Q3 2020 Resonant Inc Earnings Call
Good day and welcome to <unk> third quarter 2020 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Greg Falesnik from MZ group, the Companys investor relation firm.
Please note we will be using the presentation during today's call, which you can access more on the events page of residents IR Web site. If you are with US today via phone. Please go to the events page to either of your download the presentation to follow along.
Earlier. This afternoon resonant released financial results for the third quarter of 2020. The earnings release that accompanies this call is available on the investors section of the company's website at Www Dot IR dot.
<unk> Dot com.
Additionally, some of the information in this conference call contains forward looking statements that involve risks uncertainties and assumptions that are difficult to predict words of expression, reflecting optimism satisfaction with current prospects as well as words, such as believe intend expect plan and anticipate and similar variations identify forward looking statements.
Absent this does not mean that the statement or not for booking.
Such forward looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements.
Several factors that could cause or contribute to such differences are described in detail in watching its most recent form 10-Q and 10-K.
<unk> filings with the FCC.
These forward looking statements speak only as of the date of this call and the company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances. After the date of this call.
With that it's my pleasure to turn the call over to the chairman and CEO and President George Holmes, George the floor is yours.
Thank you, Greg and thank you everyone for joining us today.
I'd like to welcome you to our third quarter 2020, <unk> financial results call. Joining me today is our Chief Financial Officer, Marty Mcdermut.
Let's get started by turning to slide three.
Q3 was a quarter of continued momentum our.
Export platform is quickly becoming recognized for its performance and applicability in meeting the exacting demand a five G.
Before we dive deep index bar, let's look at some of the key highlights from the third quarter.
Revenues were $1.4 million, which is greater than our revenues in the entire first half from 2020.
4.1 million units designed with our eyes and technology were shipped in the third quarter of 2020, representing a year over year increase of 163%.
To date, our customers have shipped over 46.5 million units designed with our eyes and technology let.
Let me emphasize.
Production unit volumes. Most importantly, we continue to move our breakthrough expert technology forward.
The mobile side effects bar or worked with our strategic partner the world's largest RF filter manufacturer is progressing very well as we were achieved our second milestone.
Milestone was a prerequisite that enables the commercialization phase.
Which required our expert filters to have achieved previously determined performance targets packaging and initial reliability on the non mobile our white plains Fivex bar.
Just we showcased at our expert Fiveg RF filters can be manufactured on a standard surface acoustic wave or saw manufacturing process.
Logical breakthrough.
And what we believe is an industry first we did this led to additional saw foundries, bringing the total number of foundries manufactured X barbies devices to six.
This is significant because it validates the powerbar I assume platform and the inherent manufacturability of a bulk acoustic wave or BAW filter structure design and build I saw manufacturing process.
Everyday we expand the manufacturability and capabilities that spar.
Making it more valuable to the industry and key players involved.
Turn to slide four.
As far as clearly being recognized as a breakthrough solution for high frequency Fiveg applications.
It's been referencing the number of corporate and industry publications.
That's example, being a recent report from one of the largest most reputable tear down companies system, plus and that report they reviewed the Skyworks BAW filter, which included a particular reference to our unique expert technology and partnership with the world's largest RF filter manufacturer along with other traditional bought technologies.
The ongoing validation supports the idea that we are revolutionizing work filter design and delivering on the true promise for Fiveg.
Slide five.
Everyone is expecting fiveg to be revolutionary last month, we hosted a very successful fiveg insights Webinars series thought leadership event with over 300 investment professionals and media in attendance.
You've been featured our advisory Board, which has approximately 250 years of combined experience at the industry's largest.
Integrated device manufacturers.
And OEM handset manufacturers.
Like Webinars include numerous Fiveg fireside chat, which were designed to help investors better understand the currency to fiveg.
Technology roadmap for Fiveg deployments.
Gee is expected to have download speeds of more than 50 times faster than fourg.
Sample a movie that takes 29 minutes to download on Fourg, we take about 34 seconds with the real by GE.
By GE latency or the time it takes to send data from one point to another would be 25 times faster than Fourg did.
The data transfer would fiveg will be almost instantaneous unlock new possibilities for mobile data never before imaginable with Fourg.
Fiveg will not only be revolutionary to the next generation mobile phones, but also the smart devices sensors connected vehicles and more.
Five g.'s low latency and high speed is what makes the internet of things possible on a wider scale Weichai is no exception. The opportunity is building for example in the U.S. The wife I 60 bandwidth recently approved the over one gigahertz bandwidth, which is 18% fractional bandwidth at 6.5 gigahertz.
You expect there to be continued efforts of expanding the bandwidth at lower frequencies, which can also be enabled by our X bar technology.
Now on to slide six at the device level in your mobile phone work smart devices. The performance being delivered by today's Fiveg is not expected to meet consumers' expectations real fiveg.
We have historically defined his way to talk about this before but it's so important to understand the significance of this.
He has some of the key points. So what's the problem with Fiveg today really fiveg phones are using inefficient filtering techniques that won't cut it in future generations, because they rely on the uncrowded use the fiveg spectrum not concerned with out of band emissions. The next wave of Fiveg, what I'm, referring to is way too will deliver high data rate.
But require much larger bandwidth and protection from interference requiring a different type of resonator technology that is used today. So.
So in many ways players, who talk about having fiveg capabilities. They are focused on initial coverage leveraging it as a marketing tool, we're not ready to deliver meaningful bandwidth improvements to consumers the will affect things like download speed and latency to our knowledge resins export RF filter technologies uniquely demonstrated the ability to neatly me.
The complex requirements for bandwidth by GE applications.
Other competing technologies that have been discussed in the market or.
