Q2 2021 Resonant Inc Earnings Call
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Good day and welcome to residents second quarter 2021 earnings conference call.
Today's conference is being recorded at this time I'd like to turn the conference over to Craig for Lesnick from MZ group, the company's Investor Relations firm.
Please note we will be using a presentation during today's call, which is accessible on the events page of <unk> IR website.
As you are with US today via phone. Please go to the events page to either view or download the presentation to follow along.
Turning to slide two.
Earlier today resident released financial results for the second quarter of 2021.
The earnings release that accompanies this call is available on the investors section of the company's website.
I R got resident dotcom.
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 anticipate and similar variations identify forward looking statements, but their absence does not mean the statements are not forward looking.
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.
Factors that could cause or contribute to such differences are described in detail in our residents. Most recent Form 10-Q, and 10-K and subsequent filings with the SEC.
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 of resident George Holmes, George the floor is yours.
Thank you Greg and thank you everyone for joining us on today's call.
I'd like to welcome you to our second quarter 2021 financial results conference call.
Joining me on today's call is Martin Mcdermott, our CFO as well as Dylan Kelly, our CFO, who will be joining the Q&A session.
Turning to slide three.
The second quarter of 2021 was highlighted by our continued advancement across our operational and strategic priorities.
Notable in the quarter, where the $17.5 million RF filters designed with our wave <unk> platform that were shipped to Oems by our customers in the second quarter of 2021.
This represents a year over year increase of approximately 450% and.
And that's sequential quarterly increase of approximately 104%.
This acceleration of shipment has allowed our customers to ship over 79 million resident designed RF filters to date.
And we expect to exceed 100 million units before year end.
Turning to slide four.
There are a select group of companies at the forefront of the industry that are facilitating the transition to next generation ultra fast and high frequency networks.
From device manufacturing to logistics and supply chains to infrastructure management and more companies and government entities are working together to navigate the optimal path forward to a global wireless connected community.
At the core of this transition is a need for technological innovations that enable the future of global connectivity.
Wireless applications of the future such as connected cars smart cities and extended reality all require the coexistence of next generation networks, such as five G. Wi Fi succeed ultra wide band and millimeter wave.
At resonant, we have focused on and successfully addressed the requirements for unlocking. These next generation networks with our X bar RF filter technology.
X bar has increasingly been recognized as the leading solution for these high frequency communications with further applications into six G. Wi Fi seven which are now in the early stages of technical definition.
One of the most significant validation of our proprietary technology and operating model as our strategic partnership with the world's largest RF filter manufacturer. This partner dominates the art corporate state with the largest market share of both RF filter and duplexer segment and does so by a considerable margin.
After a thorough evaluation of resident ex parte technology, they quickly realized our unique ability to dramatically improve our filter performance for next generation wireless networks, while also accelerating their ability to deliver these high performance products to the market.
Since our initial engagement, we have already exceeded expectations by successfully demonstrating the export performance packaging and initial reliability requirements ahead of schedule.
But the most technically challenging milestone completed we have now turned our focus to the commercialization and high volume manufacturing phase of the agreement.
In tandem with our initial four contracted designs with this strategic partner. We are also working to expand the scope of our agreement and expect to license additional devices with this partner in the remaining months of 2021.
As a reminder, this partnership has been focused exclusively on filter designs for mobile handset.
While this is clearly a key product vertical for next generation connectivity. Our expert technology is also ideally suited for the non mobile segment, including mobile infrastructure Wi Fi access point Ultra wideband.
High frequency Iot applications.
We know how valuable our export technology as evidenced by our understanding that no. Other player has been able to demonstrate our filter capabilities at suitable FX bar for next generation network requirement.
Everyday that passes without a viable competing solution to X bar, we firmly believe our technology becomes even more valuable.
That said, we have already successfully sampled non mobile expert Wi Fi devices and expect to announce at least one formal partnership with a key industry player and the non mobile segment in 2021.
However.
We're focused on doing the right deal with the right partner that fully reflects the value of our technology and fully rewards our shareholders.
We expect to export technology, and IP to play a dominant role in what's going to be an incredibly high growth segment of the market in years to come.
Export was designed to match the new disruptive requirements of next generation wireless networks.
And the same way that F bar was optimal for <unk> and previous generations of Wi Fi, we believe that our X bar based filters are the best solutions to unlock the true potential of five G 60, Wi Fi five six and seven and ultra wideband.
Turning to slide five.
Listen as key differentiator is our proprietary software design platform way backs, which enables us to take an innovative approach to RF filter design.
During the quarter, we announced our wave X design software, which is an upgraded version of our legacy ISN software platform.
<unk> is enhanced specifically for advanced RF filter design.
As our X bar, featuring full three dimensional stimulation of resonators and filters.
That is otherwise not possible with today's commercially available tools.
