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Edited Transcript of RESN earnings conference call or presentation 5-Nov-19 9:30pm GMT

Q3 2019 Resonant Inc Earnings Call

GOLETA Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Resonant Inc earnings conference call or presentation Tuesday, November 5, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George B. Holmes

Resonant Inc. - Chairman & CEO

* Martin S. McDermut

Resonant Inc. - CFO & Secretary

* Michael M. Eddy

Resonant Inc. - VP of Corporate Business Development & Marketing

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Conference Call Participants

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* Cody Acree;Drexel Hamilton;Analyst

* Kevin Darryl Dede

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst

* Mason John Anderson

Craig-Hallum Capital Group LLC, Research Division - Research Analyst

* Rajvindra S. Gill

Needham & Company, LLC, Research Division - Senior Analyst

* Moriah Shilton

LHA Investor Relations - SVP

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Presentation

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Operator [1]

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Greetings, and welcome to the Resonant's Third Quarter 2019 Corporate Update Call. (Operator Instructions) As a reminder, this conference is being recorded. I'd now like to turn the conference over to Moriah Shilton, Senior Vice President of LHA Investor Relations, Resonant's Investor Relations firm. Thank you. You may begin.

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Moriah Shilton, LHA Investor Relations - SVP [2]

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Thank you, operator. Please note we will be using a presentation during today's call, which is accessible on the Events page of Resonant's IR website. If you are with us today via the phone, please go to the Events page to either view or download the presentation to follow along.

Turning to Slide 2. Earlier this afternoon, Resonant released financial results for the third quarter 2019. The earnings release that accompanies this call is available on the Investors section of the company's website at www.ir.resonant.com.

Turning to Slide 3. Additionally, some of the information in this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan and anticipate and similar variations identify forward-looking statements, 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-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 Resonant's Chairman and CEO, George Holmes.

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George B. Holmes, Resonant Inc. - Chairman & CEO [3]

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Thanks, Moriah, and good afternoon, and thank you for joining today's call. Joining me today is Marty McDermut, our CFO; and Mike Eddy, our VP of Corporate Business Development and Product Marketing.

Turning to Slide 4. I'd like to begin this call by highlighting the significance of the achievement that took place since our last call. First, we closed our previously announced commercial agreement with the world's largest RF filter manufacturers, significantly ahead of schedule. Closing the deal delivered a $7 million equity investment and a $9 million commercial agreement.

Second, we delivered on the promise of increasing royalty units, with the third quarter being larger than the first and second quarter combined. Third, the word is out, Resonant technology is going to attribute to another Tier 1 phone, an independent third-party teardown company published the news. Fourth, we have signed a manufacturing agreement with Teledyne, an industry-leading semiconductor and MEMS foundry for our 5G solution. You'll find the list of our partners on our website under our foundry program.

All of this good news has been fueled by the outstanding progress we have made related to the 3 foundational pillars of Resonant: technology, tools and teams, which I will touch on briefly after Marty's discussion of the financials. These are the drivers of customer acquisition, revenue ramp and strategic interest in Resonant. They continue to expand our opportunity to build scale and deliver long-term value for our shareholders.

Turning to Slide 5. Now let me dive in and give you a take on our rollout of 5G, after which I'll lay out why we believe our high-frequency technologies are uniquely positioned technically to dominate the fastest-growing segment of the market. Lastly, I will spend some time reviewing our current collaboration with the dominant supplier of filters worldwide. 5G networks are being deployed aggressively worldwide. However, as with any new wireless technology, the schedule for deployment is limited in the near term by both the availability of infrastructure and the actual implementation in the network.

Turning to Slide 6. Ericsson predicts that by 2024, 5G network coverage will reach approximately 45% using the new sub-6 gigahertz and millimeter wave technology. For true 5G wireless becomes available through implementation methodologies and progress to deliver some of the benefits of 5G using the 4G spectrum available today. First, refarming of the 4G spectrum bands for 5G technology, which involves a software upgrade and modified requirements for components within the phone. This allows some of the advantages of 5G to be realized in the short term. Resonant is already developing filters for these applications. Second, because coverage for 5G will be very limited over the next 2 to 3 years, the 4G network will be required to provide a backstop for 5G coverage holes. Hence, 5G will initially be deployed in what is called non stand-alone or NSA mode. So that in areas where 5G is not available, phones will drop to 4G.