Using doping or additional external components increased resonator bandwidth, which negatively affects performance and still doesn't meet the full bandwidth requirements of fiveg.
And all these technologies, you're competing against one another.
Beauty of residents business model is that we are enabling RF filter manufacturers rather than competing against them.
By enabling manufacturers, we leverage their relationships with the world's leading Oems, where a single engagement by resonant yields multiple OEM engagements. So now, let's turn to slide seven so.
So how did resin that become the arb filter solution provider with the exclusive technology to deliver upon the full promise of Fiveg.
As we've discussed before the key Differentiators are infinite synthesized networks for iOS and multi physics electronic design automation or E.D. software platform.
Good created for the development of RF filters I assume enables us to deliver design faster better and more cost effectively than competing technologies.
So what do I mean by that.
After come from our ability to leverage mathematical models to rapidly design filters often require fewer turns through a foundry and provide a path for freeport integration into modules. The cheaper comes from several areas fewer engineers are needed and fewer turns are needed. A great example is our announcement in August that we manufactured nonmobile expert BAW filters.
Lets standard saw process, which is significantly cheaper.
Better come from our ability to solve complex challenges demanded by increasing filter requirements such as those demand by Fiveg. What's key here is our use of I send to simulate thousands of variation. We believe just can't be contemplated by traditional methods now.
Now, let's turn to slide eight.
Today, we stand in an attractive intersection the combination of the demand for Fiveg innovation, new materials, such as engineered substrates, the strength and speed the buys that.
Which allowed us to create a completely novel X of our technology as I highlighted earlier as far as quickly becoming recognized is uniquely positioned to meet the demands of high frequency fiveg applications. The biggest validation of our expert technology was clearly the strategic deal and partnership we struck late last year with the world's largest RF filter manufacture.
Sure.
As a reminder, this entailed a strategic investment of $7 million into revenue.
Residents, securing a 9 million dollar multi year commercial agreement for four bands utilizing ex parte technology.
In October we achieved the second milestone under the agreement.
I'm going to touch on a few key points to help you understand what this means first and foremost this means our expert filters for Fiveg you, what we said they would do we.
We confirmed target performance packaging an initial reliability.
Second it allows us to move to the next phase of the agreement, which focuses on building a commercial platform and high volume manufacturing of Exmar based the RF filters for Fiveg.
He brings in prepaid royalties and the millions rather than having to wait for unit shipments to date, we have received 50% the prepaid royalties for these for four bands.
So we are one step closer to revolutionize the industry as we know it and yes. There are additional milestones required prior to commercial production of our design.
But probably the most important is that we expect a significant increase in our partner's commitment time and resources to ensure our export technology reaches the market dominant scale.
To explain how significant the opportunity is with this partner I'd like to give you an idea of the scale importance of this engagement.
Seven companies control more than 90% of the market for book filters and Duplexers our partners the clear leader in both categories drilling 37% of the filter market, 32% of the duplexer market.
Your filter market share is bigger than the second and third largest players combined.
It's a great time to highlight that our named partner was only one of the several tier one customers. We have today already has established relationships some of the world's largest handset Oems.
That said there are no additional resources or partners needed for our customers to penetrate the tier one OEM supply chain.
Ultimately exemplifies the power of our Wyndham any strategy.
I would also highlight that our initial export customer because the market dominance to represent our market potential of over $100 million in annual revenue for revenue that we.
We're feeling really good about the progress and validation we are getting from the Fiveg market.
Opportunities the Nonmobile that we are engaged with for white pine infrastructure applications focus keenly on exports ability to deliver the performance necessary at high frequency and wide bandwidth.
Now before turning it over to Marty, let's wrap up this section by turning to slide nine.
With all this talk about Fiveg, it's important to note that fourg is still the dominant children in the market today.
We expect to be relevant for many more years.
Continued to grow for several more years.
To give you an idea of scale the fourg market for RF filters day is estimated to be worth simply $7 billion.
This growth will be largely driven by mimo and non standalone, fiveg, which uses fourg as an anchor.
There will be increasing fourg content, even in fiveg phones.
That will be used as a backstop for fiveg coverage.
These next generation 40 designs will need to have lower cost and higher power than ever before.
Which is exactly what our technology can provide the.
The China handset market, which is dominated by smartphones represented 30% of the overall market where.
We're seeing the market, making a big move towards non U.S. sorts content.
Which is particularly interesting is resin has the ability to simply deliver designs targeted the fourg market, which can be manufactured anywhere such as China.
To that end, we have a number of large and dominant filter foundry partners in Asia.
Moving very aggressively to enter the marketplace and supply. These large Chinese handset manufacturers, we delivered five RF filter designs in the third quarter to these partners, bringing the total seven for the year.
We expect another three in the fourth quarter for a total 10 delivered designs in 2020.
This allows her Chinese partners to provide turnkey filter technology foundry services to the Phablets and OEM customers.
Significantly increasing their competitiveness in this marketplace.
And these are all companies, we have signed per unit royalty licensing agreements and prepaid licensing agreements with already.
I want to briefly touch on our patent portfolio, which has continued to grow.
Today, our patent portfolio numbers over 250 patents filed and issued overnight.
Over 90 focused on X bar for Fiveg.
With that I'll pass it over to our Chief Financial Officer, Marty Mcdermut for a review of our second quarter financial results Marty.
Thank you George.
Turning to slide 10 I'll.
Ill now provide an overview of our financial results.
Amounts I talk about our gap, except where noted.
For the third quarter of 2020 as compared to the second quarter of 2020.
Billings were approximately $2.7 million as compared to $211000 last quarter.
Revenues increased 132% to $1.4 million compared to $604000 last quarter.