The critical requirements of five G Wifi and ultra wideband filters include optimizing isolation, minimizing insertion loss maximizing buying bandwidth and increasing high powered durability.
<unk> enables us to accurately simulate and deliver performance of our export technology across multiple foundries, providing tremendous supply chain flexibility while meeting these complex requirement.
The wave <unk> platform is a cloud base full three dimensional multi physics finite element modeling tool with capabilities that are unmatched in the industry.
Ultimately wave X enables resonant designed RF filters using manufacturing processes that are significantly more cost effective when compared to traditional bulk acoustic wave or bought approaches.
Resulting in superior performance and significantly reduce time to market for our customers.
Okay.
Turning to slide six our operational strategy is dependent on maintaining a robust intellectual property portfolio around our technology.
This is a continual focus at resonant.
And it is important to note that since X bar is a fundamental novel filter technology, a resonator structures processes and filter designs are all proprietary.
It is significant to highlight that resident retains all intellectual property for designs, we license to our customers.
We have grown our patent portfolio by adding over 75 additional filed applications or issued patents since the beginning of the year.
To date, we have 375 filed applications or issued patents in the U S and internationally.
It's no surprise that the bulk of our IP growth has been related to our export base technologies accounting for greater than 225 are filed applications are issued patents.
At the close of 2017 resident was not a significant player in bar filter intellectual property.
However, since the <unk> bar, we have built a world leading IP position in bulk acoustic wave filters and remained focused on rapidly expanding our IP portfolio to build a moat around our technology and trade secrets.
Turning to slide seven.
Export is attracting attention due to its inherent capability to handle the requirements of next generation of wireless.
Especially when compared to the limitations of other filter solutions in the industry.
Let me touch on a few drawbacks of these legacy solutions.
Most existing bar filters are based on a P. As electric material called aluminum nitride, which inherently has significant challenges in meeting the wide bandwidth and high frequency requirements of next generation networks.
Combined with an immediate need for these networks to operate at higher frequencies.
Typically the three to 10 gigahertz range. These legacy filter technologies would require modules with experimental arrangements and added external components.
Jeremy Taishan with material changes such as doping or some combination of all these methods to improve performance.
These processes are costly and unnecessary size hamper robot reliability and have the potential to significantly impact performance.
Turning to slide eight let's expand on some of the challenges associated with using RF filters designed for <unk> on next generation networks.
Earlier this year, we shared the plot from third party testing of scandium doped aluminum nitride, Bob filter solutions compared to our X bar.
Which showed our X bar as a superior solution, providing significantly better power handling and rejection to interfering bands.
The performance plot on the left side of the slide which is from a third party test lab demonstrates the limitations of legacy ball aluminum nitride technology for Wi Fi succeed with little rejection to <unk> and ultra wideband potential interference.
These limitations resulted in slower data speeds reduced coverage and drained battery life.
It is important to note that today's aluminum nitride Bath RF filters were developed specifically to meet the demands of <unk>.
They exhibit limited RF performance at high frequencies.
We believe using these legacy filters per the requirements of <unk> would result in a massive leases spectrum due to interference grading spectral efficiency.
Patiency impact would be in the billions of dollars in the U S alone.
For those of you who are interested in the details of the spectral efficiency you can find the detailed white paper on the subject on our website.
Further relying on legacy RF filter solutions require a massive infrastructure expansion to deliver the same coverage and consumer experience as an export base network.
This approach would require operators to roll out many more base stations across the network and extremely expensive approach.
Clearly the cost of liability of using these legacy filters to achieve true <unk> performance reaches far beyond the device manufacturers.
Devices, such as handsets routers. They utilize these filters would suffer from poor connectivity.
This is due to the legacy filter technologies inability to protect signals from interference over large bandwidth at high frequency.
These issues would be apparent across the increasingly connected ecosystem of devices from home appliances to connected vehicles and health care devices.
Our modern world is dependent on solutions that enable optimal connectivity and performance.
Turning to slide nine.
I'll stress once again, we believe our expert technology is the only technology capable of needling meeting the requirements of true five G. Five and six gigahertz Wi Fi and Ultra Wideband. In addition X bar has a roadmap beyond these immediate wireless standards without the inherent limitations of aluminum nitride boss solution.
<unk>.
Thanks, Bob bridges, the gap from disease early rollout of <unk> to the promise of wide bandwidth high frequency low loss high power cable building networks.
All while delivering significant cost efficiencies.
Turning to slide 10 <unk>.
Key to our continued growth is the fact that we are not a competitor to RF filter manufacturers, but rather we enable them by helping them deliver products with state of the art technologies to market at a rapid pace.
Our go to market strategy as a pure play licensing business has been well received as evidenced by our partnership with the world's largest RF filter manufacturer, which included $9 million multiyear commercial agreement for our export technology. Additionally.
