Company Overview: BrainChip Holdings Ltd (ASX: BRN) is based out of Perth, Australia and is an information technology company which operates through the technological development of the design segment. Led by Mr. Louis DiNardo, the company focuses on its technology SNAP i.e. spiking neuron adaptive processor. The company is also a leading software and hardware accelerated solutions company for advanced AI and machine learning. It offers various products such as civil surveillance and casino solutions. Of which, the civil surveillance solutions provide law enforcement, homeland security, and intelligence agencies to recognize the objects or faces in large amounts of archived or live streaming videos.
 

BRN Details

Release of Akida Development Environment - To Support Top-line Growth: BrainChip Holdings Ltd (ASX: BRN) has recently released Akida Development Environment which includes a data-to-spike converter for pixel-based vision systems and evolves as the Company works with early adoption customers to include incremental converters. The Akida Development Environment (ADE) is a machine learning framework for the creation, training, and testing of spiking neural networks (SNNs), supporting the development of systems for edge and enterprise products on the Company’s Akida Neuromorphic System-on-Chip (NSoC). To promote this, the company plans to provide an Architectural announcement which will include details of the Akida design and performance benchmark. Besides this, the company wants to capitalize on the growing need for AI-powered solutions by commercializing “spiking neural networks”, which is a type of neuromorphic computing that simulates the functionality of the human brain. We expect that the Akida Development Environment has significant growth opportunity in the markets that can create a US$4.5 billion opportunity by 2025. Therefore, Akida is targeted at high growth markets that represent a multi-billion-dollar opportunity. Additionally, the Akida development environment is the first phase in the commercialization of neuromorphic computing based on BrainChip’s ground-breaking Akida neuron design.


Akida Development Environment (Source: Company Report)

Quarterly Cash Flow Update (30 June 2018): The Company released its Quarterly Cashflow report for the quarter wherein cash outflow from operation recorded US$1.91 Mn which was down by around 8.1% as compared to the previous quarter. The decrease in cash outflows was mainly due to higher research and development cost, product manufacturing and operating costs, advertising and marketing, staff costs, administration and corporate costs. The Company had US$11.9 Mn in cash. Total cash receipts during the same period were US$301k. Headcount at the end of the quarter was 28 fulltime employees and three full-time contractors in the sales and marketing division. Besides this, the group invoiced to SNTech US$609,135 at the back of its existing licensing and Development Agreement and was expected to receive cash in the quarter. Since SNTech has disputed the invoice, then the Company is taking all necessary steps to ensure that the invoice is paid in full in the upcoming period. Further, the group estimated cash outflow for the next quarter of approximately $2.59 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 Report)

BrainChip Studio – A Cognitive Engine: BrainChip has come up with its AI-powered video analysis software, BrainChip Studio, which helps in adding auto-rotated models, has Linux support and an API for easier systems integration. BrainChip Studio has been now identified for integration as a Cognitive Engine with Veritone aiWareTMSoftware-as-a-Service (SaaS) and On-Premise Solution.

Contract Agreement with Gaming Partners International Corporation: The group has signed a global licensing, development and revenue sharing deal with Gaming Partners International Corporation with the objective of expanding its customer base and 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. As per the latest update, the joint development program with Gaming Partners International Corporation will continue on schedule as they received a good response by customers at the Macau G2E Conference in May 2018. Following this, the next customer trials are expected to be in the September quarter and the product will be further presented at the October G2E Conference in Las Vegas.

Financial Performance: The company reported revenues of US$0.3 Mn for the fiscal year ended December 2017, an increase of 81.2% over previous year. The operating loss of the company was US$13.9 Mn in FY17, compared to an operating loss of US$4.8 Mn in FY16. The net loss of the company was US$13.8 Mn in FY17, compared to a net loss of US$5.1 Mn in FY16. On the balance sheet front, the Group had consolidated net assets of $18.07 Mn (2016: 5.27 Mn) which included the cash reserves of $16.05 Mn (2016: $3.59 Mn). The current ratio substantially increased from 3.45x to 12.25x in 1HFY18 from the prior corresponding period. Besides this, the Group raised its capital from two sources and the total cash injections amounted to $20.89 Mn 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 utilized these funds to further advance the research, development, and commercialization of products and technology and towards repayment of various loans and advances which were held by the Group.


FY17 - Consolidated P&L (Source: Company Report)

Positive Outlook: We are positive on the company at the back of gain sales growth with OEMs, System Integrators and other partners in the September quarter of 2018. As of now, the company’s sales pipeline continues to grow and now includes over 500 leads, 55 qualified opportunities and 16 design wins. The Company currently supports approximately 30 committed or active trials and most are covered by Non-Disclosure Agreements. Below are graphic representations of the Company’s Served Available Market (SAM) and the potential Share of Market (SOM), which represents the annual potential revenue based on publicly available market data and Company estimates. We expect that the recent leads and exiting leads will ensure the profitability growth of the company.


Segment-wise market size (Source: Company Report)

Other key Updates: The group announced the appointment of Mr. James Roe as the Director of North American End User Sales. In this newly created position, He will report to Mr. Robert Beachler, BrainChip’s Senior Vice President of Marketing and Business Development. As part of the 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.

Stock Performance: BRN stock has fallen 25% in last six months (as at August 02, 2018) but climbed up 32% in the last one month at the back of recent positive developments. Given the recent drop (2.94% in the past one week) and regaining of momentum in the business, BRN seems to be a good opportunity to explore. Currently, the company is pursuing the next phase of 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. Given the backdrop of its large sales pipeline, synergetic partnerships, new product launches such as Akida Development Environment, increasing leads, improving financial performance and its capital position, the stock is expected to be witnessing improved momentum in future. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $ 0.170 (up by 3.03 per cent on August 03, 2018).
 

BRN Daily Chart (Source: Thomson Reuters)

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