Resonant Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2021

There are 9 speakers on the call.

Operator

Good day, and welcome to Resonant's Third Quarter 2021 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, today's conference is being recorded.

Speaker 1

At this time, I'd like to

Operator

turn the conference over to Greg Soleznik from MZ Group, the company's Investor Relations firm.

Speaker 2

Please note, we will be using the presentation during today's call, which is accessible on the Events page of Resonant's IR website. If you're with us today via phone, please go to the Events page to either view or download the presentation to follow along. Turning to Slide 2. Earlier today, Resonant released financial results for the Q3 of 2021. The earnings release that accompanies this Call is available on the Investors section of the company's website at ir.

Speaker 2

Resonant.com. Additionally, of the information in this conference call contains forward looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan and anticipate And similar variations identify forward looking statements, 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 to such differences are described in detail in Resonant's most recent Form 10 Q and 10 ks and subsequent filings with the SEC.

Speaker 2

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 Resonant, George Holmes. George, the floor is yours.

Speaker 3

Thank you, Greg, and thank you, everyone, for joining us on our Q3 2021 financial results conference call. Joining me today is Marty McDonough, our CFO as well as Dylan Kelly, our COO, who will be joining us for the Q and A session. Turning to Slide 3. The Q3 of 2021 was highlighted by Resonant's continued acceleration of its XBAR Technologies, Once again, outperforming our year end goal by almost a quarter and positioning Resonant for sustainable long term growth. I'll begin by highlighting 2 milestones we achieved in the Q3.

Speaker 3

First, we expanded our commercial agreement with the world's largest filter manufacturer, Doubling the number of vans to be delivered and increasing the value of the contract initially valued at $9,000,000 to a current value ranging between $17,000,000 $43,000,000 in revenue for Resonant with this customer alone. This customer's exclusive rights to our XBAR technology for mobile devices ends on March 31, 2022, which is in less than 5 months. Keep in mind, this customer represents 36% of the RF filter market, which is dominated by 7 That combined control 96% of the market. More on this shortly. 2nd, over 100,000,000 devices have been shipped by our customers to OEMs to date.

Speaker 3

In the Q3 alone, our customers shipped a record 21,000,000 RF filters designed with our Wavex platform. This represents a year over year increase of approximately 4 33% and a sequential quarterly increase of approximately 23%. Resonant's Wavex software and massive IP portfolio continue to provide the required differentiation for our customers. At Resonant, we continue to leverage these accelerating unit shipments to create a customer roadmap for our XBAR 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 XBAR based filters for mobile handsets It's a significant validation point for Resonant.

Speaker 3

Expanding the commercial agreement signed in October 2019 from $9,000,000 to a value ranging from $17,000,000 to $43,000,000 depending on the complexity of the bands chosen. These upfront payments Based on our historical 7% to 15% royalty rates are the equivalent of up to $113,000,000 to $614,000,000 and 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 a fabless or vertically integrated IDM. 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 Duplexer market.

Speaker 3

Turning to Slide 4. Resonant's competitive advantage is simple. We believe XBAR 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 5 gs, There has been very little 5 gs data traffic, but as 5 gs data increases, 5 gs bands will need to coexist with Wi Fi bands, creating a much more significant coexistence challenge when compared to 4 gs and previous generations of WiFi.

Speaker 3

At the root of this challenge is the extremely wide bandwidth and close proximity of frequency bands, which creates Significant likelihood for signal interference problems between both the individual 5 gs 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 5 gs advances towards its full potential, the mature network will demand a We believe XBAR is the most effective technology in accomplishing this, And this is increasingly being recognized and validated by the market. As with all technology transitions, Existing providers initially introduced parts based on the legacy technologies. Those parts are deemed good enough by OEMs until more advanced parts become available to meet the The new standards and deliver the consumer experiences that have been promised for the technology.

Speaker 3

This begs the question, If XBAR is the only solution to solve these interference and bandwidth problems, how are RF filters in today's devices able to meet the demands of 5 gs? Turning to Slide 5. Again, we are seeing clearly neither of these are viable long term solutions. The new 5 gs and WiFi bands are only the beginning of new wireless bands that exist at increasingly higher frequencies and wider bandwidths. The challenges associated with legacy acoustic filter technologies would be amplified with ultra wideband technology And as satellite bands are repurposed for 5 gs and 6 gs.

