Q3 2021 Resonant Inc Earnings Call
Good day and welcome to residents third quarter 2021 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
Any time during the conference you need to reach an operator. Please press star Zero as a reminder, today's conference is being recorded at this time I'd like to turn the conference over to grateful ethnic 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 resident IR website.
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 third quarter of 2021.
The earnings release that accompanies this call is available on the investors section of the company's website at IR Dot Regiment 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 or expressions, 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, but their absence does not mean that 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.
Several factors that could cause or contribute contribute to such differences are described in detail in resident its 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 is 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 our third quarter 2021 financial results Conference call.
Joining me today.
It's Marty Mcdermott, our CFO as well as Dylan Kelly, our CFO, who will be joining us for the Q&A session.
Turning to slide three the third quarter of 2021 was highlighted by residents continued acceleration of its export technologies. Once again outperforming our yearend goal by almost a quarter and positioning resident for sustainable long term growth.
I'll begin by highlighting two milestones we achieved in the third quarter.
First we expanded our commercial agreement with the world's largest filter manufacturer doubling the number of bands too to be delivered and increasing the value of the contract initially valued at $9 million to a current value ranging between seven 7% and $43 million in revenue for resident with this customer alone.
This customer has exclusive rights to our export technology for mobile devices and on March 31 2022.
Which is in less than five months.
Keep in mind this customer represents 36% of the RF filter market, which is dominated by seven companies that combine control 96% of the market.
More on this shortly.
Second over 100 million devices had been shipped by our customers to Oems to date.
In the third quarter alone our customer shipped a record 21 million RF filters designed with our wave <unk> platform.
This represents a year over year increase of approximately 433% and a sequential quarterly increase of approximately 23%.
Residents way back software and massive IP portfolio continue to provide the required differentiation for our customers.
At resident we continue to leverage these accelerating unit shipments to create a customer roadmap for our <unk> technology, which we expect to capitalize on beginning in April 2022, when our mobile exclusivity has expired.
As I noted our strategic partnership with the world's largest RF filter manufacturer for the development of export base filters for mobile handset is a significant validation point for resident.
Expanding the commercial agreement signed in October 2019 from $9 million to a value ranging from 17 million to $43 million, depending on the complexity of the band's chosen.
These upfront payments based on our historical 7% to 15% royalty rate or the equivalent of up to $113 million to $614 million in actual filter sales by our customers to Oems.
It should be noted as a licensing company, we don't have the operating and inventory costs of our Fabless are vertically integrated idea and as a result, we expect to have very high operating margins.
There also remains the potential for us to contract even more designs with this partner.
Which is especially attractive given their dominant share of the RF and duplex or market.
Turning to slide four.
Resident is competitive advantage is simple we believe <unk> is the only filter solution able to natively meet the demands of next generation high frequency networks.
Let me expand on exactly what those demands are.
Since we are still very early in the transition to <unk>, there's been very little <unk> data traffic, but its <unk> data increases five G bands will need to coexist with Wi Fi bands, creating a much more significant coexistence challenge when compared to <unk> and previous generations of Wi Fi.
At the root of this challenge is the extremely wide bandwidth and close proximity of frequency bands, which creates a significant likelihood for signal interference problems between both the individual <unk> and Wi Fi bands as well as the different technologies themselves.
Unless mitigated with high performance filters, the coexistence between networks will restrict data speeds and cause significant performance problems across the devices using these networks.
As <unk> advances towards its full potential the mature network will demand that filter technology that can solve for both the wide bandwidth and interference problems.
We believe <unk> is the most effective technology and accomplishing this and this is increasingly being recognized and validated by the market.
Yeah.
As with all technology transitioned existing providers initially introduced parts based on the legacy technologies.
Those parts are deemed good enough by Oems until more advanced parts become available that meet the demands of the new standards and deliver the consumer experiences that had been promised for the technology.