Additionally, our customers have shipped over 79 million units of our legacy designs for sub three gigahertz applications.
Riding further validation of our licensing model.
We expect to surpass 100 million devices shipped with resident IP before year end.
Now, let me spend a few minutes on the overall market for RF filters.
For filters in duplex as extremely concentrated the top seven filter manufacturers controlling 96% of the market.
Our partner is the largest market share in both categories controlling 36% of the filter market and 33% of the duplex or market.
There are also the largest filters supplier by a significant margin as evidenced by their filter market share being larger than the second and third largest players combined.
By leveraging our partners established relationships with the world's largest handset Oems, we expect expert technologies to penetrate a large portion of the market.
This partnership alone represents the potential for over $100 million in annual revenue per resident.
Under our agreement there are four milestones the second of which was completed ahead of schedule in October of last year.
With our expert filters validated for the target performance packaging and initial reliability. We were able to proceed with the monetization of the partnership in the form of prepaid royalties of which we have received 50% for the initial contract to date.
Together, we are now focused on the commercial production in high volume manufacturing of X bar based filters for next generation wireless applications.
With only two milestones remaining on the initial agreement we expect to sign additional design contracts with this partner in 2021.
And we will announce these developments to the market as they are achieved.
Turning to slide 11.
While the mobile market segment has historically dominated the RF filter market. There's also a tremendous opportunity in the rapidly growing non mobile segments.
Smart cities connected cars and Iot of the future will rely on next generation networks, including Wi Fi <unk> and ultra wideband that are designed to complement <unk>.
This coexistence between networks will ensure a seamless experience for consumers, preventing data overload, which would otherwise overwhelm a <unk> network.
Next generation Wi Fi and ultra wideband operated at similar frequencies and bandwidth is five G. So the requirements for next generation Wi Fi and ultra wide band filters are similar to those of <unk> X borrowers innate ability to meet these complex requirement uniquely positions resident to capitalize on the emerging mobile mark.
<unk>.
The number of Wifi six systems in the market is expected to grow from over $300 million this year to greater than $1.7 billion devices in 2025.
These projections show an increasingly attractive market and we are aggressively working to secure a deal for the design of <unk> filters for non mobile devices by the end of this year.
With that I'll pass it over to our Chief Financial Officer, Marty Mcdermott for a review of our second quarter 2021 financial results and what drove them Marty.
Thank you George.
Turning to slide 12, I'll now provide an overview of our financial results. The amounts I talk about are GAAP, except where noted.
Billings a non-GAAP measure.
Our $85000 in the second quarter as compared to $211000 in the same year ago quarter.
Revenues were $614000 in the second quarter compared to revenues of $604000 in the same year ago quarter.
This was in line with our previously provided guidance.
At the end of the second quarter deferred revenues totaled $766000.
And we estimate that amount will be recognized as revenue over the remainder of the contracts.
Research and development expenses totaled $5.9 million in the second quarter as compared to $4.8 million in the same prior year quarter.
The increase is primarily due to expanded design activities on our wave X and X bar technologies higher stock based compensation and expanding our patent portfolio.
Sales marketing and administrative expenses totaled $3.8 million from the second quarter as compared to $3 million in the prior year quarter.
The increase amount is primarily due to higher personnel related costs and travel expenses.
Our operating loss was $9.1 million in the second quarter.
Compared to an operating loss of $7.2 million in the prior year quarter.
Net loss was $9.1 million in the second quarter or a loss of <unk> 15 per share based on $60.8 million weighted average shares outstanding compared to a net loss of $7.2 million or a loss of <unk> 14 per share based on $52.9 million weighted.
Chubb shares outstanding for the prior year quarter.
Non-GAAP adjusted EBITDA loss was $6.7 million or a loss of <unk> 11 per share in the second quarter.
Compared to an adjusted EBITDA loss of $5.4 million or a loss of <unk> 10 per share in the prior year quarter.
Cash and cash equivalents totaled $22.7 million on June 32021.
Remember we have no debt.
On June 32021, we had a total of 73 employees 19 of whom I have a Phd and 52 of whom are part of the technical staff.
Finally, turning to slide 13 on the topic of guidance.
For the full year 2021, we expect significant growth over full year, 2020, and both unit shipments and prepaid royalties on contract extensions and new customer engagements.
As a reminder, we continue to expect revenues to be non linear from quarter to quarter. As a result of revenue recognition for our prepaid royalty deals.
Revenue is recognized over the course of the development cycle of these new engagements in existing contracts, where development cycles generally range from 18 to 24 months.
Lastly, we expect to achieve cash flow breakeven on a quarterly basis sometime in 2022.
And now I'd like to turn the call back to George for closing remarks, George Thanks, Marty.
Turning to slide 14.
What's the track in the back half of 2021.
As Marty just stated we expect our business to accelerated significantly from the growth we experienced in 2020.