Speaker 3

In a world without XBAR, we believe the problems associated with trying Push the boundaries of legacy aluminum nitride BAW RF filters would ripple throughout the wireless network industry infrastructure. Using these legacy filters developed specifically for 4 gs, for the requirements of 5 gs, would degrade spectral efficiency, resulting in an inefficiency that would cost 1,000,000,000 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.

Speaker 3

Turning to Slide 6. We continue to believe that Resonant XBAR technology is the only capable of natively meeting the requirements of not only true 5 gs, but also 5 and 6 gigahertz WiFi 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 well as the applications that will leverage these next generation networks. Those 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 XBAR based RF filters for use in next generation wireless applications.

Speaker 3

Our partnership was initiated after demonstrating XBAR's 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 the leading market share position by a considerable margin. To be specific, they control about 36% of the filter market and 33% The Duplex market, which is more market share than the 2nd and third largest players combined. If we continue to expand our agreement with this partner adding additional design contracts, we believe this partnership could potentially increase to $100,000,000 annual revenue opportunity for Resonant When 5 gs and Wi Fi 6 reach the full scale deployments. There are only a relatively small number of RF filter manufacturers We expect XBAR Technologies to penetrate a large portion of mobile handset market.

Speaker 3

While this is clearly a key product vertical for next generation connectivity, our XBAR technology is also ideally suited for the non mobile segment. 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 XBAR technology is only for mobile allowing us to market our XBAR technology for non mobile, which we are currently doing. In fact, we already successfully sampled non mobile XBAR Wi Fi devices and expect to have a deal signed before the end of 2021 with a Tier 1 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 segments highlights the effectiveness of our business model.

Speaker 3

As I mentioned earlier, concurrent with our XBAR focused efforts, our customers have shipped over 100,000,000 units of Resonant legacy designs 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 an asset light high margin business model. Turning to Slide 7.

Speaker 3

Let me expand on the opportunity for XBAR to unlock next generation networks in the high growth non mobile segment. Smart Cities, Connected Cars, Extended Reality and IoT Applications of the Future will also rely on next generation networks, including WiFi 6E and ultra wideband. These networks are designed to complement 5 gs as they operate at similar frequencies and bandwidths. The requirements for next generation WiFi and ultra wideband filters are similar to those of 5 gs. Using legacy 4 gs technologies, this coexistence between networks would create the various performance related challenges and significant cost issues I outlined earlier.

Speaker 3

However, by leveraging XBAR's innate ability to meet complex requirements across the range of next generation networks, Resonant's Proprietary technology can ensure a seamless experience for consumers while preventing data overload, which would otherwise overwhelm the 5 gs network. The number of WiFi 6E systems in the market is expected to grow from over 300,000,000 devices this year To greater than $1,700,000,000 in 2025. Given the expected growth rate of this market, securing a deal for design of XBAR filters for non mobile devices with a Tier 1 customer before year end of 2021 remains a high priority. Turning to Slide 8. Our ability to disrupt the RF supply chain by taking an innovative approach to RF filter design is driven by our proprietary software design platform, Wavex, which is used to design advanced RF filters such as XBAR, Featuring full three-dimensional simulation of resonators and filters that is otherwise not possible with today's commercially available tools.

Speaker 3

The Wavex platform is a cloud based modeling tool with capabilities we believe are unmatched in the industry. This software platform enables to accurately simulate and deliver performance of our XBAR technology across multiple foundries, providing tremendous supply chain flexibility while meeting the complex requirements of filters for next generation wireless networks. Ultimately, Wavex enables Resonant to design RF using manufacturing processes that are significantly more cost effective than compared to traditional bulk acoustic wave or BAW approaches, resulting in superior performance and a significantly reduced time to market for our customers. Turning to Slide 9. Our competitive advantage is rooted in the robust intellectual property portfolio around our technology that we maintain.

Speaker 3

Our Processes and filter designs are highly proprietary and Resonant retains the intellectual property for the designs we license to our customers. We currently have more than 390 filed applications or issued patents in the U. S. And internationally, 90 of which were filed this year. Worth noting, greater than 240 of these patents are related to XBAR technology.

Speaker 3

With that, I'll pass it over to our Chief Financial Officer, Marty McDermott, For a review of our Q3 2021 financial results and what drove them. Marty?

Speaker 4

Thank you, George. Turning to Slide 10. 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 were $4,100,000 in the 3rd quarter as compared to $2,700,000 in the same year ago quarter.