$79000 in the same year ago quarter.
At the end of the third quarter deferred revenues totaled $2.4 million.
We estimate that amount will be recognized as revenue over the remainder of the contracts.
Research and development expenses decreased 9% to $4.4 million down from $4.8 million last quarter.
Sales marketing and administration expenses totaled $3.1 million, an increase of $100000 would when compared to last quarter.
Operating loss improved to $6.1 million compared to an operating loss of $7.2 million last quarter.
Net loss improved to $6.1 million or a loss of 11 cents per share.
Based on 53.2 million weighted average shares outstanding.
Compared to a net loss of $7.2 million or a net loss of 14 cents per share.
Based on 52.9 million weighted average shares outstanding for the second quarter of 2020, non-GAAP adjusted EBITDA improved to a loss of $4.4 million or a loss of eight cents per share.
Impaired to an adjusted EBITDA loss of $5.4 million or negative 10 cents per share last quarter.
Cash and cash equivalents totaled $20.1 million.
September Thirtyth 2020 with no debt.
At September Thirtyth, we had a total of 65 employees 18 of whom have a Phd in 46 of whom are part of the technical staff.
And then finally, turning to slide 11 on the top of guidance.
The third quarter, we received a large prepayment related to our second milestone.
And while these prepayments greatly enhance the recognition of revenue in the future and overall cash position. They also create quarterly fluctuations.
We expect our fourth quarter revenues to look more similar to the first and second quarter quarters of the year, but.
But it's worth noting our continued progress for instance revenues and volumes for the first three quarters increased consistently on a sequential basis and.
And if we remove the large prepayment third quarter, we're expecting another sequential increase in the fourth quarter as well that said the business is clearly on a steady upward trajectory and our guidance that revenues and unit volumes in the second half of 2020 will be greater than the first half of 2020 remains intact.
I will also note to the extent possible, we will do our best in these uncertain times of code to continue providing quarterly guidance related to revenues and volumes.
I'd now like to turn the call back to George for closing remarks George.
Thanks, Marty moving on slide 12, the third quarter is set the stage for an exciting close to 2020.
Well I did this quarter is our successful pull in by almost a quarter the second milestone of our mobile.
X. bar contract this milestone, which required our ex parte filters to have achieved previously determined targeted performance packaging and initial reliability is a prerequisite that enables the commercialization phase of this agreement.
As noted our Exmar strategic partner has over 30% market share in the major critical segments of the RF filter market is bigger than the second and third largest players combined.
The two key highlights.
Our one to many go to market strategy, along with named an unnamed market, leading tier one customers that don't need partner DRAM volumes and capture market share the tier one handset manufactures because they are already there and.
And to our initial exmar customer has the market dominant representative market potential of over $100 million in annual revenue for revenue.
Wrap things up.
What you look for in the coming quarters.
Here are some metrics and milestones to track.
Well the pandemic has created challenges we remain focused on closing annex bar nonmobile customer.
Current engagements are progressing nicely and our new foundry gains have increased our ability to simple devices to customers.
We expect to deliver another three devices toward trying to foundry partners in the fourth quarter.
Thing is it 10 devices delivered 2020.
Expect these partners start shipping products to their customers in late 2021.
Taken together the showcased in the early innings with the key foundry suppliers in China.
We'll begin to represent the majority of the unit volumes moving forward.
Given the sheer size of the market.
These we partnered with.
The value we add to their businesses.
In 2021, we expect to expand the device we have under contract with our export technology in both mobile and non mobile applications.
Turning to slide 13, as I wrap things up I want to thank all of our employees Board an advisory board members for all their hard work that has contributed to our current success, we could not have done it without them.
And with that I'll hand, it over the operator to begin our question answer session operator.
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Our first question comes from Cody Acree, but loop capital. Please proceed with your question.
Thanks for taking my questions [laughter] George good morning.
Just wanted to kind of go back into some of your partnerships not to it not with no excuse me not to exclude your largest partner.
But just how you're looking at that strategy overall.
Looking at.
The milestones that you expect to achieve with other customers and then maybe going back to your largest just what are some of the the did you can put some parameters around where do you think that that strategic partner ship goes for you.
You've got now wireless and automotive where do we go from here.
Oh, it's a great question Cody and I want to I want to highlight here also about stealing Kelly to join Marty and I too.
Part of this Q and eight here at the end so yeah, we've got our anchor tenant here for the technical questions in case get silver Marty's in my head so.
Well make that known to everybody on the call.
You know as we noted earlier in the year. When we took some cost out of the business, we did kind of.
Close out some of our initial customers.
Clearly when we were just coming out of the gates in and really trying to validate the technology that we had with EIS said, we had to get you know a bunch of designed contracted in some of those design, we got them all the way through and ready for production in those customers were not able to got to take it the next milestone.
So those costs are we decided as part of that cost savings, we were going to kind of focus on the guys that really had the the horsepower to get products into the marketplace and we did that starting in Q1 and really have been focused in large part rather than the customer that designs. We had been doing is.
Stork Li one off custom designed for all the different bands to you know a 10 plus customers to focus on really.
The library products, and consolidating or design effort and being able to poor design from foundry to foundry and in particular focus on a large Chinese foundries is as we really saw the migration of that segment of the market plays to indigenous suppliers for the big Oems in China.
Yeah, I think thats worked out very well for us I mean clearly.
Our is sub three gigahertz portfolio is a is doing quite well Oh, we highlighted that we delivered seven of those design. So far we think will deliver another three here between now and the end of the year.
And those customers are moving quickly to get those devices qualified and as Marty and I called ball will think that will be in a position to ship product in the second half of the year.
That said.
So that that really is going to be our focus for the you know the sub three gigahertz space when it comes to.