Our legacy foundry programs will continue to grow and provide initial footholds for customer expansion into X bar based relationships.
This legacy business is expected to exceed 100 million units shipped before year end.
We expect 2021 to be a breakout year for our <unk> technology.
We expect continued and ongoing validation from the market that export based solutions are likely the only practical solutions to meet the demands of not only <unk>, but also <unk> Wi Fi five six and seven ultra wideband and potentially even millimeter wave.
Together with the world's largest RF filter manufacturer, we will continue building high volume manufacturing platform for our AG Barbie's filters that will meet the exacting demands of largest mobile handset Oems in the world.
We also expect to expand our relationship with them to include additional design contracts.
We expect to secure a contract in 2021 focused on X bar for non mobile applications.
It could include autonomous and electric vehicles internet of things or infrastructure applications.
With that I'd like to thank you for all for joining US today I look forward to providing updates in the coming quarters as we achieved the next milestones in our business.
And work toward our mission to revolutionize the connection between people and things.
Now I'll hand, it over the operator to begin our Q&A session operator.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
You will hear a tone acknowledging your request.
If you were using a speakerphone please pick up your handset before pressing any teeth.
Jay Your question. Please press Star then two.
We will pause for a moment as callers join the queue.
The first question comes from Anthony Stoss with Craig Hallum. Please.
Please go ahead.
Hey, George Hey, Marty a couple of questions. Let me begin with George now that you're going into the high volume manufacturing phase with Europe, what the world's largest RF.
Or has there been any technical challenges or anything else that has shown up and then also.
When do you think we can see X bar in consumer devices than I had several follow ups after that.
Okay, great. Thanks, Tony.
Yes.
The answer to that is is obviously sure theres always technical challenges these types of programs.
We are developing RF technology that we believe will enable wireless networks for the next 20 years.
Both expected in the development process that they're going to be items are going to need technical attention.
I think for those of you who follow what Murata is doing.
On a quarterly basis, they even commented about this in their call a couple weeks ago.
And I think what's important to note that we need what we announced in October is that we're ahead of schedule by almost a quarter.
And even more interesting from their call is the fact that theyre already sampling devices to their customers.
Again ahead of schedule by better than almost quarter.
I think the key here for all of US is that there are no show stoppers with the technology and we're moving aggressively ahead to help them with moving ahead.
The rapid manufacturing phase of this program.
Dylan.
I missed on that.
Prospective on private technology launches people always want things to go faster if we look at.
Some of the older technologies like fr or even ISP saw many kind of development times start production were like 10 years.
And this project just asked a year and a half in running the projects, we're looking at less than three years start to volume deliveries.
Really testament to the way the next platform allowed us to move faster.
Yes.
Kind of the second half of that question Tony is when do we expect to see export devices out there in the marketplace I think.
As it relates to mobile obviously, we have an exclusivity in the mobile segment of the market until March of next year, I think was our customer being on track and already sampling ahead of schedule I think thats consistent with them targeting the 2023 releases of handset.
The technology has to get in.
The Williams hands, they need time to design it in and we will see those get into the marketplace. In early 2023, I think thats consistent with.
Our announcements when we signed this contract and consistent with our lead customers expectations.
I think the thing that is even more exciting is the.
The non mobile segment of the market could potentially see.
This technology get into marketplaces early as the end of 2022, so lots of activity on both fronts. We feel good about where we are and we think there is a great trajectory going forward.
Thanks for that color and then one.
One more for you George the one for Marty.
Speaking of your biggest RF customer with their exclusivity ending in March of 2022.
Have you been able to have conversations with other handset makers in case, you can't secure a fair enough deals or Murata I'm curious your thoughts on kind of activity ahead of that and then Marty if you wouldn't mind, putting maybe a little bit of a finer point on our revenue range that you would expect for Q3.
Okay.
So clearly the ibms that we're targeting which we've described.
Kind of in the prepared remarks of the top seven guys in this space.
Clearly or.
<unk> engaged with and have deep penetration with all of the mobile handset manufacturers are exclusively with murata ending in March we will open us up to be able to engage others and move quickly into mobile agreements with them if thats what makes sense.
Think where we find ourselves today is we're actively engaged with the other six tier one manufacturers are aggressively moving to share with them what export technology can do in the non mobile space and I think the fact that they are engaged with US we'll give them a leg up when they move over into mobile. So I don't think were going to Miss a beat there.
As we move into <unk>.
Having free rein to market the technology in the mobile space come April one 2022.
Marty Lumpiness second asked that question, so Tom Tony as we as George mentioned, we expect to enter into the significant additional design contracts with our tier one strategic partner.
As well as securing contracts on non mobile all by the end of the year these contracts.
The great results in immediate billings and positive cash flow under our prepaid model and revenue recognition is over the development cycle, which may take 18 to 24 months or mobile and should be less on the non mobile deal.