This begs the question if X bar is the only solution to solve these interference and bandwidth problems, how our RF filters in todays devices able to meet the demands of <unk>.
Turning to slide five again, we're still very early into the rollout of <unk> since <unk> data traffic is still so low today RF filter manufacturers have been able to get away with using strategies to extend performance of legacy <unk> technologies. One of the primary methods being employed as a short term solution is scandium doping.
<unk> of legacy filters that were designed for <unk>.
Using the scandium doping strategy filter manufacturers add external components to legacy filters.
Which allows them to extend the filters bandwidth and capabilities. However.
This comes with additional consequences, namely added size cost complexity and the increased potential for signal loss.
Additionally, the bandwidth can only be extended so far with this method and will not be able to sufficiently cover the requirements for Wi Fi six <unk> or <unk>.
Over the next several quarters, we expected limitations of the legacy technologies to become clearer as sampling by our largest customers becomes more prolific and new non mobile customers begin to sample export devices.
Increased sampling will further highlight export performance, which we expect will increase the demand for our revolutionary technology.
The other method currently being used as a mix and match approach.
Of acoustic wave filters, and resonators with additional components, which add size and cost.
Clearly neither of these are viable long term solutions.
The new <unk> and Wi Fi bands are only the beginning of new wireless bands that exist at increasingly higher frequencies and wider bandwidth.
The challenges associated with legacy acoustic filter technologies would be amplified with ultra wideband technology, and as satellite bands or repurposed for <unk> and <unk>.
In a world without <unk>, we believe the problems associated with trying to push the boundaries of legacy aluminum nitride bar RF filters would ripple throughout the wireless network industry infrastructure.
Using these legacy filters developed specifically for <unk> for the requirements of <unk> would degrade spectral efficiency, resulting in an inefficiency that would cost billions of dollars in the U S alone. We believe this is based on the increased number of base stations that would need to be deployed to deliver the same coverage and data speeds.
Turning to slide six we continue to believe that resident expert technology is the only technology capable of natively meeting the requirements of not only true five G. But also five and six gigahertz Wi Fi and ultra wideband.
It is the technology that will unlock the wide bandwidth high frequency low loss and high power capability networks in the future as.
As well as the applications that will leverage these next generation networks.
Those are at the forefront of the industry are capitalizing the value of our highly differentiated technology as I mentioned earlier, our work with the world's largest RF filter manufacturer continues to advance.
As we work toward building the high volume manufacturing platform for <unk> based RF filters for use in next generation wireless applications.
Our partnership was initiated after demonstrating <unk> unique ability to dramatically improve RF filter performance for next generation wireless networks.
While also accelerating their ability to deliver these high performance products to the market.
This is a tremendous validation from the company that holds a leading market share position by considerable margin.
To be specific the control about 36% of the filter market and 33% of the duplex in market, which is more market share than the second and third largest players combined.
If we continue to expand our agreement with this partner by adding additional design contracts. We believe this partnership could potentially increase to a $100 million annual revenue opportunity for resident when <unk> and Wi Fi six reached the full scale deployment.
There are only a relatively small number of RF filter manufacturers that control the market and supply leading Oems such as Apple and Samsung by leveraging our partners establish relationships with the world's largest handset Oems, we expect ex parte technologies to penetrate a large portion of mobile handset market.
While this is clearly a key product vertical for next generation connectivity. Our export technology is also ideally suited for the non mobile segments.
This includes mobile infrastructure Wi Fi access points, Ultra wideband and high frequency Iot applications.
As I mentioned earlier, the exclusivity with our strategic partner leveraging our export technologies, only for mobile and allowing us to market our export technology for non mobile, which we are currently doing.
In fact, we already successfully sampled non mobile expert Wi Fi devices and expect to have a deal signed before the end of 2021 with a tier one customer to develop a non mobile part.
Our ability to execute and expand on the agreement with our partner for mobile handsets, while pursuing partnerships in non mobile segment highlights the effectiveness of our business model.