Resonant's 5G strategy is to intercept this overall timetable. With new filter requirements for 4G filters, refarm for 5G in 2020 and new filters using our innovative high-frequency technology with 5G spectrum band. Both categories of devices will be made available through our filter IP standard library. So in layman's terms, we believe 5G is in its infancy and meaningful volume, high-performance filters, like those based on Resonant's XBAR technology won't be ramping until 2022.

Turning to Slide 7. High-frequency technology. Resonant's high-frequency filters are designed specifically using our ISN platform to exceed the exacting requirements of 5G applications. 5G functionality is dominated by the need for bandwidth because bandwidth delivers data rates and higher data rates enable a rich user experience of 4K video streaming, virtual reality, autonomous vehicles, just to name a few applications. It's Resonant's Bulk Acoustic Wave, BAW structures that have multiple advantages over competing BAW and FBAR structures, which were developed for a different requirements of 4G. What separates Resonant's technology from the incumbent BAW and FBAR suppliers is at the core of the technology. Incumbent suppliers use aluminum nitride-based solution, which are limited by their ability to deliver only 3% to 4% maximum bandwidth relative to their center frequency, whereas Resonant's technology utilize Lithium Niobate, which delivers greater than 10% bandwidth, the bandwidth needed for our 5G user experience.

Turning to Slide 8. Consequently, in the sub-6 gigahertz frequencies of 5G, the focus of the high-end 5G new radio or NR specification, the fundamental physics of the Resonant's structures offers over 600 megahertz of bandwidth compared to the less than 250 megahertz for the incumbent 4G technology. It is important to note that 5G bands n78, n79 and n77, all call for bandwidth of 500, 600 and 900 megahertz, respectively. Resonant's designs have been measured by Tier 1 third-party labs to deliver high bandwidth and low insertion line at these frequencies, which outperforms existing BAW and FBAR solutions. Several smartphones have been launched in 2019, labeled as 5G and RF phone, such as the HUAWEI Mate 30 5G Pro and the Samsung Galaxy S10 5G. Teardown show that the 5G designation, the first of the use of refarm 4G band, such as band 41, now n41 for 5G NR for these new phones. And in the case of new sub-6 gigahertz bands, LTCC components providing the filtering function. But long term, the filter performance from LTCC components is inadequate to prevent interference. In the Samsung Galaxy S10 5G teardown, the Qorvo 5G module used a Murata LTCC filter.

Lastly, Resonant has announced its manufacturing agreement with Teledyne, industry-leading semiconductor and MEMS foundry to fabricate and package Resonant designed hyper-frequency filters based on our XBAR and other novel technology. This gives Resonant the capability to offer standard back-end and front-end processes to our fabless clients as well as having a high-volume fab to support Resonant's own standard library of products.

Turning to Slide 9. I want to talk a little bit about our Tier 1 investment and commercial agreements. In August, we signed a definitive agreement with the world's largest RF filter manufacturers. We subsequently successfully concluded both regulatory and commercial stipulation, closing ahead of schedule. As a result, we now have an equity investment. Our Tier 1 partner made an equity investment of $7 million at $2.53 for approximately 2.8 million shares, and our current investors also made an equity investment of $3 million, also at $2.53 for approximate 1.2 million shares. The commercial agreement, we entered into a commercial agreement for 36 months, hard to finish for the development of filters for 4 distinct bands for a total of $9 million in prepaid royalty. This has delivered a total of $10 million in new equity, and we will receive the first prepaid royalty payment of $2 million, resulting in a total of $12 million in cash for Resonant.