As a result revenue recognition for the rest of the year is really is ultimately dependent on the timing of when we signed that contract and the work we accomplished in that period.
Can you maybe give me a sense of so if it doesn't get signed in Q3 kind of a blended.
Ballpark of revenues between Q3 and Q4 then.
Earlier in my comments I said, we expect it to be non linear. So we've also said over the top that we expect to have growth significant growth over the year. So I think where we are in this quarter is hayward near we haven't announced the deal yet so a little long time, so elusive borgwarner, we're burning time right now so I think youre going to seal.
Comparable.
Our revenue level in Q3, and then youre going to see something higher than the fourth quarter to live up to that we still think we'll get there clearly a hockey stick to hockey.
Hockey stick.
Okay. Thanks, guys.
Thank you Jenny.
The next question comes from David Williams from Benchmark. Please go ahead.
Thanks, guys I. Appreciate you taking the question just wanted to kind of talk about the commercial commercialization phase that you talked about and if you could kind of give us an idea of what that looks like.
And maybe how it differs from customer to customer as you move into more engagements and then how do you think that we should think about the revenue side of that as you move through the commercialization phase and beyond.
Well, David keep in mind all of these deals that we're doing today are based on prepaid royalties.
There is really two main prepaid royalty deals that we're looking at a one as a fully paid up royalty in which case, we get all of the projected revenues or billings at the time of signing and whatever the next milestone might be.
Or there is the buy down of a royalty rate in which case, we get an upfront payment and we get ongoing royalties on a per unit basis of both of those allow us to have greater predictability as we stack. These devices up on a year over year basis, I think what we said historically.
Quickly is given the existing export contract that currently is $9 million for devices $2 million to $5 million per device, we can get to cash flow breakeven with 12 concurrent devices I think the challenge for US and this is what we are highly focused on is once you pass that first mover.
Vantage and given that first customer the best deal Theyre going to get in this technology proves itself, which it has with the major milestones that we've already achieved we're going to have an opportunity to actually we look at what those asps are for those prepaid deals now if we are successful obviously that reduces the number of <unk>.
Additional devices, we need to contract in order to get to cash flow breakeven.
Obviously, we are very very focused on trying to do that with our customers and we think the value of the technology has been proven out clearly by the milestones that we announced last year and we're seeing a similar type of validation with the work we're doing on the non mobile side.
Hope that helps.
Yeah, no that's great. Thanks, so much.
And then maybe you could talk to us on the call about expanding the relationship potentially with Murata. What do you think that could look like in terms of number of devices should we expect something similar to what we've seen already or would you expect this to be maybe one or two devices.
Well I mean, clearly for the zone right. They would want to get as many devices under contract as possible because as the technology get further validated its going to get more valuable so for us what is more valuable mean, it means higher asp's. So you would think that they would want to move ahead with it.
Their next round of product releases and kind of secure and lock in kind of a pricing structure.
So that leads you down the path or more devices sooner rather than later I think what we've said is we're trying to get.
Minimally to additional devices. This year, maybe as many as four and anything north of that I think is gravy.
We're working very hard to try to get ourselves in the right position right blend of customer engagements and then having the right ability to kind of.
Add breadth to our customer base for <unk>. So we're looking at both doing both things so two to four from our tier one.
World's largest filter manufacturer then two to four from at least one other customer.
If we can get a third customer for XY or that'd be great.
Fantastic. Thanks, so much for that.
And then maybe just one last one and you've kind of talked about the Wifi.
Filter demand and can you maybe run through the Asp's there how youre thinking about that in terms of what Europe rates will look like.
And then maybe the differential between mobile and non mobile in terms of volumes that you could expect.
That's a great question I'm going to ask bill to jump in here and help me a little bit from.
And product DSP perspective, but if we look at a blend for the number of devices under contract.
I think for US we're looking at a blended rate probably we'd probably see probably 60.40 mobile to non mobile is kind of what we're thinking is probably going to be the out of the box kind of our first engagement.
We'll continue to expand the footprint on the mobile side and then have.
A good handful of non mobile engagements as well I think from an ASP perspective, you've got an end device ESP that in device ESP and our customers' position in the market place is what allows us to create the math problem that we use to Cree.
What the prepaid royalties would be so the good news for US is we're less concerned about the USPS when they hit the marketplace, which could be 18 months 24 months, we're more concerned about what the model looks light upfront because thats, how we negotiate our contract and for us.
And the position that we're in getting these prepaid royalties is very very important.
Because it helps us not only get too.
Cash flow breakeven sooner, but it also makes us less dependent on our customers' ability to secure sockets with the Oems what I Miss.
Thank you.
The thing to think about is that previously.
Hi Fi as point of CPE Vit market has been covered by non acoustic filters. So it's really.
Greenfield market for players are doing acoustics.
And we are expecting that.