The higher frequencies and what we're doing with X bar clearly.
We are focused on what's happening with our our largest the largest filter manufacturer in the partnership we have with them. The fact that you know were highlighted this last quarter and and our announcements right. After the end of the quarter that they are our strategic partner in mobile we're really.
Focusing on them as it relates to capitalizing on their marketing prowess and their ability to manufacture products in very high volume I think thats going to be key for US you know clearly where we're fortunate that we don't have to have partners take our parts into the marketplace. We can we can leverage.
To our customers and their ability and their relationships with the big Oems, who don't need somebody else to do that for US you know these customers have identified us and our technology is something that they want to leverage.
They push it through their foundries and then leverage their relationships into the marketplace I think thats going to be very good for us clearly.
With the world's largest filter manufacturer. The fact, they got north of 30% share the mobile space that clearly going to be something that we we lean on and we get very very excited about as we move into the manufacturing phase, but I think Additionally, if you look at what we're doing in the non mobile segment. We've done several webinars here over the course of last.
Yes.
Three to five months and those have all been focused on what we're doing in white by both at five six gigahertz and you know I think we are going to be very well positioned there same types of relationships with big ideas.
One is there anything I Miss there on that on that question.
I can hear about.
Probably the general traction, where we're positioned with manufacturing the filter through commercial saw foundries. The export of filters have gotten us where we can go out and aggressively promote the technology and I'd just say we're.
We're getting lots of traction.
Continue to validate the differentiation against the traditional bar technologies Illumina nitride Bob.
Great. Thank you how much did they say we're doing for just a second Dylan as you.
I guess or one of the newer.
Add when you look around the industry are you finding any surprises about what your can your competition is doing.
Are there.
Is there anybody thats really looking at the world. The way you are or are there things in development that we might not see as investors.
Down the road.
Over the next several quarters.
Oh, I'd say surprisingly no yeah, I coming from a a silicon world, where there's so much innovation and change in the acoustics world.
No.
The time between breakthroughs as measured in decades now years.
And so I think we've talked about for it there was originally the thought technology birds in the sixties Tc saw log on mature to say in the nineties.
F. barley, Canada for the 2000, and that's kind of been it until this export technology and.
And so I think as we've messaged before that.
Exmar should be to five g., what borrowers to Fourg I think that continues to have legs.
Great. Thank you.
Our next question is from our next question is from Tory Van Berg with Stifel. Please proceed with your question.
Hey, good morning. Thanks.
Yep. Thank you George and congratulations on the record quarter. First question is on the second milestone would your partner Oh, your largest customer what to get can you maybe elaborate on exactly what that means for you as far as taking things to the next level I know you talked about.
$100 million opportunity, but oh, well, what does that milestone means for potential other contract down the road.
That's a great question, Tori and I'll I'll kind of touch on that and then I'll, let doing kind of chime in here at the end.
As I sit back and look at it you know clearly.
I think when we went to mobile World Congress last year I mean, the technology was relatively new right. We invented it in June of June July of 2018, we did that initial demonstration at our U.S. in late 2018, and we came to market in a you know in February.
Sorry, with kind of the first band 79 filter that had is you know greater than 10% bandwidth and you know nice power handling and people looked at it and said well you know is that a one off you know can they really do that in scale I mean, that's the challenge right that.
Companies that are working on disrupted technology is getting to scale I mean, having the ability to come out of the chute and get a new technology and get it to scale quickly.
You know, that's just really really hard to do and nonetheless, the hard to do technically.
Finding companies that are willing to bet on these.
These companies with disruptive technology is very very hard to think you're going to get a tier one or tier two OEM handset manufacturer to sign up with a company with new and novel Technology. It's just it really is for investors they need to understand that just doesn't happen.
You know there may be sample quantities. There may be some you know common initial volumes, but until they've gone through these Oems they spend a year evaluating quality reliability ability to ramp to scale long term.
The reliability of the products before they will actually take it and put it into their product I mean, I know and you know there's a lot of folks out there that are on this call know that some of the bigger Oems, though they'll put a million units out into the marketplace just to test the quality and reliability I think for US. The key thing is we have validated this.
Technology with the largest filter manufacturer they have validated the parts do what we said they would do they evaluated the fact that it can be manufactured through the initial packaging requirements for these devices and they completed initial reliability and they know they can take.
And ramp it into production and the good news for US is they don't have to go through the quality audits with the the big filter manufacturers, they're selling you know billions of dollars worth of parts and that's with a b you know billions of units in billions of dollars where their devices to these companies already today and that's.
Should one of our customers. So we have other customers are in the hundreds of millions of dollars also in that top seven representing 98%. So you know I think for us as we sit back and look at this validation I think is tremendous I mean, guys can actually now sit back and look at hey, they don't have to be first.
They can be second third or fourth and know that the biggest guy on the planet is already validated. It you got to believe they're showing this technology to their customers and by showing it to their customers. There's been a lot of folks that don't want to be left out and I think that presents a real opportunity for us I mean Dillon, you're kind of in the middle of it what do you think.
I think it's.
As we've laid out in the collaboration agreement 'cause.
His initial phase was really around proving out what are the capabilities of the technology could be extended and so on.
As we put in our announcement going into the second phase is really about going to manufacturing and address going.
Pushing out the commercialization plan and this is only for four devices and if we look at Fiveg handset, yes. It seems like the wave two is coming up we're talking about maybe 100 filters and a device and that's just for one OEM here as we go by platform a different Oems or is there different configurations.
Customization so.
So we're talking in the deal on an annual basis hundreds of filters being designed and I just can't say that we have for that or the contract so huge opportunity for expanding to what's under contract.