As I mentioned earlier concurrent with our export focused effort our customers have shipped over 100 million unit of resident legacy designed for sub three gigahertz applications.
Surpassing this milestone ahead of schedule further validates our go to market strategy.
As a pure play licensing business, we are uniquely positioned in the market to enable RF filter manufacturers rather than compete with them. This allows us to support various players in the market driving industry innovation from multiple angles, while maintaining a asset light high margin business model.
Turning to slide seven.
Let me expand on the opportunity for export to unlock next generation networks and the high growth non mobile segments.
Smart cities connected cars extended reality and Iot applications of the future will also rely on next generation networks, including Wi Fi <unk> and ultra wideband.
These networks are designed to complement <unk> as they operate at similar frequencies and bandwidth to the requirements for next generation Wi Fi and ultra wideband filters are similar to those of <unk>.
Using legacy <unk> technologies. This coexistence between networks would create the various performance related challenges and significant cost issues I outlined earlier.
By leveraging <unk> ability to meet complex requirements across the range of next generation networks resident proprietary technology can ensure a seamless experience for consumers, while preventing data overload, which would otherwise overwhelmed the <unk> network.
The number of Wi Fi six <unk> systems, and the market is expected to grow from over 300 billion devices. This year to greater than a $1 7 billion in 2025.
Given the expected growth rate of this market securing a deal for the design of export filters for non mobile devices with a tier one customer before year end of 2021 remains a high priority.
Turning to slide eight our ability to disrupt the RF supply chain by taken an innovative approach to RF filter side is driven by our proprietary software design platform <unk>, which is used to design advanced RF filters, such as X bar featuring full three dimensional simulation of resonators and filters.
Otherwise not possible with today is commercially available tools.
The wave <unk> platform as a cloud based modeling tool capabilities. We believe are unmatched in the industry.
This software platform enables us to accurately simulate and deliver performance of our expert technology across multiple foundries, providing tremendous supply chain flexibility while meeting the complex requirements of filters for next generation wireless networks.
Ultimately wave <unk> enables resident design RF filters using manufacturing processes that are significantly more cost effective compared to traditional bulk acoustic wave or bought approaches.
<unk> and superior performance and a significantly reduced time to market for our customers.
Turning to slide nine our competitive advantages rooted in our robust intellectual property portfolio around our technology that we maintain.
Our resident air structures processes and filter designs are highly proprietary and resident retains the intellectual property for the designs, we license to our customers.
We currently have more than 390 filed applications are issued patents in the U S and internationally.
<unk> 90 of which were filed this year.
Noting greater than 240 of these patents are related to export technology.
With that I'll pass it over to our Chief Financial Officer, Marty Mcdermott for a review of our third quarter 2021 financial results and what drove them Marty.
Thank you George turning to slide 10.
I will now provide an overview of our financial results. The amounts I talk about are GAAP, except where noted.
<unk>, a non-GAAP measure were $4 $1 million in the third quarter as compared to $2 7 million in the same year ago quarter.
Subsequent to the end of the third quarter, we built $3 million or 50% of the payment for the first band released against the new expanded commercial agreement with the world's largest filter manufacturer, which will also increase our deferred revenues by $3 million.
Revenues were $425000 in the third quarter.
Compared to revenues of $1 4 million in the same year ago quarter.
During which we received a large milestone prepayment.
Worth, noting the contract execution timing of our expanded agreement with our strategic partner was signed on September 32021.
Having no impact on revenues for the quarter. It will have a positive impact on upcoming quarters going forward.
At the end of the third quarter.
<unk> revenues totaled $4 4 million as compared to $766000 in the prior quarter.
We estimate that these amounts will be recognized as revenue over the remainder of the contracts.
Please note that revenue recognition for development agreements such as those for X bar are complex and cause uneven quarterly revenue recognition.