Details of the commercial agreement can be found in a redacted version published with our 10-Q. You will note that some of the specifics, which are deemed proprietary have been left out. But suffice to say, here are some key facts. The commercial agreement is based on our XBAR technology, one of our high-frequency solution and is for 4 distinct bands. The exclusivity period is for 30 months. The maximum development schedule, which includes the OEM ramp time is for 36 months. The agreement provides for finishing sooner than 36 months, which would allow for earlier payments of the remaining unpaid prepaid royalty.

The exclusivity is for the mobile category only. Resonant can and plans to deliver its own 5G IP library solutions that are not covered by this agreement. Starting in the first half of 2020, Resonant will be sampling 5G solutions, which can be made available to all of the other segments of the RF filter market, including infrastructure, CPE, automotive, medical and IoT.

Our strategic partner is the largest RF filter manufacturer, with almost 40% market share. And as the market grows from $12 billion to greater than $28 billion over the next 5 years, they will need to develop hundreds of new designs each year. As such, we believe that the 4 devices in this initial agreement are only the beginning. They are a great partner, and this creates huge opportunity for Resonant to expand our business with them.

Bottom line, we have spent the past 3 years, building out our software platform and IP portfolio and expanding our customer base devices under contract. We believe, there is no greater validation of our technology than an investment from and commercial agreement with the world's largest RF filter manufacturer, who arguably has the greatest technology manufacturing platform in the RF filter space.

Now let me hand it over to Marty for a discussion of our financials. Marty?

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [4]

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Thank you, George, and good afternoon, everyone. Turning to Slide 10. The amounts I talk about are GAAP except where noted. For the third quarter of 2019 as compared to the second quarter of 2019, billings, which included the first billing for prepaid royalties under the commercial agreement, George talked about, was just over $2 million. Revenues totaled $79,000 compared to $63,000 last quarter.

Research and development expenses of $4.6 million comparable to last quarter. Sales, marketing and administration expenses of $3 million comparable to last quarter. Operating loss of $7.5 million compared to an operating loss of $7.6 million last quarter. Net loss of $7.4 million or a loss of $0.26 per share based on 29.2 million weighted average shares outstanding compared to a net loss of $7.5 million or a loss of $0.27 per share based on 28.2 million weighted average shares outstanding for the second quarter of 2019. Non-GAAP adjusted negative EBITDA of $5.9 million or negative $0.20 per share compared to negative $5.9 million or negative $0.21 per share last quarter.

Cash, cash equivalents at September 30, 2019, totaled $14.7 million compared to $10.5 million at June 30, 2019. In the third quarter, Resonant received $10 million in gross proceeds from sale of common stock in a private placement transaction. The September 30, 2019, cash balance does not include the first prepaid royalty of $2 million that George mentioned earlier.

Based on our current cash, we believe we have cash until June 2020. We ended the third quarter with a total of 74 employees, 19 of whom have a Ph. D., 56 of whom are part of the technical staff.

And finally, we've been working diligently regarding the ASC 606 revenue recognition of the $9 million prepaid royalties from our Tier 1 commercial agreement as well as our upfronts and other royalties. As a result, we believe we will have over $200,000 in revenues in Q4 2019.

I'd now like to turn the call back to George.

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George B. Holmes, Resonant Inc. - Chairman & CEO [5]

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Thank you, Marty. Now before we close, let me spend a few minutes on the pillars of our business. Turning to Slide 11. Our technology and intellectual property. We ended Q3 with greater than 200 patents pending or issued, an increase of approximately 15% over last quarter. 50 of them are related to our high-frequency technologies, which include XBAR. As highlighted on previous calls, we have a great deal of optimism about the opportunities that these cutting-edge technologies create for us related to 5G. We believe Resonant's high-frequency solutions are uniquely positioned to dominate both early rollouts, and long term, as the technology is designed for wide bandwidth and high-frequency requirements needed for 5G.