Yeah, that's that's great perspective, thank you.
And on the Wi Fi opportunity I.
I know George you said in the past that you know you're hoping to maybe announce a partnership you know maybe this theory you don't know if not certainly next year, but.
Can you maybe update that on a on a timeline there.
Yeah, and odd billion chime in on this one as well I mean, we are moving ahead very aggressively.
We're doing a valuation.
Oh the devices you know as we as we noted.
Little over a quarter ago we.
Supplied sample in the first devices to some of our partners today, we are continuing.
Continuing that effort I think part of the work that we did we talk a little bit about this on the prepared remark will recall part of a the ability that we had to demonstrate that we can deliver these devices on.
Against a number of different foundries gives us the ability to sample the license to more than just the largest I'd EMS and the best we're actually able to sample devices to.
All carriers are there they are integrators and some of the guys that are doing a reference design.
And we're really able to get lots of really good feedback about what this technology can do and what it can mean in the marketplace and I think we're still seeing that you know the wide bandwidth that we can deliver for these sixsix applications is going to be game changing so.
Do I think that we'll have that done this quarter.
Clearly I am optimistic I sure wish we were over the Covisint thing so I could with doing sit in front of customers face to face on a more regular basis, but we're still getting out there and we're still getting out and doing the work that we can.
And I I think that if it's not this quarter it will be very soon thereafter.
Yeah, I'd, just say, we got we have hardware and.
And all the five and six gigahertz bands this demonstrating the full balance.
We're getting samples prepared I think as George mentioned.
Getting in front of people has proved challenging we haven't quite open doors that definitely we hope we would.
That's all that we're making great progress and as George mentioned continued to show differentiated performance against both income and diluted resonator technology. It's clearly is not going to be good enough for these new bands preclinical existence as well as the aluminum nitride <unk> well. They just don't have the bandwidth and are looking to do.
Multiple filters to cover what we do in one.
Sounds good just one last one for Marty Marty.
The R&D continues to come down which is great.
This kind of the level, we should expect going forward.
No I am I think I thought we started up earlier in the areas that we stepped down we've really refocused.
Our efforts, but that expected to grow the expenses back as we went through the year now exactly one when that would happen. It's got pushed out a little bit side, it's going to get pushed up this next quarter and into early next year.
And.
Yeah, I was going to say that that's still is doing a fine job driving his organization and you know the the people we're talking to are driving us to really push push us and get some relief the development done so we're spending the money.
Sounds good congrats again.
Thank you.
Our next question is from Raj Gill with Needham and company. Please proceed with your question.
Yes, thank you and congrats as well on the solid momentum.
You had mentioned that in 2021 that you expect the majority of the volume next.
Next year to be driven by your traction with these Chinese foundry.
So I just wanted to get a little more clarity on that and in terms of your business with these with the Chinese foundries you had five designs in Q3.
Well, what what is the mix of the of the business is that is it standard licensing as a prepaid agreements.
How do we think about that mix of business with before the foundries as we go into 2021.
Yes, Hey, great I really I really appreciate the question allow me to give a little bit of clarification, you know when I tried to do that on some of the during some of the previous questions that were asked these are the majority of the volume it specifically around Ars three gigahertz segment of our product offer.
Right. So that is the library product. So when we look at historically, while we are seeing unit volumes ramp with some of our historical customers.
It had full custom we see a transition as we go into 20 2021 to that becoming more of our library based products for these large.
Chinese foundry customers and them going after the large Oems in China, so that the transition that I'm talking about you know so as I sit back and look at that and what that will mean, you know it's a you know.
It's going to continue to happen over the course of a probably the next six to 12 months, where we see some of our legacy designed.
Kind of reach full volume in and begin to start tapering off we'll start seeing these new a new.
New opportunities that we signed up early this year in late last year, starting take a hold of the departure of the designs that we have mentioned today. Those are all designs based on prepaid royalties and so it's all part of the mix from a revenue perspective that Marty.
Ports on.
It because we're as we go through the process of development.
And do revenue recognition according to six and six those things get clipped off or they are part of the.
[noise] offering that we actually do that is a combination of prepaid royalties and when they hit a hurdle mark in volume they convert over to royalty based agreements. So we get paid an upfront number through the development that pays for our development of these.
Devices in and small profit and then as they are successful in the marketplace, we're able to reap the rewards on the backend along with our customer as they ramp volumes.
Okay. That's helpful and in terms of you know your traction outside of the mobile space.
We're seeing a lot of traction there and why she'd be.
You talked about this design on the automotive side wondering if you could maybe elaborate further there and then also what are your thoughts in terms of sell your infrastructure, specifically massive mimo kind of expanding.
Next far into that area.
Okay, two things first and foremost we've got about as much as we can talk about as it relates to that automotive agreement as you know historically, we've not been able to talk about our customers and the specific bands of those agreements once they get into the marketplace all of our all of our announcements or.
Actually run.
Run by our customers and they're pretty pretty.
Pretty tight lipped about what these devices are because I don't want people to be able to triangulate what work, we do for them versus the work they do for themselves.
I can tell you. This is one of our earliest customers the customer that's been with us.
You know since 2016.
And one that is been a very good customer over over the course of life of Ah or sub three gigahertz portfolio and they are aggressively working with us to identify what they can do with our next generation products, whether it be on the software side or what they could potentially do.
With us in the Fiveg arena, but as it relates to Wi Fi and C. P. E. Bill do you want to touch on those.
Yeah, I think we're just really dig into the massive mimo EBITDA.
So I just I got to focus on that one right because I'm. So excited about the same there basically you know as we better understand the physics of how this ex bar resonate or work, it's really different from traditional acoustic filter technologies and what we're finding is we do think that the n. eight power.