As we add more agreements with prepaid royalty components. This will smooth out revenues as they ramp up.
Research and development expenses totaled $5 9 million in the third quarter as compared to $4 4 million on the same prior year quarter.
The increase is primarily a result of increased costs relating to the development of our wave X and X bar technologies increases in compensation expenses as a result of increased headcount and increased costs associated with expanding our patent portfolio.
Sales marketing and administrative expenses totaled $3 $5 million in the third quarter as compared to $3 $1 million in the prior year quarter. The increase was primarily related to increased compensation expenses for employees and consultants to support these efforts.
Our operating loss was $9 million in the third quarter as compared to an operating loss of $6 $1 million in the prior year quarter.
Net loss was $9 million in the third quarter or a loss of <unk> 14 per share based on $63 1 million weighted average shares outstanding compared to a net loss of $6 1 million or a loss of <unk> 11 per share based on $53 2 million weighted average shares outstanding for the <unk>.
Prior year quarter.
Non-GAAP adjusted EBITDA loss was $6 8 million or a loss of <unk> 11 per share in the third quarter compared to an adjusted EBIT loss of $4 4 million or a loss of <unk> <unk> per share in the prior year quarter.
Cash and cash equivalents totaled $15 3 million on September 32021.
Subsequent to the end of this last quarter, we received $6 $1 million of cash from the sale of common stock and expect to receive in the next few days $7 million as part of the combined upfront payments under the expanded commercial agreement.
Remember we have no debt.
On September 32021, we had a total of 73 employees 18 of whom have a Phd and 52 of whom are part of the technical staff.
Finally, turning to slide 11 on the topic of guidance, we expect significant growth moving forward as we begin to recognize revenue on the newly expanded designs with our strategic partner as well as anticipated revenues from contracts for our non mobile applications.
We are forecasting $600000 in revenue in the fourth quarter 2021.
To end the year with approximately $8 million of deferred revenue.
I would now like to turn the call back to George for closing remarks George.
Thanks, Marty now, let's turn to slide 12 for.
For what to track in the fourth quarter and into 2022.
As Marty stated, we expect our business to continue accelerating growth significantly in 2022.
Our legacy foundry programs will continue to grow and provide the initial footholds for customer expansion into X bar based relationships.
As expected we expanded our partnership with the world's largest filter manufacturer together, we will continue building a high volume manufacturing platform for <unk> based filters that will meet the exacting demand the largest mobile handset Oems in the world.
We expect continued and ongoing validation from the market that export based solutions are the only practical solution to meet the demands of not only <unk>, but also <unk> and Wi Fi six and seven ultra wideband and potentially even millimeter wave driving a breakout year for <unk> technology.
We expect to secure a contract by the end of 2021 with a tier one partner focus on expire for non mobile applications, which could include autonomous and electric vehicles.
Internet of things and infrastructure applications.
With that I'd like to thank you all for joining us today and look forward to providing updates in the coming quarters as we continue to execute on our operational strategy and work toward.
Our mission to revolutionize the connection between people and things.
I'll now hand, it over the operator to begin our question and answer session operator.
Thank you if you would like to register for a question. Please press. The one followed by the four on your telephone you were here with me Tom from two acknowledged your request.
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Our first question is from the line of a Tory Steinberg with Stifel. Please go ahead.
Yes.
Thank you.
George Marty and Dylan first question is on the merger.
Right.
Extension program and I know the exclusivity ends next year.
Just wondering.
Why did we write it.
Once exclusivity or perhaps a different way of asking that question did you not want to have that exclusivity.
Well I mean, I think you can imagine that.
Yes.
When we're negotiating these deals did you have the opportunity in Europe customer to extend your exclusivity you would surely want to do that.
Not allowing other tier one idms to have access to this technology would be give you a tremendous competitive advantage.
Why they would want to do it clearly the reason we wouldn't want to do it is the market opportunity.