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [6]

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Turning to Slide 12. We talk about our tools. In Q3, we continue to capitalize investments we've made in our Infinite Synthesized Network, ISN software platform. As a refresher what makes ISN unique, it's dedicated and integrated end-to-end platform for RF front-end acoustic wave filter design. Unlike any others in the industry, today, we use full Finite Element Modeling or FEM for both acoustics and electromagnetic design. This increases the accuracy of our simulations and reduces the number of churn or iteration through the fab, ultimately decreasing design time and lowering design costs. We are not aware of anyone else who does it. We have begun developing ISN modules that integrate with the leading RF design platform, the first of which is the National Instruments' AWR software suite. Last quarter, we announced that we had integrated some of our filter IT standard library product into this platform as well.

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George B. Holmes, Resonant Inc. - Chairman & CEO [7]

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Turning to Slide 13. Our ISN platform also allows us to rapidly design solutions for SAW, TC-SAW and BAW and put them efficiently and cost effectively across 12 foundries around the world, which includes foundries for our -- of our vertically integrated customers and our foundry partners.

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [8]

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Utilizing our ISN platform, we're able to rapidly address the requirements for refarming of the 4G band for 5G, while driving cost down as well as establish a leadership position by being at the forefront of 5G design and development.

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George B. Holmes, Resonant Inc. - Chairman & CEO [9]

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Turning to Slide 14. I'd also like to talk about our third pillar, our team. We heavily capitalized on the addition of Ruben Caballero to our Board and Technical Advisory Committee this past quarter. Ruben's expertise and knowledge of the mobile handset market and, in particular, of the 5G rollout has been invaluable in guiding us to develop solutions for 5G outside the mobile market. We ended the quarter with roughly the same headcount as we started by leveraging the design efficiencies of our ISN platform.

Turning to Slide 15. In closing, I'd like to highlight some of the key takeaways for our investors. Clearly Resonant's IP with over 200 patents filed and issued, our ISN software tools and our go-to-market model are a disruptive force in a rapidly growing market. In the past 3-plus years, we've had discussions with all of the major market participants, including vertically integrated module and filter manufacturers, OEM handset manufacturers, carriers on a worldwide basis and manufacturers of other key components in the handset, including power amplifiers, switches and antennas. I can tell you as the CEO of Resonant that the acknowledgment by the world's largest RF filter manufacturer and the value of our disruptive technology has provided a fresh look and renewed interest by all. Although the unit volumes are on the rise, and we expect that trend to continue, we now have 3 third-party validations that our technology has made it into a Tier 1 phone.

Our engagement with Teledyne will facilitate our ability to deliver samples of our high-frequency filters to not only our Tier 1 partner but also support our ability to sample 5G non-mobile applications as well. We are in the best position possible with our technology, partners and market timing, capitalize on the growth of the market that is being fueled by 5G.

I can't emphasize enough the power of our IP filter standard library of products and the choices it provides us as we continue to develop relationships directly with OEMs. Lastly, Resonant may be the only pure-play filter company to have broken the code on delivering the bandwidth needed for the next great expansion of the RF filter market. This coupled with the achievements we've discussed today makes it a tremendous opportunity for new investors to provide additional confidence for our existing investors.

Now I'd like to turn the call over to the operator for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Cody Acree with Drexel Hamilton.

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Cody Acree;Drexel Hamilton;Analyst, [2]

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Congratulations on the progress. I guess, if I can start off, George, with the Teledyne relationship, giving you both front-end and back-end to your customers. But looking maybe even a different way, where you've said you didn't want to be in the filter manufacturing business itself, although this partnership with Teledyne definitely looks like it would give you the capability, if you want?

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George B. Holmes, Resonant Inc. - Chairman & CEO [3]

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Yes, Cody. I'll touch on this briefly, and then we've Mike jump in and talk a little bit about the relationship with Teledyne specifically. But clearly, we're not walking away from our go-to-market model of royalty-based sales on a per unit royalty basis to either vertically integrated or non-vertically integrated customers. But as you know and as we have noted on the past several calls, we have built out our foundry program with some very significant players. And this most recent announcement is just another step down the path to get high-volume capability and make it available for our latest technology. What this does, it really creates options, right? And our view today and we've talked about this a bit on previous calls is we're all -- we're very, very focused on tying the revenue. And clearly, when you have customers that have a clear path to revenue, we want to support them in the best way we can. As it relates to getting them product quickly and efficiently and leveraging their impact on their customers, which are the large OEM handset manufacturers.