Speaker 4

Subsequent to the end of Q3, we billed $3,000,000 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 $3,000,000 Revenues were $425,000 in the 3rd quarter compared to revenues of 1 point $4,000,000 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 30, 2021. While having no impact on revenues for the quarter, it will have a positive impact on upcoming quarters going forward. At the end of the Q3, deferred revenues totaled $4,400,000 as compared to $766,000 in the prior quarter. We estimate that these amounts will be recognized as revenue over the remainder of the contracts.

Speaker 4

Please note that revenue recognition for development agreements such as those for XBAR 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 $5,900,000 in the 3rd quarter as compared $4,400,000 in the same prior year quarter. The increase is primarily a result of increased costs relating to the development of our Wavex and XBAR 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 $3,500,000 in the 3rd quarter as compared to $3,100,000 in the prior year quarter.

Speaker 4

The increase primarily related to increased compensation expenses for employees and consultants to support these efforts. Our operating loss was $9,000,000 in the 3rd quarter as compared to an operating loss of $6,100,000 in the prior year quarter. Net loss was $9,000,000 in the 3rd quarter or a loss of $0.14 per share based on 63,100,000 Weighted average shares outstanding compared to a net loss of $6,100,000 or a loss of $0.11 per share Based on 53,200,000 weighted average shares outstanding for the prior year quarter. Non GAAP adjusted EBITDA loss $6,800,000 or a loss of $0.11 per share in the 3rd quarter compared to an adjusted EBITDA loss of $4,400,000 or a loss of $0.08 per share in the prior year quarter. Cash and cash equivalents totaled $15,300,000 on September 30, 2021.

Speaker 4

Subsequent to the end of this last quarter, we received $6,100,000 of cash from the sale of common stock And expect to receive in the next few days $7,000,000 as part of the combined upfront payments under the expanded commercial agreement. Remember, we have no debt. On September 30, 2021, 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 revenue Some contracts for non mobile applications.

Speaker 4

We are forecasting $600,000 in revenue in the Q4 2021 and expect to end the year with approximately $8,000,000 of deferred revenue. I'd now like to turn the call back to George for closing remarks. George?

Speaker 3

Thanks, Marty. Now let's turn to Slide 12. For what to track in the Q4 and into 2022. As Marty stated, we expect our business to continue accelerating and grow significantly 2022. Our legacy and foundry programs will continue to grow and provide the initial footholds for customer expansion into XBAR based relationships.

Speaker 3

As expected, we expanded our partnership with the world's largest filter manufacturer. Together, we will continue building a high volume manufacturing platform for XBAR based filters that will meet the exacting demand of the largest mobile handset OEMs in the world. We expect continued and ongoing validation from the market that XBAR based solutions are the only practical solution to meet the demand XBAR Technology, we expect to secure a contract by the end of 2021 with a Tier 1 partner focused on XBAR 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 to the operator to begin our question and answer session.

Speaker 3

Operator?

Speaker 1

Thank Our first question is from the line of Tore Svanberg with Stifel. Please go ahead.

Speaker 5

Yes. Thank you, George, Marty and Dylan. First question is on the Murata Extension program, and I know the exclusivity ends next year. I was just wondering, Why did Murata not want exclusivity? Or perhaps a different way of asking that question, did you not want them to have that exclusivity?

Speaker 3

Well, I mean, I think you can imagine that when we're negotiating these deals, if you have the opportunity and you're a Customer to extend your exclusivity, you would surely want to do that. Not allowing other Tier 1 IDMs to have access to this technology would be Give you a tremendous competitive advantage. That's 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 1 IDMs.

Speaker 3

And we think and believe that the XBAR technology has such a transformational benefit To handset manufacturers having as many companies as possible delivering XBAR based technology into the marketplace for the handset OEMs It's 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 $45,000,000 of additional revenue For the company and we're able to do so without having to give away exclusivity.

Speaker 5

Great. Thanks for clarifying that. Second question, you said one of the things to track is going to be the high volume manufacturing platform for export filters. I was just hoping you could elaborate a little bit on that. Obviously, your largest partner you're working with on that, but as the Exclusivity ends, will you then be able to go and work with potential foundries on the actual platform?

Speaker 3

Well, we already are working with other foundries on the XBAR platform. As we previously noted, we have 7 foundries that have The built XBAR based filters or their components. So we already have a great deal of experience porting the Technology into other foundries that allow us to give great flexibility to potential customers. I think what this does is exclusive the end, we can target those companies that are specifically focused for mobile handsets And want to support this technology to them.