We've lived under for 30 months under an exclusivity.
Agreement that didn't allow us to market. This technology to other tier one idms and we think and believe that the export technology has such a transformational benefit to handset manufacturers, having as many companies as possible.
Delivering expert based technology into the marketplace for the handset Oems is going to be key to our long term success. So clearly.
I would say that hey, fantastic job, we actually.
We're able to renegotiate the kind of next generation.
Extension of this agreement, adding up to $45 million of additional revenue for.
For the company and we're able to do so without having to give away exclusivity.
Great no thanks for clarifying that.
Second question, you said one of the things to track.
He is going to be the highest high volume manufacturing platform for export filters I was just hoping you could elaborate a little bit on that obviously your largest.
Partner Youre working with on that but you know as as.
As the exclusivity and.
Will you then be able to go and work with potential foundry.
On the on the actual platform.
Well, we already are working with other foundries on the export platform as we've previously noted we have seven foundries that are actually built.
Export based filters or their components. So we already have a great deal of experience putting that technology into other.
Other foundries that.
Allow us to give great flexibility to potential customers I think what this does is exclusive and we can target those companies that are specifically focused for mobile handsets.
And wanted us to port this technology to them.
Makes sense just one last question for Marty Marty I know this is really difficult.
$8 million in deferred revenues.
Any feel for when you could potentially add.
Add that to the P&L 2022, 2023, and again I do recognize it's pretty pretty difficult.
That will I.
I mean, that's a reasonable question, yes, that's going to come in over 2022, and 2023 and I think the most important thing is we expect to add to that with the exclusivity running off we expect we have a pent up demand for other people getting to the technology and the non mobile so thats the base, we got that in the bag.
Bringing in over the next couple of years and we'll go from there to add to it I think the big thing geared toward is as we continue to look at this.
And we do additional deals whether they'd be fully paid up prepaid royalties, which bring an immediate cash like the $7 million, we announced we brought in today.
It's these next generation deals we have will likely have some combination of prepaid royalties and.
Your thoughts on that would be helpful. Thank you.
No I think you know the number of customers has been pretty stable between the quarters. We have we've talked about the importance of the world's largest manufacturer who has added we've had billings in that just recently got cash in and then we also from the the other unit volumes, we've talked about we have.
But look the five customers that are contributing to that bringing someone bringing cash in at a much smaller level.
And what was the second half of that question Tony.
Hi, if you heard from some of your customers on component shortages or if that's what kind of how did you guys come in just slightly below your guidance.
No I think what it really is as we came in just shy of the we were even though we had forecasted for the.
For this group that we wouldn't close the follow on deal until the end of the year, we were hoping to get it done more than a quarter early perhaps.
Four five months early which would have given us a little bit more runway on converting revenue recognition on some of the early part of that.
New bands that we received that's really the big thing for us component shortages Havent really driven.
Any appreciable change in the trajectory.
That we see either from our largest customer or any of our legacy customers at this juncture. The only one that we had we noted several quarters ago with an automotive application, which is a relatively low volume runner and currently is at kind of inconsequential to the overall.
Unit volume ramp of the legacy business.
Okay perfect. Thanks George.
Our next question is from Rajiv Gill with Needham and company. Please go ahead.
Yeah, Hi, Rajeev.
Hey, guys. How are you thanks for taking my questions.
I appreciate it and congrats on the expanded partnership with Murata and that's really interesting. So Georgia. Marty you mentioned you are increasing the expected revenue from from $17 million up to $45 million from this expanded partnership I think it was up from about $9 million.
So the revenue.
Expansion is.
Moving up wondering how youre thinking about how youre getting to that to that number you know what kind of assumptions are you baking in.
Because there's a sizable revenue opportunity.
Obviously, the number of filter bands that you.
You're developing is now eight versus four so maybe it's obviously the more filter bands, but curious how you're thinking about the buildup of that new revenue range possibility.