What this gives us is it gives us great flexibility to create a branded solution as well if we so choose. And perhaps have a combination of both royalty and branded products that we make available to our customers. And clearly, this creates a pretty interesting opportunity because it has the potential to tenfold increase the top line revenue. That being said, we're 100% committed to our current royalty model. And this new opportunity has been something we've had in the works for the last 2 years as we work to build out our foundry program. And it's really all about ensuring time to revenue, straightest path to the customer and delivering our technology into the market.

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Cody Acree;Drexel Hamilton;Analyst, [4]

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Very good. George, also, I guess, just your opinion, but there's obviously some disconnect between what somebody like your largest RF filter maker sees in Resonant and giving you royalties, I mean giving you prepaids and equity investment and so on. And what the rest of the public is valuing your stock at, I guess, to what attribute do you attribute that disconnect?

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George B. Holmes, Resonant Inc. - Chairman & CEO [5]

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It's a great question, Cody. And there are guys much smarter than me that understand the math problem, but it is pretty surprising that the investment community hasn't valued this very, very significant achievement and relationship we have with the world's largest filter manufacturer, doesn't understand that their dominance really creates a tremendous opportunity for us. But one thing for sure, the rest of the RF filter market has because what we've seen based on that announcement is lots of strategic interest in the other segments of the market. Obviously, we have a 30-month exclusive in mobile. We have free right and freedom to operate in all other segments, and that's created a tremendous opportunity for us to capitalize on. And we have demonstrated historically, specifically this year in a very short period of time, then we know how to deliver on that opportunity. So we're really focused. Mike and his team are very focused on it, and we think it's going to create great opportunity for the company. And we just hope that the financial markets give us credit for that as we look on a go-forward basis. We think it's going to be a tremendous opportunity for us, absolutely.

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Cody Acree;Drexel Hamilton;Analyst, [6]

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And one more question for Marty, if I may. Marty, you've mentioned this in your prepared remarks that you had $2 million plus of prepaids that have already been received. How are you planning to account for that per revenue recognition?

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [7]

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So as I said in the call, we're going through the 606 analysis now and going through the evaluation of what the value is that we transfer to Murata at this stage. I mean that's going to come in over some period of time. We, as I said, are pretty sure in the first quarter, the revenues, including some of the $2 million and the other royalties and other upfronts that we have will generate revenue over $200,000 in Q1.

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George B. Holmes, Resonant Inc. - Chairman & CEO [8]

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In the fourth quarter.

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [9]

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In the fourth quarter -- sorry.

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George B. Holmes, Resonant Inc. - Chairman & CEO [10]

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Fourth quarter.

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [11]

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Fourth quarter.

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Operator [12]

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Our next question comes from the line of Raji Gill with Needham & Company.

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Rajvindra S. Gill, Needham & Company, LLC, Research Division - Senior Analyst [13]

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Also congrats on a lot of the good momentum, and I think will ultimately reflect that. But in the meantime, I was wondering how your company will benefit from kind of the U.S.-China trade war. Obviously, your announcement with Murata was significant. There's been evidence that Chinese OEMs are moving away from the U.S. RF suppliers. You obviously have this agreement with Murata that will take effect in 2022. But I -- and we've discussed this in the past, but I wanted to -- if you could maybe discuss this at a -- from your advantage point, how you think you'll benefit from this situation? And then kind of the 5G ramp in terms of going to higher frequency bands, the XBAR, in particular, how that maybe has superior performance over RF BAR and other kind of existing technologies on the RF line?