Speaker 5

Makes sense. Just one last question for Marty. Marty, I know this is really Actually add that to the P and L, 2022, 2023. And again, I do recognize it's pretty difficult.

Speaker 4

That will yes, I mean, that's a reasonable question. Yes, that's going to come in over 2022 and over 2023. And I think the most important thing is, we expect to Add to that with the exclusivity running off, we expect other we have a pent up demand for other people getting to the technology and the non mobile. So that's the base. We got that in the bag.

Speaker 4

We're going to bring it in over the next couple of years and we're both from there

Speaker 3

Yes. I think the big thing here, Tory, is we continue to look at this and we do additional deals, whether they be fully paid up Prepaid royalties, which bring in immediate cash like the $7,000,000 we announced we brought in today, It's these next generation deals we have will likely have some combination of prepaid royalties and Royalties that are based on per unit shipments, which creates a tremendous upside opportunity going forward. Clearly, having a little over $40,000,000 worth of runway from the world's largest filter manufacturer is not a bad thing, But it gives us lots of flexibility and ability to be really creative and take advantage of the technology as we contract with new customers.

Speaker 5

Sounds good and congrats on that $7,000,000 prepay. Thank you.

Speaker 3

Thank you.

Speaker 1

Our next question is from Anthony Stoss with Craig Hallum. Please go ahead.

Speaker 2

Hey, George and Marty. Maybe more for Marty. How many different paying customers did you have in the quarter? And then for George, your revs came in just shy of your Prior guidance, I would assume it's probably component charges from for some of your customers. Any thoughts on that would be helpful.

Speaker 2

Thank you.

Speaker 4

I think the number of customers have been pretty stable between the quarters. We have we've talked about the importance of the world's largest manufacturer who's We added billings and just recently got cash in. And then we also from the other unit volumes we've talked about, we have Five customers that are contributing to that, bringing some money, bringing cash in at a much smaller level.

Speaker 6

And what was the second half of that question, Tony?

Speaker 2

If you heard from some of your customers on component shortages and if that's what kind of had you guys come in just slightly below your guide?

Speaker 6

No, I think what

Speaker 3

it really is, is we came in just shy of the we were even though we had forecasted For this group that we wouldn't close the follow on deal until the end of the year, we were hoping to get it More than a quarter early, perhaps 5 4, 5 months early, which would have given us a little bit more runway on Converting revenue recognition on some of the early part of that kind of new bands that we received, That's really the big thing for us. Component shortages haven't really driven any appreciable change in the trajectory 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, was an automotive application, which is a relatively low volume runner And currently is kind of inconsequential to the overall unit volume ramp of the legacy business. Okay.

Speaker 7

Perfect. Thanks, George.

Speaker 1

Our next question is from Raji Gil with Needham and Company. Please go ahead.

Speaker 3

Hey, Rajeev. Hey, guys.

Speaker 8

How are you? Thanks for taking my questions. I appreciate it and congrats on the expanded partnership with Murata. I think that's really interesting. So George and Marty, you mentioned You are increasing the expected revenue from $17,000,000 up to $45,000,000 From this expanded partnership, I think it was up from about $9,000,000 So the revenue expansion is moving up.

Speaker 8

Wondering how you're thinking about how you're getting to that number. What kind of assumptions are you baking in, Because it's a sizable revenue opportunity, obviously, the number of filter bands that you're developing is now 8 versus 4, so maybe it's obviously the more filter bands, but curious how you're thinking about the buildup of that new revenue range possibility?

Speaker 3

Okay, great. So let's just a reminder, the first four bands were at $2,250,000 per band. That's fixed. That was well defined in the initial agreement. The new addendum to the original agreement provided for 4 additional bands That had a range in ASP from $2,000,000 to $9,000,000 each.

Speaker 3

Then it gets a little complicated. And it's that $2,000,000 to $9,000,000 is based on there's kind of 4 different buckets. And that's based on the complexity of these devices. And the complexity of the devices is what 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.

Speaker 3

That would be at the lowest ASP, but then you get higher ASPs for these more complex devices. And the way this work is we took a chunk of upfront that just happened at the time of signing. That was $4,000,000 Then we got a $3,000,000 payment on top of that. Both of those made up that $7,000,000 that we announced today. That $3,000,000 payment is a fifty-fifty payment, 50% done at the time of signing The SoW and 50% at the completion.