Handling capability is quite high.
And so we've definitely been looking at this massive mimo opportunity.
As you know it used to be do you have a macro base station with one antenna and now it has 32 to 64 antis and need to be filled each element neither filter and those power requirements have come down closer to half that level. There's still an order of lets say two to four times higher than the handset I think within reach.
It's a very interesting a sizable market that's commanded good margins traditionally and.
And I think you'd be shipping industry analysts. They were say this has always been kind of the Holy Grail is to bring acoustic solution to replace the cavity filters or are brick ceramics that are that are now so that's an exciting area research for us.
Great and then last question for me Marty what we're talking about the the marotta of business and how to recognize that you know he said, it's kind of it's lumpy. So in Q4 or turn back the revenue were turned back to where it was in Q1 Q2 at 500 to 600000, yet still growing actually.
The payment sequentially.
How do we think about then the the marotta.
Revenue recognition as we go into calendar 21, how does that kind of the cadence of that revenue.
Start to kind of hit the piano.
Well you know that we've only given we only get a quarter look out.
Yes, thats traditionally what we've done because of the.
Because that's what we feel real comfortable with that were getting really good at that looking back at what we've done over the past five quarters, we've done a really good job of.
Looking out selling the product spread expectation, so I don't want to get out there too far.
I think if you look at you know just look at hobby.
Revenue is comment on this past you know in the past year that might be some guidance for looking forward as hey, sort of steady sort of steady growth.
Thanks.
Our next question comes from Kevin Didi with H.C. Wainwright. Please proceed with your question.
Good afternoon, gentlemen, thanks for taking my question.
Hi, George can you just take a step back and sort of refresh our memory on the 46 so million devices that you said that.
That you design can you give us sort of our.
I don't know and approximate ASP and then could you kind of jumped.
That figure to a comparison, what you'd see in Fourg and the stuff that you expect to.
Recognize royalties on the second half next year.
[laughter], Kevin you are always hard at aren't yet as.
As you know, we don't break that down.
First we're probably obvious reason.
At this juncture, just because of where we're at but I mean, obviously I think what we've said historically as you've seen the sub three gigahertz dsps come down they've come down really dramatically over the past four years I mean, when we started.
When I started here in 2016, you were seeing.
One three quad that you know a Buck 65, you know, they're 30 cents today 30 to 35 cents. Today. So you know that is kind of one of the anchored tenants from a value perspective.
So I think we're seeing that that trend overall is going to continue. So you know you're talking you know nickels and dimes not a quarter's 50 cent pieces in dollars you know on the sub three gigahertz devices, except as it relates to.
Some of these other applications that are lower volume that.
What we're seeing for digger I mean, some three gigahertz devices being used as you know kind of backup to Fiveg devices. So I think you will see that in some specific applications you can see pretty specific uplifts in his piece, but the <unk>.
For the most part nickels and dimes in.
The three gigahertz.
Segment of the market.
You know I think we're seeing half dollars up to.
Silver dollars in the a and the Fiveg space, depending on if they are a single filters or if we're making great migrating out and looking at Duplexes and also dependent on whether or not it's a handset opportunity or something that would be in CBD or infrastructure I mean doing I mean.
That's fair absolutely.
Okay. So fair enough then.
Oh, well the takeaway being that yeah, it's huge crunch and sub three gigahertz, but.
Some of the Fourg stuff is still sophisticated enough to command a little bit better ASV is that fair yes.
Yeah, I think that's fair and you know part of the thing that we're doing Kevin I mean is clearly one of the things that we saw and I think you're acutely aware of this when you've got.
Design timelines on full custom devices that take.
18 to 24 to as much as 30 months on a full custom device to get in the marketplace and during that time frame, you're seeing pretty aggressive price decline that is challenging as you're entering the market with some disruptive technology and part of the reason we migrated our business model to.
Prepayment is to one curve that and also part of the reason we moved do not only prepayments, but standard library products and so that we're not doing full custom designs for every customer. So now we've got library products that we basically port from foundry to foundry for these large tier ones that were working.
With.
We are able to mitigate the design costs there shorten the design cycle very substantially.
And Moreover, because it's kind of on the back end of lifecycle curve the qualification cycle on the backend, especially because these companies are all.
On the a b L for these big Oems in China is shorter. So this is why we say we think that devices that we completed designs that we completed in 2020 have the ability to see you know unit volume starting ramp in late 2021.
Significantly shorter.
Cycle times already through the process and for US you know the cost to develop is significantly lower as well [noise].
[noise], but okay payment.
Prepayments clearly have changed the game for US and you know you know 24 36 months ago, we just weren't in a position to command that from our customers. We were you know.
Little company being you know very very happy getting the designs, we got and frankly, it allowed us to hone our craft.
Allowed us to get in a position where we can do the things. We do with is then and probably most importantly.
He is through those efforts that we were able to develop these ex bar based devices and do it as efficiently as it looks like Weve done.
So George it.
The takeaway here is that you're you structured prepayment agreements with or on contracts outside of X bar.
Is that yes, the takeaway yeah. Okay. Yeah, we we we we message that in press releases or the beginning of this year that we got some pretty significant prepayments out of.
At least one of those large.
Asian Foundry partners that we have and we're continuing but.
We're continuing to work that with all of our customers at this point.
Right, Okay, otherwise, so we should assume that.
I mean, I know you addressed this just a couple of minutes ago for an earlier question or but otherwise those I mean, the business model. There's the same rate you're being paid on royalties based on units shipped.
So today, we have legacy business, which is small upfront and per unit royalties than those royalty rates on the average were 7% to 12%.