Okay, great. So let's as a reminder, the first four bands were at $2 25 million per band.
That's been that was well defined and the initial agreement the new.
Addendum to the original agreement provided for four additional bands that had a range in ESP from $2 million to $9 million each.
Then it gets a little complicated.
And that $2 $9 million was is based on Theres kind of four different buckets and thats based on.
The complexity of these devices.
The complexity of the devices is what.
It allows us to charge more or less and you can imagine that probably the least complex device would be a follow on to an existing band something we've already done before.
I would have a follow on component to it that would be at the lowest ESP, but then you would get higher asp's for these more complex devices.
And the way this work is.
We took a chunk of upfront.
It just happened at the time of signing that was $4 million. Then we got a $3 million payment on top of that both of those made up that $7 million that we announced today that $3 million payment is a 50 50 payment.
50% done at the time of signing.
The SFW owned 50% at the completion, so that obviously is a $6 million device.
Plus plus one quarter of the 4 million prepayments, so a $7 million device, so not suggesting that each of the devices. We have that will go in to this four bands will all be $7 million bands, but they could be that would make it a $20 million $28 million.
Uptick to kind of what we're currently looking at.
That would be great I think what we're looking at $28 million on top of nine that gives you a pretty good chunk for this first agreement.
As we look at it today, we really only have visibility to this first one.
Where we're at.
Yes, you can imagine we're heads down buckled down hard trying to get these first four devices in.
<unk> volume production, which is.
Mission one for this customer and then obviously the fifth band that we signed recently.
That equates to $7 million I just described we will be following shortly thereafter, but.
It's really all the visibility we have right now.
I tend to think there'll be a blended view.
That will get some complement of most complex couple in the middle one at the bottom and Youll end up with the <unk>.
A value range on this new release.
The plus or minus 20 range on top of the on top of the 9% is already out there. So it's a good run.
And it's a good start but we got more work to do and Thats what were running hard for between now and the end of the year.
Yes, no that's great very helpful to walk you through it.
The majority of the wave ex Europe.
Your proprietary software that allows stimulation of filter performance.
And helping customers bring the filters faster.
To the market.
Can you talk about how you're incorporating the proprietary software in your go to market strategy. How are you kind of leveraging this.
This approach to gain new customers.
I'm curious how you guys are thinking about that.
Let me do two things one I am going to hand, it over to Dylan, let you give him give you a little bit more of an overview of when we transition from ISN and rebranded to waive X what that truly means what that means from a processing capability perspective, and what that truly means because those two things combined.
What makes this a very competitive solution. So he didn't want to jump in here and talk about that a little bit.
The focus of the last year was really extending it to bolt really stimulation of the entire originators.
<unk> block of our filters.
As.
So we look at it as something that is truly unique in the marketplace. We don't believe anyone else has that capability.
And so it's the way that we were able to bring <unk> to market in a very predictable fashion quickly.
It's something that we don't think anyone else would be able to mimic at this point.
So Richard is the crown jewels, rather than providing access to it.
Allowing us to go and win customers on this licensing basis of export designs.
That help yes it does.
Yes.
A question on the non mobile component.
You talked about a tier one for non mobile.
Wi Fi six and ultra wide band or operate at similar frequency and bandwidth for five G. So the XP.
<unk> bar filters.
No.
Couldn't meet the needs of these communication standards as well.
The size of the non mobile marketing.
Big equal to the mobile market.
And definitely will be a play on <unk>.
When you talked about this tier one and you kind of mentioned a whole bunch of different markets that they were.
<unk> focused on.
Can you maybe elaborate a little bit further are.
Are you seeing X bar for non mobile being deployed in specific kind of end markets.
With this customer and if so why and when we're in these end markets.
Whether it's Iot or connected cars do you see kind of the biggest opportunity for.
Non mobile X bar filters.
Well first I would say that it were.
We're <unk>.