Speaker 3

So that obviously is a $6,000,000 device Plus 1 quarter of the $4,000,000 prepayment, so a $7,000,000 device. So not suggesting that Each of the devices we have that will go into this for bands will all be $7,000,000 bands, but they could be and that would make it A $28,000,000 uptick to kind of what we're currently looking at. That would be great. I think what we're looking at $28,000,000 on top of $9,000,000 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.

Speaker 3

We're as you can imagine, We're heads down, buckled down hard trying to get these first four devices into volume production, which is Mission 1 for this customer and then obviously the 5th band that we signed recently That equates to the $7,000,000 I just described. We'll be following shortly thereafter. But that'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 you'll end up with a value range on this new release in the plus or minus 20 range On top of the 9, it's already out there. So it's a good run, and it's a good start, but we have more work to do and that's what we're running hard for between now and the end of the year.

Speaker 8

Yes. No, that's great. Very helpful to walk you through it. Now, Jory, the Wave X, your proprietary Software that allows simulation of filter performance and helping customers bring the filters faster To the market, can you talk about how you're incorporating this proprietary software in your go to market strategy? How are you Kind of leveraging this approach to gain new customers.

Speaker 8

I'm curious how you guys are thinking about Wavex.

Speaker 3

Well, let me do 2 things. 1, I'm going to hand it over to Dylan, let him give you a little bit more of an overview of When we transition from ISN and rebranded to Wavex, what that truly means, what that means from a processing capability perspective And what that truly means, because those two things combined is what makes this a very competitive solution. So hey, Dylan, why don't you jump in here and talk about that a little bit?

Speaker 6

I think the focus of the last year was really extending it to full 3 d simulation of the entire resonator, This is the building block of our filters. And if we look at it as something that's truly unique in the marketplace, we don't believe anyone else has that capability. And so it's a way that we're able to bring as far as to market in a very predictable fashion quickly. And it's something that we don't think anyone else would be able to mimic at this point. So really treat it as the crown jewels, it's rather than providing access to it, It was allowing us to go and win customers on this licensing basis of XBAR Designs.

Speaker 3

Does that help?

Speaker 8

Yes, yes, it does. And just a question on the non mobile component. You talked about a Tier 1 for non mobile. As you know, WiFi 6E and ultra wideband are operated It's similar frequencies and bandwidths as to 5 gs. So the XBAR filters could meet the needs These communication standards as well.

Speaker 8

The size of the non mobile market is quite big, Equal to the mobile market and definitely will be a play on 5 gs. When you talked about this Tier 1, And you kind of mentioned a whole bunch of different markets that they were potentially focused on. Can you maybe elaborate a little bit further? Are you seeing XBAR for non mobile being deployed in specific kind of end markets with this customer and if so, why And where in these end markets, whether it's IoT or connected cars, do you see kind of the biggest opportunity For your non mobile XBAR filters?

Speaker 3

Well, first, I would say that we're Aggressively pursuing multiple Tier 1s 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 has all three of those customers that we're engaged with Have a very active business in the Wi Fi 6E space, in particular, focused heavily The CPE market for Wi Fi routers, obviously, is one of their first And most high volume deployment opportunities. And I would say clearly that's probably where these devices go first. Obviously, UWP 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 UWB fits.

Speaker 3

So I think that our XBAR devices have really good rejection on both The low and the high side and or a full band, not a hybrid or a sub banded filter. So I think that is going to be a key play for it because now you're going to see greater throughput, less number of Router is needed in these applications. So I would tend to think that's where it's going to go. Dylan, do you have a view?

Speaker 6

I'd just say that, it's a little dangerous for us to comment on the exact application since we're working with these customers. But Generally speaking, as we go up in frequency, the differentiation of XBAR against aluminum nitride bot goes up. So, 6E has been the sweet spot for this year of emerging markets and a need. But as Stuart is saying, EWB is up next. It's really interesting work going on in 3 gsPP looking at what are the next bands to be released.

Speaker 6

And there's a lot of focus in that 7 to 12 gigahertz range, which I think it's really the sweet spot.

Speaker 8

And just for my last question, I'll squeeze this in. First one for Marty. The Murata Banchin, I think in the past, you had said that, that will help you reach cash flow breakeven in calendar 2022. Is that still the case As these this agreement kind of rolls into the P and L?

Speaker 4

Absolutely. It adds, we just brought $7,000,000 in from the contract. And this is we're on 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.

Speaker 4

And in George's remarks, we've talked about, hey, with the ending of the exclusivity, we Expect to continue adding prepaids and combinations thereof, which will get us, which is in the right direction.

