fees, New BrainChip Long Term Incentive Plan, Grant of Performance Rights to Louis DiNardo, Re-elected Adam Osseiran as Director, and elected Steve Liebeskind as a Director. As part of transformation process, the Board of Directors appointed Julian Rockett as the Company Secretary of the company, effective May 25, 2018. On the other hand, BRN has changed its registered office, principal place of business and postal address.

Positive Outlook: The Group is now pursuing the next phase of its growth vision which is to provide a best-in class AI processor based on its proprietary technology. With the production releases of BrainChip Studio and Accelerator, it is now able to build its sales infrastructure. BrainChip expects continued sales growth with OEMs, System Integrators and End Users in 2018. Below is a graphic representation of the Company’s Served Available Market (SAM) value by markets segment for which the Company can provide solutions with BrainChip Studio and Accelerator and the Akida NSoC. The Company’s recent participation in the SCTX Anti-Terrorism Conference in Las Vegas, Nevada generated an additional 179 leads and the commercial sales pipeline continues to be robust with over 500 active leads, more than 100 recognised opportunities of which over 50 are well qualified with a lifetime value of over US$300 Mn and 15 design wins with a lifetime value of approximately US$80 Mn. We expect that the recent leads and exiting leads will ensure the profitability growth of the company.


Segment-wise market size (Source: Company Report)

Stock Performance: BRN stock, as per March 2018 Quarterly Rebalance of the S&P/ASX Indices, was added to All Ordinaries, effective from March 19, 2018. Recently, the company announced that they will release 403,241,351 fully paid ordinary shares from voluntary escrow on 18 June 2018 as per the appropriate Listing Rule. Meanwhile, BRN stock has fallen 30.56% in last three months but up by 8.70% in past five days as at June 14, 2018 and it is giving an entry opportunity at the low level. The group is also making efforts to improve its ROE. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.14 (up 12% on June 15, 2018), considering benefits from its prospective sales pipeline, Akida development, growing revenue, and capital position. We expect that the company has a decent outlook in terms of profitability and returns at the back of high margin, annuity revenue business model, high-quality & global customer base across multiple industry segments, and focus on intellectual property protection.
 

BRN Daily Chart (Source: Thomson Reuters)
 
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