Aggressively pursuing multiple tier ones.
And doing that concurrently between now and the end of the year.
With the hopes that we can deliver minimally, though the one that we've committed to deliver and I think we're on track to do that.
I would tell you that that customer.
So all three of those customers that we're engaged with have a very active.
Business in the Wifi six space in particular.
<unk> focused heavily on the.
The CPE market for Wi Fi routers obvious is obviously is one of their first.
The most high volume deployment opportunities and I would say clearly that that's probably where these devices go first.
Obviously <unk> is one of the interesting things because the current devices on the marketplace.
From other filter manufacturers don't have great rejection on the high side, which is right where UW b fits.
<unk>.
So I think that our our export devices have really good direction really good rejection on both the low and the high side and or a full band not a hybrid or a.
Sub banded filters. So I think that is going to be a key play for it because now youre going to see great.
Greater throughput the less number of.
Routers needed in these applications.
So I would tend to think that's where it's going to go Dylan do you have a view.
I'd, just say that yes.
Well there is for us to comment on the exact application.
Two of these customers but.
Generally speaking as we go up in frequency and the differentiation of X bar against aluminum nitride book goes up.
So <unk> has been in the sweet spot for this year of emerging market need.
As you are saying <unk> is up next.
An interesting work going on in three GPP looking at what are the next bands to be release.
Theres a lot of focus in that seven to 12 gigahertz range, which.
It is really the sweet spot.
And just for my last question I'll squeeze in finished one for Marty.
The the.
Murata expansion I think in the past you said that that will help you reach cash flow breakeven in.
Calendar 'twenty two is that still the case.
As these.
This agreement kind of rolls into the P&L.
Yes.
Absolutely.
We've just brought $7 million from the contract and this is where our we're starting to build the backlog. This was a major step, which we've talked about we've talked about the non mobile coming on them George's remarks, we've talked about it with the ending of the exclusivity we expect to continue adding.
Adding prepays and combinations thereof, which will get us.
In the right direction.
Big improvement, Yes. These are all things that are going to as they ladder up get us one step closer and as a reminder, right.
As you sit back and look at it.
Our cash flow breakeven number plus or minus 30 million Bucks.
At that point in time everything beyond that you start seeing.
A lot of dollars drop to the bottom this is going to be a very very high margin business, where if we were a fully integrated filter manufacturer, even a fabulous filter manufacturer.
It would see breakeven number probably more closely approaching $100 million range. So.
There is a lot.
Lot of operating margin that drops to the bottom when we get north of north of $30 million. So we're pretty excited about it and I think we've got a good.
Good run on it with this.
This latest.
Deal expansion and.
Obviously, not only signing the deal, but getting our first cash and is a big deal.
Okay. Thank you.
As a reminder, if you would like to register for a question you May press. The one followed by the four.
Our next question is from Kevin Dede with H C. W. Please proceed.
Thank you good afternoon gentlemen.
Mr. D D. How are you.
Great Sir Thanks for taking my question.
Yeah.
Yes, I was hoping you could sort of walk me through this last payment.
On the old contract rate and the 8 million Bucks that Marty says, it's going to be in deferred there is probably a million dollars of that in from the old deal.
Trying to sort out what's going on.
On the old contract and how that flows I mean, I think you did a great job going through the new one.
7 million Bucks, but I just wanted to make sure I got the eight and the last payment from the old contract Street.
Okay, well as we noted the last last call we didn't call. It out specifically this call. We've got half of the original contract is cash has come in so there is a small portion of that is still in deferred but there is still $4 5 million left to go there.
Okay. So obviously that will come.
As we move to the next couple of milestones and we've highlighted that we expect at least one of those to happen next year.
Concurrent with the end of the exclusivity in that timeframe.
And then obviously the last last payment will come shortly thereafter, we believe.
So there are $4 5 million left on me.
On the.
On the original release.
And now on this release, they've released $7 million.