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George B. Holmes, Resonant Inc. - Chairman & CEO [14]

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Okay. Let me kind of grab a couple of pieces of that. I'm going to kick it over to Mike to kind of finish up on the XBAR technology. One thing, Raji, for sure is, if you look at the contract that we have with our Tier 1 partner, clearly, 36 months gets you out to 2022. If you look at their press releases on the Nikkei, you will see that they're planning to be in full volume by that point in time. There -- I think that it's probably pretty clear that they're moving at light speed to capture the opportunities that are in front of them as the 5G market materializes. Obviously, with this latest teardown of the Samsung phone that has a Qorvo module with a Murata part in it, they're looking to see what they do next as the requirements for those devices get much more stringent as the network gets much more populated. But I think as we sit back and look at this opportunity, we think it's going to happen quicker than the outward balance. Clearly, we put provisions in our contract such that as we aggressively move to execute and deliver against the requirements that we've agreed to with them that we can get paid sooner. And really, the only boundary that we will -- we believe that we'll ultimately end up having is that 30-month exclusivity period for the mobile segment of the market. So I do think there is a tremendous opportunity for pull in.

More importantly, I think there is a tremendous opportunity for extension. Clearly, that's based on -- we've got to execute and deliver. But every other customer that we have, we've been able to execute and deliver and broaden our footprint. I expect that also to be the case here. They're a fantastic partner. They're one that really understands the marketplace. Obviously, their dominance helps. And I think that if you look at what has happened over the course of this year with the China trade issues, I think they've been a big benefactor. If you look at the numbers that are rolling in, in particular, on the module front. I think the latest word is they will have increased their FEM ID penetration and their total module penetration. Their total module numbers that I think are going from 16% total module delivery to about 25%. I think it's 60% growth, really, they're the fastest-growing one in the space. Mike, I'll have you touch on that a little bit more. But I think that's, in large part, because the right place, right time with great technology. Mike, do you want to touch a little bit on why we think our technology is a good fit for our partner.

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Michael M. Eddy, Resonant Inc. - VP of Corporate Business Development & Marketing [15]

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Yes. Thanks, George. I just said a little bit about XBAR, Raji, which you touched on that and why it's important for 5G and why it's different and why it's been recognized as a substantial opportunity by the largest filter manufacturer in the world. And it's really because at Resonant, we looked at the new requirements for 5G filters. The requirements for 5G filters are very different from what was required at 4G. 4G was a transition from 3G, which is a 1 gigahertz type technology with fairly narrow bandwidth to 2 gigahertz technology, with a little bit wider bandwidth. 5G requires substantially larger bandwidth, 500, 600, 900 megahertz at around 5 gigahertz. And those high frequencies are needed because there was no substantial bandwidths available below 3.5 gigahertz.

If you remember, when 3G moved to 4G, the fundamental building block of filters needed to change. It needed to match that transition and change in bandwidth and change in frequency. And that's how [indiscernible] Broadcom did so well as 3G moved to 4G, because they had the right structure to develop the correct kind of requirements in the filters. We believe XBAR is that technology for the transition from 4G to 5G.

Typically, the bandwidth of a filter is defined as a percentage of the frequency it's operating at. So for instance, the filters required at 4G were about 3.5% to 4% maximum bandwidth. Those of 5G are now about 12% bandwidth, 22% bandwidth. These are bandwidths substantially larger than we feel is achievable without major, major considerations for the technology use of 4G. Our XBAR and 5G technologies are optimized and designed to operate at these frequencies and will give substantial benefit to that transition into the way that these particular RF front ends will operate and realize the full potential of 5G. Does that answer your question, Raji?

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Operator [16]

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Our next question comes from the line of Tony Stoss with Craig-Hallum.

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Mason John Anderson, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [17]

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It's Mason on for Tony. Congrats on the Murata, getting the Murata agreement signed and booking your first royalties related to that agreement. I've got a couple for you. First, did you have any contractual payment revenues in the quarter for 3Q?

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George B. Holmes, Resonant Inc. - Chairman & CEO [18]

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Royalty payments?

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Mason John Anderson, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [19]

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Not royalty, the kind of one-off payments that you guys have had in the past for...