Oh, you know as low as five as high as 20.
Than we have.
Three different versions of prepayment.
And we're getting all three at this juncture we have fully.
Fully paid up license like we have with the world's largest filter manufacturer.
And then we have a couple of different versions of either.
Paid up license with our hurdle rate, which has a little bit lower royalty rate than a.
Prepayment that is just covering our engineering costs and we start getting paid royalties on the very first device.
So three different versions of prepayments all in the mix for what we're doing today out in the marketplace and that we're currently contracting for and it gives us I think a nice blend from a not only a billings perspective, but also from a revenue perspective from a Rev Rec standpoint.
Alright, so can we roll up our sleeves little bit and began to the timeline on X bar and I am getting to market I know you've got through the second of four milestones.
I give us a hint what the net.
And when you think you'll start seeing that X bar stuff in the market.
Well I mean, a here's what I would tell you Kevin because then the need tails of the contract.
Up in share those are pretty pretty tightly kept secrets, obviously, you know, but what I can tell you the exclusivity and and you know the end of the first quarter in 2022. So I think that gives you. Your boundary you know it's reasonable to expect that that.
It is a is a boundary that we're going to try to be and have them into production by that timeframe. If you look at there and if you look at their press releases, which I can point you to their.
Their press releases when we signed the original agreement talked about ramping production in the latter part of 2021 with volume production in 2022, which is consistent with at least.
One of the tier one OEM handset manufacturers release schedules.
Okay.
Thanks George.
But that's you know that's 30000 foot you know I don't know yeah. No. That's that's all I needed right I I have lost track of it and I apologize I know we're nowhere its worth you dragged me through it again, but I think it's helpful to worry as well as everyone else on the call yeah.
Yeah absolutely.
All right. So can we slipped back to I think it's slide number six where you know what I imagine you're you know I know Dell Intel he's on the call, but imagine the rest of us aren't at Delhi, Kelly doesn't calories Lee right. So we're talking about the technology involved for what.
You need to address the next wave of Fiveg can you dig a little bit deeper on the difference and technology.
The resonator per se as you alluded to on the call and see what you think your competitors are bringing to market that allows them to call. There. So.
Filters fiveg.
Capable.
Thanks.
Yeah I think.
No to us.
Yeah, I mean, you don't don't feel obligated to step in Dillon I mean, if I may just one on Georgia, Slap Oh [laughter] if you like.
Thank goodness you put me on the spot you know I think Oh no no no. It's up to you. It's your call George.
No Hey, Kevin are you always give and take questions from me. So I think the I think the two things here right and I will let Dylan Backstop me here. So he doesn't cringe when I started talking technical [laughter].
So, but there are two things here that I think to keep in mind clearly there are devices that have been introduced in the marketplace that have fiveg filters in them today and there are some combination of different technologies, whether they be acoustic ceramic device.
Devices, depending or some hybrid solutions are going into the market and they are actually you know delivering and able to receive fiveg five.
Fiveg signal, but I think the real challenge is is as you look at what the expectation from the consumer.
And from the enterprise for a Fiveg network and having the ability to have download speeds that take your you know your high Def movie that takes you to you know 20 plus minutes download today on your traditional Fourg LTE.
Network and be able to do it and you know sub minute timeframe you know if you're the only guy in the neighborhood a with a with a fiveg the.
Base station and you've got your Fiveg phone you know you're going to have downloaded see speeds that are probably better than your.
North of 20 minutes, but if you've got you know 100 people in the neighborhood, you're going to be not getting much better download speeds and you would be getting today.
And that's in large part due to the performance of the RF filters and the our front end and in its entirety on.
There's a lot of work that's going on right now to set a footprint from an infrastructure perspective set our footprint.
From a from a you know.
From a network you know if you look at the operators and what they're trying to do to get nationwide coverage, where there'd be and sub six or in millimeter wave technology and you know as we go through and get these devices into the marketplace. What ultimately matters is what delivered to you at the phone and the user experience.
With that you have Oh, we don't believe in the people that we talk to in the marketplace have agreed that you know its going to take some time and we say that we're currently in that wave one setting the footprint.
Stage of the market adoption and that when we get to by you know we get to wave two we'll start seeing you know that real Fiveg type. Some performance you know getting getting to you as a consumer I mean, you got to keep in mind, Kevin. The you know you've been around long enough.
You know, you're you're an old man like I am and you've been around long enough to know that these new wireless technologies, you know don't come on the scene and you know ramp up quickly get fully deployed.
Overnight I mean, if you look at these technologies they tend to have a life span of 20 to 30 years, they have a slow ramp.
A nice highest square peak and then a long taper on the backend and you see lots of overlap because you have to have the support of.
Our own backwards compatibility as you go through and deploy these networks. So I think they were at the front end I think that it's an exciting time I think there's going to be some really cool new features and applications, but you know what you're going to want is you're going to want to fully autonomous vehicle, leveraging you know fiveg filters and sensor.
LNG in your car and you want ultra low latency you don't want to have a latency that requires you at 60 miles an hour to go plowing into that car in front of you you want those things to be very very fast to respond. They just don't have that capability today.
Let me hand, it over to Dylan who's been sitting here screaming, because I'm, probably butchering the technology doing what device.
If I got it wrong here and what can you correct me on that.
Hi, overlay of the Fiveg market today.
I think at the Big picture right I think I, just if I could get down to a technical I will try to keep it simple.
Income and high performance technology is aluminum nitride BAW.
It does not natively has the bandwidth to cover these bands.
And so they have to trade off thinking may one eight districts, where you can extend the bandwidth.
That harms the rejection to interfere and so that's what George was talking about as the networks intensifies.
You'll have performance problems with an interference.