We can be in the one billions of units as we go into Wifi, six and seven you see offices converting to a wireless network.
These are lot of antennas the mimo technology, so that's going to consume a lot of filters.
It's still probably it's nothing like the tens of billions of filters to go to smartphones.
It's very interesting.
Because as long as a bit lower if these are likely to be at least double what is seen in smartphones if not higher.
On top of that with what we're bringing to the table and the higher injections. Other bands. We think it opens up the possibility for significant bill of materials cost reduction and the CPE solution and hopefully we'll be able to take advantage of that as well.
Okay.
Still there.
Okay.
Thank you.
The next question comes from the Tory Sandberg with Stifel.
Please go ahead.
Yes. Thank you first question for George George You mentioned, the 100 million opportunity for X bar.
Could you maybe help us with the math there.
You don't have to.
Good scientific about it but just sort of general.
Numbers on how we get to two those types of numbers.
Yes.
Really comes from Us doing.
Doing some work based on looking at the presentation that was made by our customer to their annual shareholder at their annual shareholders' meeting.
And when they did that.
We kind of looked at what they saw the market opportunity for them and we back annotated into that.
Our percentage of their business, which came from their slides as well and then looked at that and multiply that times, our average royalty rate and came up with a number of somewhere between 100 and 200 million so that being.
5% to 10% of the market opportunity that they believe they have access to four <unk> types of devices. So.
It really comes from leveraging the data to date presented to their shareholders I know it's taken today.
Stab at what we think that opportunity could mean for us.
Three to five years out.
No that's fair.
And a question on.
Potential higher asp's for subsequent contracts.
It is way back to part of that.
So I guess my question is.
As your sample way VIX to your largest partner.
Is that a way to potentially get higher asps or are there other considerations here as well.
Well a couple of things here Tory, we do not license the wave <unk> platform, except for PMT acts the process monitoring tool, we still consider the wave <unk> platform is very very proprietary it's what gives us our technical edge, we leverage the PMT.
Next tool to help us with our customers hone in on the repeatability of their manufacturing processes.
So those are two different elements for us way back is really what gives us the ability to do this very.
Complicated modeling that allows us to deliver.
Our cutting edge technology.
Technology on what ultimately is a surface acoustic wave manufacturing process. So it's the <unk> tool that allows us to do what we do today, we're not we're not really sharing that with the customers accept from a process monitoring perspective, but really what gives us the ability to kind of.
Increase is PS is clearly first things out of the box, obviously early mover advantage guy coming to the table with not only the first contract for X bar and a strategic investment to get the best deal possible I think that is now that we've proven the technology does what.
We see a can do we've proven that the.
Devices can be package, we've proven those devices from an early reliability and a power handling perspective, that's what's going to really allow us to increase the ESP.
Technology has just gotten more and more valuable as we've proven it out in different applications not only for our tier one customer but for other non mobile customers out there in the market.
Very good just one last question on the non mobile.
And potential contracts announced before the end of the year you mentioned a few applications there.
How should we think about your go to market strategy there.
Have exclusivity for perhaps.
Somebody that sells into automotive versus somebody that sells into.
Wi Fi six access points, just just trying to understand a bit better sort of the go to market and no.
Non.
Goodbye.
Okay.
Yes, I'll field inventory.
It's really the same model that we're pursuing with the big ideas.
And the markets here now there's tremendous pull for Wi Fi six because of the five and six gigahertz band coexistence.
So we are still on the same track of agriculture is the support those full bandwidth.
And.
Split those efficiently. So we can reduce the number of filters in the CPE, but even there we're still looking at something like eight filters in a box. So it's a gigantic market as it rolls out and frankly, I think we've been surprised at the pace at which Wi Fi six is being deployed.
Lots of press that has already been rolled out enhanced us as well this year.
Okay, I guess I was just trying to understand a little bit more sort of the.
Exclusivity part if you work with any Wi Fi chip supplier or mortgage system integrator.
Anything you can add there.
Yes, I mean, so first things first rate, let's talk exclusivity we provided.
Our first export customer exclusivity in exchange for their investment.
Not as part of their commercial agreement with us.
Our position today as we are doing exclusivity in for new customers or for our existing customer.
We aren't going to provide an exclusivity component into the deals that they would like to get engaged with.
Today, we are intending to sell the technology to all comers as it were so I think from that perspective.
We are trying to be a universal supplier to everyone of the export technology.
Very good thank you.
Dylan.
Yes, Sir.
The next question comes from Raj Bindra Gill with Needham <unk> Company. Please.
Please go ahead.
Hi, guys. It's Dan here, Roger you asked a question for Rajiv.
Thank you Dennis asking a question for you guys how are you.
A question for you and how are you.
Great. Thank you so George a question for you. Please ask that you had mentioned.