Speaker 3

Yes, these are all things that are going to as they ladder up get us one step closer. And as a reminder, right, Rajiv, as you sit back and look at it, when our cash flow breakeven number, plus or minus $30,000,000 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 or even a fabless filter manufacturer, It would see a breakeven number probably more closely approaching $100,000,000 range. There's a lot of operating margin that drops to the bottom when we get north of $30,000,000 So we're pretty excited about it and I We've got a good run on it with this latest deal expansion and obviously Not only signing the deal, but getting our first cash in is a big deal.

Speaker 4

Great. Thank you.

Speaker 1

Our next question is from Kevin Dede with HCW. Please proceed.

Speaker 3

Thank you. Good afternoon, gentlemen. Mr. Deedee, how are you?

Speaker 7

I'm great. Sir, thanks for taking my question.

Speaker 5

I was hoping

Speaker 7

yes, I was hoping you could sort of walk me through this last payment on the old contract, Right. The $8,000,000 that Marty says is going to be in deferred, there's probably $1,000,000 of that in from the old deal. I'm just trying to sort out what's left on the old contract and how that flows. I mean, I think you did a great job going through the new one, The $7,000,000 but I just want to make sure I got the $8,000,000 and the last payment from the old contract straight.

Speaker 3

Okay. Well, as we noted the 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 Still in deferred, but there's still $4,500,000 left to go there, okay? So obviously that will come as we move the next Couple of milestones and we've highlighted that we expect at least one of those to happen next year, concurrent with the Specificity in that timeframe. And then obviously the last payment will come shortly thereafter we believe.

Speaker 3

So there are $4,500,000 left on the original release. And now on this release, they've released $7,000,000 and 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 at the top end of the range.

Speaker 7

So George, you think you're on track To finish things up, I mean, they have to move from well, help me recall exactly that last stage for you to be able to recognize That or release that $4,500,000 It's actual full production, correct?

Speaker 3

No, we've actually never said The specifics on when that last payment is due, if you recall, we said there were 4 payments. We only announced the schedule of the 4 payments. And at the beginning, we said the first payment is in. We expect the next three to happen over the course of the development, which ends Shortly after the 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're working on.

Speaker 3

And if you recall, they're making major investments on their side to be able to produce these devices in 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 annual shareholder calls that we've shared and referred people to Over the last couple of quarters. So I think it's I'm sorry, I can't give you the definitive end date for these, But it's out in the future and it's not too far in the future given where we are.

Speaker 7

Okay. It sort of begs the question on Resonance Pricing power. And 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 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.

Speaker 3

Well, hey, Kevin, not a sensitive topic at all. I mean, we highlighted that We did a massive expansion of the ASP. The first four devices were worth maximum $9,000,000 The next four devices are worth a maximum of $36,000,000 I think that's 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 1st mover advantage clearly because they're the 1st person to come in and sign a contract. But now We've had these major validations 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.

Speaker 3

We see that that ASP is going from $2,250,000 to as high as $9,000,000 per device. That's I think that's a pretty significant uplift in my book.

Speaker 7

Right.

Speaker 3

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 to negotiate. Yes. Okay. Not only with our existing customer, but also with new customers clearly.

Speaker 7

You said the other variable in that Function was complexity. And we're sitting out here. We can't see those details. But I appreciate the color, George. Thank you.

Speaker 3

Well, hey, let's talk about complexity. I'll have Dylan Talk about the different what the difference in complexity is in the different types of devices, right? Clearly a follow on device, a simple band pass filter, a A diplexer for a CPE piece of gear versus a diplexer for a handset. I mean, those are kind of the It kind of balances. What speak to that a little bit and give Kevin the color he's looking for.

Speaker 6

There's 2 major factors. One is The bandwidth of the filter, we see new applications where we're seeing further increases in the operating bandwidth, This brings up new considerations. And really it has a higher value to the market. It's such challenging filter design versus It differentiates a lot against competing technologies. So that's one.

Speaker 6

And the other is George mentioned is moving to things like dipolexers where essentially you're designing 2 filters Then combining them together, there's a great amount of more effort involved as well as more value in the application.

Speaker 7

Okay. Thanks, Dylan. Sure.

Speaker 1

Mr. Holmes, I'll return call back to you, you may continue with your presentation or closing remarks.

Speaker 3

Well, thank you, operator. Hey, 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.

Speaker 1

And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great evening.

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Earnings Conference Call
Resonant Q3 2021
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