We've said what the range is.
Now, we just got to go drive hard and do some good work and help them capture share with these first five devices and.
We'll drive that hard and at the top end of the top end of the range.
So George you think you're on track.
To finish things up I mean, do they have to move from.
Well help me.
Recall exactly that last stage for you to be able to recognize that or released that $4 5 million. It's actual full production correct.
No we've actually never said.
The specifics on when that last payment is due.
If you recall.
We said there were four payments.
We only announced the schedule of the <unk> payments.
At the beginning we said the first payment is in we expect the next three to happen over the course of.
The development.
Which end shortly after.
The <unk>.
Release of exclusivity and right now these guys are working hard both our team and theirs to keep schedules. I mean this is a pretty lofty project that they are working on and if you. If you recall, they're making major investments on their side to be able to produce.
These devices and high volume.
All of which.
Speaks to the importance of what it is that we're working on with them and they've highlighted that obviously on their quarterly and an annual shareholder calls.
We have shared and.
And referred people to.
Over the last couple of quarters, So I think it's I'm.
I'm, sorry, I can't give you the definitive end date for these.
Got it.
It's out in the future and it's not too far in the future given where we are.
Okay.
It sort of begs the question on residence.
Pricing power.
And you know.
I know, it's a sensitive topic, but I think.
It would certainly help me in understanding how they valued exclusivity how they valued your progress thus far and how they value the technology.
Especially as you're negotiating with.
With these with these other.
Non mobile customers.
I don't know what you can add there but.
If you could add some color that would be really helpful.
Well.
Kevin not a sensitive topic at all I mean, we highlighted that we did a massive expansion of the ASB.
The first four devices were worth maximum $9 million.
Now next floor devices are worth a maximum of $36 million I think thats, a pretty significant uplift in the value of these devices and really speaks to.
What our customer feels about the technology and Moreover, when they did the initial deal. They had a first mover advantage clearly because they are the first person to come in and sign a contract but now we've had these major validation that have happened.
Frankly that they've done a lot of the work on.
And they see that the value is going up I mean, this is a great thing for not only us, but our shareholders, we see that that.
Asps is going from $2 million to $5 million to as high as $9 million per device. That's I think that's a pretty significant uplift in my book.
Right.
And more importantly, probably the most important component here is we did not have to extend exclusivity.
So that really speaks to the power of the technology and the fact that we are with this further validation in a much better position.
The negotiated.
Yes, currently with our existing not only with our existing customer, but also with new customers clearly.
You said the other variable in that function.
Was complexity.
And we're sitting out here, we can see those details, but I appreciate the color George Thank you.
Well, Hey, let's let's talk about complexity and I'll have bill talk about the different what the difference in complexity is in the different types of devices right clearly a follow on device a simple bandpass filter a diplexer for a.
Our CPE piece of gear versus a diplexer for a handset I mean, those are kind of the kind of balance it.
Speak to that a little bit and give Kevin the color you're looking for.
There's two major factors one is the bandwidth of the filter we seen in applications, where we're seeing any further increases in the operating bandwidth which brings up.
Iterations.
Really it has a higher valued in the market as such challenging filter design versus deferred.
Differentiates a lot against competing technologies. So thats one another as George mentioned move into things like <unk>, where essentially you're designing two filters and then combining them together.
Great.
Our effort involved as well as well.
More value in the application.
Okay. Thanks, Don.
Sure.
Mr. Holmes I'll return the call back to you May continue with your presentation or closing remarks.
Well. Thank you operator, I want to thank everybody again for joining US today, we had a great quarter.
Lots of significant achievements this quarter and we really are looking forward to finishing up the year strong and delivering on behalf of our customers our employees and our shareholders. Thank you again everyone.
And that does conclude the conference call for today, we thank you all for your participation and kindly ask that you. Please disconnect. Your line have a great evening.
[music].
Okay.
Okay.