That murata was running a little bit of ahead of schedule by about a month and then they were sampling devices from customers that could you tell us a little bit more about.
Exactly what kind of devices, they are working with and.
Any kind of any kind of Colorado why things are moving ahead of schedule I mean are they at all being impacted by any of these supply chain issues and you know how that whole dynamics kind of playing out right now.
Yes.
That's great question and so let me kind of circle back on my comments.
When I when I say they appear to be ahead of schedule that is based on the comments on their quarterly call, where they said they were sampling devices.
It had been sampling a number of devices out there in the marketplace.
That when we go back and look at the initial.
Press releases by both us and them they expected to be in sampling at the end of the year, which would be fourth quarter.
Sampling this year ramping into production and volume next year. So when I say there are ahead of schedule I think there is a schedule by about a quarter.
From what I can tell when it looks when it comes down to who they do that with and how they take that approach.
That's between them and their customers. So we are not involved in that were involved in making sure that you can get the technology to a point, where they can share with others that are responsible and kind of where we spend our time and energy.
Hope that helps.
Yes.
Have they ever mentioned anything about kind of the current supply chain situation impacting their ability to bring these products to market or are they kind of.
Are they kind of sorry, sorry.
Sorry about that I missed I missed that as part of your question. So from a if you look at the overall supply chain right now.
Clearly.
The semiconductor supply chain.
It has an impact on the module manufacturers and kind of what it is that theyre doing however, we're looking at it early sampling of these devices and we're looking at it from a vertically integrated.
The largest vertically integrated filter manufacturers, so when it comes to them and sampling to their customers probably not an issue.
They are not selling in volume yet so they're just in the sampling stages.
It's not an issue that we've seen if we look at our entire customer base.
Only one of our.
Customers has an issue with one application in automotive that has been impacted by the supply chain and that is one of our legacy components sub three gigahertz device that we announced several quarters ago that continues to be shipped but in lower volumes.
Got it that's really helpful. That's it for me. Thank you.
Hello.
Yeah.
The next question comes from Kevin Dede with H C Wainwright.
Please go ahead.
Good afternoon, gentlemen, thanks for.
Taking my call I appreciate it.
Hey, Kevin how are you.
Good and very happy to be here. So thank you for having me.
Great.
Sure can you elaborate a little bit on the foundry model.
Where does that stand and maybe this is a little resident one on one and I apologize for that but maybe take us through that again, because you're one of your slides here.
Indicates that you expect to press S bar Tech to the foundries in 2021 I was just hoping you could kind of review where that stands how many customers you have there where do they stand.
And how you expect that to go forward per what you've indicated here.
Yes, So let me kind of circle back to kind of the foundry program. When we put that in place and we continue to capitalize on it as we see unit volumes, increasing on a quarter to quarter basis, we put that in place in large part to enable foundries to take our standard products and push.
Them into the market and we're seeing that happen today.
Some of our legacy standard product technologies.
What I said on the call is one of the things that are legacy customers do as they become more successful and they validate their ability to take our designs pushing through production and into the marketplace. As we create a nice roadmap for us to extend our <unk> platform into those non.
Currently non <unk> customers.
Today, where we find ourselves with those foundry customers as they're heavily focused on legacy sub three gigahertz applications because that's the market that they address so we think there are good pipeline for us in the long term.
Today, Theyre not theyre not actively being pursued by us as they expire customers, except as it relates to some of our foundry partners who have actually.
Become suppliers to us for prototypes that we leverage to our large idms that we're engaged with those are more on the prototype.
As you know, we don't ship and sell product directly.
So we go out with X bar and we've been able to demonstrate that we can build export devices on a different foundries. Some of those are those foundry program partners.
We leverage that for our internal sampling capability and to prove to ourselves that we can put the technology. So it's part of the technology validation process, probably more than anything.
Today for Xbox Hope that helps.
Yes, yes.
No.
Just remind me they're not I mean, it's still sort of the same standard royalty model on on devices shipped from that foundry.
Once that happens.
Well, if you recall Kevin.
You go back and we started talking about our foundry customers in particular, the large Chinese foundry partners that we have are those all came with prepaid royalties associated with them. So those contracts are still being fulfilled.
Are still getting prepaid royalties for those as we go through the process of delivering devices to them and so we still get prepayments from them. They do have.
A follow on royalty payment that comes along with them.
But those are part of our new prepaid royalty program.
On a go forward basis and those.
As noted previously are all from our standard product library on sub three gigahertz devices.
Okay, Okay and then.
The move for them to start working with X bar Tech would be predicated on.
The device that theyre, making in the end market that that device goes in it wouldn't be in a handset application until after March next year correct. So thats the right way to think about it.
The two things you or Kevin I mean, clearly some of the.
Foundry partners that we have would love to get involved in export sooner rather than later, even if it was in the non mobile space our focus today for X bar, though is on the large idms.