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George B. Holmes, Resonant Inc. - Chairman & CEO [20]

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Well, as you know, our revenue is made up of upfronts and per unit royalty revenues. And now with the addition of this agreement, the kind of the third category, which is prepaid royalties. So now as you look on a go-forward basis, as we start delivering against the prepaid royalties and start accounting for that from a 606 perspective, you will see a blended royalty rate that doesn't reflect the actual per unit royalty rate because we'll have a blended rate. And because they got a significant discount to prepay for obvious reasons.

But what you'll see is those -- even though blended rates will be significantly higher than your typical royalty rate. Now the other opportunity here, which could be the fourth category of revenue, which is the one that we talked on earlier when Cody asked the question is it looks like we're prepping for the delivery of branded product. We have the ability to do that. We do have some customers that are interested in that, both our fabless customers that would like us to take on that responsibility. And then clearly, some of the OEMs, there is an appeal there, clearly, because it's a 10x uplift in revenue. So that is a pretty exciting thing.

And the nice thing for us is because we have been working diligently for the last 3 years to make sure that we could close the gap and help our customers get products qualified, we already have the quality organization, we already have the applications, we already have the lab, we already know how to go to that handset testing that allows us to deliver products into the marketplace. So it's a very, very low-cost impact. And we have some other partnerships that we're working on right now that we believe will allow us to get there very cost-effectively without a big change in the overall operating cost of the business.

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Mason John Anderson, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [21]

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Great. And then just curious of your current design pipeline, can you kind of quantify how much of that is XBAR related versus just standard filters?

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George B. Holmes, Resonant Inc. - Chairman & CEO [22]

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Yes. Yes, yes, yes, clearly, we have the Tier 1 agreement that we're feverishly working to support. And then we have some work that we're doing in the non-covered categories as well, which we believe we'll be in a position to sample those parts in the first half of the year. So we're working down that path. And I would say, that probably represents, I don't know, 20% of our overall design activity. Mike, do you want to jump in on this. You've probably got a greater detail on that.

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Michael M. Eddy, Resonant Inc. - VP of Corporate Business Development & Marketing [23]

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Yes, I would say it's about 20%. I think that's pretty accurate. We haven't pulled out the exact number, but that sounds about right with regard to the amount of activity surrounding XBAR compared to our traditional 4G type filters.

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Mason John Anderson, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [24]

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Okay. Great. And then just finally, I don't know how much detail you can give. But hoping you can provide some clarity on the timing of the other royalty payments from Murata. I know in the past, you had said they'd probably be kind of relatively evenly spaced as far as timing goes? And then just maybe what you have to deliver to receive those other prepaid royalties?

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George B. Holmes, Resonant Inc. - Chairman & CEO [25]

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Well, that is a great question and something that would be redacted out of the terms of the final agreement because it's considered very strategic to our customer. But I think that what we can tell you is reaffirm that 4 equal payments make sense. The maximum term of the agreement is 36 months, assuming that we don't execute and deliver earlier, you could probably count on the fact that we've got 3 payments left probably of roughly equal size, and they would cover the balance of the time frame on the agreement. So about 1 a year, but the specifics of the designs, that's considered very proprietary to our customer. So at least for now, we'll save off and not talk about that, if that's okay.

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Operator [26]

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(Operator Instructions) Our next question comes from the line of Kevin Dede with Rodman & Renshaw.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [27]

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I got a question for you, too, Marty, but I don't know if we'll be able to get to it. I think the big one is, George, clarification on Teledyne specifically, 2 things there. Number one, what does it do to your financial model? And number two, how is it that developing 5G with Teledyne doesn't infringe on Murata?

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George B. Holmes, Resonant Inc. - Chairman & CEO [28]

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That's a great question. First and foremost, they are no different than any of our other foundry partners, except in the fact they have different sets of capabilities, obviously, them being a MEMS foundry that gives them the capability to actually work on the high-frequency devices that we call XBAR. We are not in the business today of having inventories or delivering products for our customers, such that we would actually have to carry that cost. And when we sit back and look at the opportunity to sell branded products and take advantage of that 10x increase in top line revenue, we're looking at doing it with partners that will allow us not to have to carry the burden. That's part of the evaluation. We're not committing to going and getting that revenue today. What we're saying is we have the opportunity to.