The other pass if you split the ban in the sub band.
Thats, a brute force approach that adds cost and size.
And the other issue with that is it adds extra lost and we probably lost is that impacts range whether you.
Your device won't work as far away from the base station or the operators have to deploy more infrastructure, which certainly costly.
All things being equal if you have a filter.
Technology that covers all of it.
That's going to be a winning solution and that's where we think we're positioned timing wise for this wave two and 21 to 23.
Okay. So my understanding limited to exit is doing that.
Some of you or a device manufacturer using BAW are adjusting.
I guess milling part of the last layer deposition to you know just the I guess just to just the frequency range.
And what you're saying is that it's still not going to be sufficient to.
You know capture what needed to capture in gigahertz bandwidth.
Correct that milling is just trimming for yield it's nicely improving the base capability.
Okay. This is just you know this is old.
Material science, that's out of the of the certain material has certain coupling capability, which results in a bandwidth.
And we've chosen to use lithium niobate material, which is you know broadly published.
I have a better capability and I wanted to figure out how to use it in a way that we are using that before.
[noise] [noise], okay, how how difficult is it for your foundry partners to make the adjustments they need to on the line to incorporate the.
You know the Smith specifications that they need to or the adjustments that they need to that you know that span out from the ascend modeling.
Yeah, I mean, the real beauty is that we really did take the approach of trying to utilize existing saw infrastructure and processes. So as we announced back in August we did to run through two different commercial saw foundries first past success on both with the off the shelf process. They already had no change.
Oh no change okay.
Well gentlemen, thank you. Thank you for entertaining me George as always it's a pleasure I appreciate it congrats on the progress great.
Great. Thank you very much.
Our next question is from Bill Morrison with National Securities. Please proceed with your question.
Hi, guys. Thanks for taking the questions Hum.
'cause it since since year end the design cycle for wave two devices basically now.
There any visibility with your expert partner into.
Like the number of sockets, there pitching or at or.
You know how many they may have one or is there any visibility into that number.
Number one and then number two.
In China Fourg when do you expect the hip <unk> per unit royalty run.
Run rate there. Thanks.
Bill and two great questions first question.
Thats one for our partner to answer and not one for us to answer sorry about that the good news for US frankly is we're on a prepaid prepaid royalty basis for those devices. It. If you recall the four devices that we have contracts with them are fully paid up so.
No it doesn't matter to us whether or not they have no customers or 50 customer for those devices, we've already been paid.
And that you know is a choice we made when we went into the contract period, because we thought it was best for us on those four devices, but I also like to highlight is Dylan noted there are hundreds of new devices, they're going to be developed and for us we get to 12 concurrent devices and with that customer under this contract team this business case.
Cash flows so.
Who we think its a pretty nifty little model for us and one in which is you sit back and look at it.
You know you get a 100 devices that you know couple of million dollars piece that becomes pretty good little business.
So that's kind of the answer I have for you on that front and now if we look in the the Fourg devices again that is also prepaid.
With a hurdle rate that most of those Chinese customers, our prepaid with the hurdle rate, which pulls down there right.
Royalty rate from our traditional 10% to you know the 5% to 7% range, So where we have historically been 7% to 12%, where we get a small upfront and get all of our payments on the backend when we do a pre pay with the hurdle rate from a unit volume standpoint, we.
Tend to do that on a 5% to 7% royalty rate.
Hope that answers your question.
Yeah. So I was just asking like when on average do you expect more revenue for GE, becoming another per unit royalty rate versus up fronts and that you know and I don't.
Understand Oh fronts with you expert customer, but you.
You know thats got to be some design wins.
In the market for the market as a whole to be comfortable with.
Your filters hey.
Hey, Bill So you have brought adoption, but let's go with the fact that they own 30 plus percent market share and they contracted with us after evaluating every single technology out there and viewed our expert technology is the one they wanted to bed on and they're already indicating that they believe this technology.
Is worth.
In the one hundreds of millions of dollars per.
You know per contract you know so for these four devices. They said its somewhere between 90 and $180 million for the life of these devices. So they have confidence I can't speak to any more than that from their perspective, because that's what's in the public domain.
I can tell you that you know I doubt if they haven't any intent to lose share. So considering that there's lots of new devices are going to be developed annually or.
For Fiveg I think we are in very good position as long as we continue to execute to get those as it relates to the Fourg, Let me come back in and to try to answer your question on that for those customers. We said, they're going to start ramping in the second half of the year.
2021, my expectation is they will it will take them that second half the year to get through their hurdle rate and we won't start seeing additional royalties on those initial devices until the following year that makes sense, assuming they're successful keep in mind, though we have additional devices, we are going to be doing.
Even with these companies and so this just represents the revenues were seeing right now early devices we've contracted.
Bill did I Miss anything on that.
[music].
All right great appreciate it guys. Thanks.
Yeah, no worries thanks.
We have reached the end of the question and answer session. At this time I'd like to turn the call back over to George Holmes for closing comment.
Great. Thank you operator.
Today marks just another great milestone for the company.
Hopefully we've been able to highlight the significance of our partnership with the world's largest RF filter supplier.
The meeting or beating our guidance for the third quarter on all fronts and.
Moving to the manufacturing development phase, our Exmar mobile contract.
Weve expanded the footprint of our library product with our Chinese customers.
We're poised to expand our engagements with the other tier one Oems based on the performance of our expert solutions for Wi Fi and infrastructure applications.
In particular with the validation being able to deliver boss structures built on standard saw foundries.
I think this really marks.
Hi note in the company's.
History, and as an exciting milestone and marks all that exciting things that are hard to come in.
I'd like to thank everybody for joining us today and have a great day.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.