And the reason being is one we've had good success there obviously.
With the world's largest.
Two.
I'll take the technology into the market. We are focused on the other top six guys kind of his first order of business.
And I think we'll see some success there from that group of customers before year end I think the roadmap that these other customers create for us as when we are ready and we look to push it out to a broader group beyond the top seven we've got guys that have been shipping product for two or three years.
And we will be aggressively pulling us into that segment of the market. So it is a nice roadmap thing for us.
Today, we're going to put our focus and we have been putting our focus on the largest players in this space because that's where we think we will get the.
Best Bang for the Buck of our development resource.
Okay can you remind us how many foundry partners you have I mean, I think at last count there was a handful at least I am just wondering what I've lost track of that number.
Well, we've got a total number of customers that has over a dozen today.
Those it's a small handful that are pure play foundries.
And I think we've noted previously.
Two tier one foundry partners that we've done contracts with.
In Asia at this point.
Okay.
Yeah.
Wave acts as an upgrade to ISN can you just sort of remind us of the cloud based business model.
And how that paradigm shifts with the improvement in the software's capability.
Sure and I'm going to fill in to kind of jump in and talk a little bit about wave X and its capability, but just as a precursor to handing it over to him keep in mind that when we purchased <unk> trade.
Several years ago, now that was when Ias <unk>, which is the precursor to waive X was a single dimensional software tool for acoustic wave filters designing filters.
Bridging finite element modeling and it was.
A very nice tool at that point in time, we have subsequently.
Added the capabilities of two dimension and now three dimensional model to these devices.
To the capabilities and it was with the.
Addition of three dimensions that we pushed and changed the name to <unk> because it gives us significant additional capability, but as that tool set that allowed us to go do X bar and Thats. What I think is really novel Dylan do you want to talk a little bit about why we think it's novel what we've done.
With the tool over the course of the last six to nine months and kind of where you think it is going.
Yes.
Curiously a challenge we wanted to migrate from two dimensional to three dimensional simulation.
And so really it's a ground up redesign.
Russia computational physicists on staff that was.
And realized.
Using in house compute was not going to be the right path. So it really focused on moving towards the cloud, which introduces a bunch of new.
Coding challenges I imagine that model, but if you could talk to those is extremely scalable and allowing us to dissimulate bigger problems, which then lets us make more optimized product.
And so whereas before we could use our own hits, a server farm and how we can scale up by 10.111000 ex the kind of problems that we can tackle using those outside resources.
At simulations back at the time, we need to service our customers. So really triggered the rebrand was that we really did reinvest tool from that first <unk> model.
Okay.
Okay. So.
Just so I understand it correctly done what youre, saying is that you're leveraging cloud and expanding your compute capability not your distribution capability.
And the software really has to be written.
Various specially to harness that cloud compute model.
There's a lot of knowhow.
No.
So George just.
Going back to your prepared remarks in the slides you showed there is a big emphasis on aluminum nitride.
How comprehensive has your survey Ben of competitors.
That really the sole technology that everyone seems to be attacking the <unk> Wi Fi six market with or are there. Other versions that you might consider comping yourself up against.
It's great question, Kevin because we do focus on aluminum nitride, Bob because that is kind of kind of a benchmark of which.
Everybody is measured against because of what it did for <unk> and for <unk> LTE.
Clearly as the technology that the largest players in that segment of the market are using to try to extend that to these higher frequencies.
Are there other solutions, yes, there are other solutions, but they don't have the same performance that in acoustic RF filter has.
Don't you want to touch on.
A couple of the things that guys are doing in the non acoustic space and what has historically been done in Wi Fi yeah.
Really it's been the world of ceramics.
If you go back to like first generation second generation cell phones, they have ceramic based duplexes and they were gigantic.
Immense pressure to make an acoustic solution work to shrink the form factor and get us where we are today, where theres 100 filters on the phone.
And so if you open up an access point today, you will find these legacy ceramic filters that are quite big so they can be.
Figures five eight millimeters or something.
And so what we're seeing is a lot of pressure on size as we move to the <unk> Mimo access points to get the feature set called out Wi Fi six.
So we're seeing some battle there, but overall with the redemption capabilities of acoustics, we're expecting that's going to that's going to win out.
Thanks for chiming in don't appreciate it thanks for entertaining me gentlemen.
Thanks.
Sure.
This concludes our question and answer session.
I'd like to turn the conference back over to George Holmes for any closing remarks.
Thank you operator, I just want to thank everybody for joining today's call hope we've been able to answer everyone's questions give me a good insight as to where we're going we think the future is bright for the team here at resonant and for our shareholders, great great opportunities and really some really interesting milestones it should.
And between now and the end of the year and we look forward to having the opportunity to talk to you all about it. So thank you again have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Thank you.
Okay.
Thank you.
<unk>.
Sure.
Thank you.
Yes.
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