And clearly, we've been building this business over the course of the last 3 years to very effectively not only support our current vertically integrated customers and their foundries, we created a foundry team and a series of both front-end and back-end partners that allow us to address the needs and opportunities of those non vertically integrated companies. And we've always said that we'd have the ability to take that and deliver it directly to OEMs. Now we're sitting back and looking at and evaluating that opportunity. And if the opportunity arises, then we can do that cost effectively with minimum additional costs, we'll do that and capitalize on that and deliver that to the top line. So we don't expect to put ourselves in a position to change the fundamental P&L of the business today and that the only additional cost that we're looking at would be some nominal costs associated with some additional quality personnel as well as some additional folks in the supply chain management. Mike, do you want to talk a little bit about the relationship and what's different about the foundry agreement we just signed at Teledyne versus all of our other foundry agreements? I think it's pretty nominal.

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Michael M. Eddy, Resonant Inc. - VP of Corporate Business Development & Marketing [29]

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Yes. I think one of the things it does highlight is that we're not inventing any new process steps with regards to XBAR or these high bandwidth, lot high-frequency resonators and filters in that a standard high-volume, high-quality MEMS foundry can produce these parts. And so it's very similar in the way we have foundries for a standard SAW and TC-SAW foundries that have used them in the past.

But Kevin, you also had another part of your question, which was about how does this not infringe in any way our commercial agreement that we have. And I think one of the things we're pointing out again is that the agreement we have exclusivity is for the selling of parts over a 30-month period for mobile-only. There is significant interest in nonmobile applications, which we can provide parts or have customers work with our foundries such as a Teledyne in order to get those parts manufactured. And so these applications initially that we're focused on are infrastructure, CPE, as well as automotive. So this is basically sub-6 gigahertz, 5G as well as Wi-Fi, that there is substantial interest in these kinds of filters for these applications.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [30]

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Very good, Mike. That was the real meat of it. All right, here's the other one for you, George. You've spent a lot of time in Japan, clearly, right? You've spent a lot of time facing the Komono. And I'm wondering how much have they've opened it for you. This is a $14 billion sales company, and you represent $80 million in market cap with basically no sales. I'm just wondering how much you can tell us, Murata has come to rely on you for 5G development. Would you say it's 100%? Would you say it's 50%? 20%? Could you give us a ballpark on how much you think they're relying on Resonant's tech to get them into that 5G market?

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George B. Holmes, Resonant Inc. - Chairman & CEO [31]

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Well, Kevin, that's a great question. And I think you probably answered it, and you've got a $14 billion company, and you've got a company that's got an $80 million market cap. So the likelihood that we know what's happening in the balance of that organization is highly unlikely. But what I can tell you is what they've made public. They see an opportunity, working with us in our XBAR technology for sub-6, and they expect to extend it into millimeter wave. And that was in their press releases that they did on the Nikkei. They also have presented at IUS and items on their road map clearly, are covered by our XBAR technology. And they highlighted the fact that they're working with us. That's what I know today. I think I will be able to tell you a lot more a year from now. But clearly, what I believe is, as our team does a good job, we'll get more integrated, with greater opportunity to partner with them, and we'll probably be able to tell you less because that's just the nature of the beast. These things, these relationships are very confidential.

What I can tell you is they're a great group of people to work with. They've been a fantastic partner to date. We couldn't have asked for anybody better to partner with. And we have 30 companies that we talked to at Mobile World Congress. All of them were great. We had tremendous meetings and discussions and testing and evaluation of the technology. And the good thing for us is we happen to get the largest manufacturer in the world excited about what we're doing. And they chose to allow us to partner with them to deliver at least 4 devices. And we're excited about that. And we're going to go do the best job we know how to deliver as promised, execute and actually try to expand that relationship over the course of the next several months.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [32]

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Well done, George. Marty, for you, if I may, tell us what's in that $14.7 million in cash? It's so still a little unclear. Do you have the full amount of both of those raises and some cash from Murata on the royalty payment in advance, or you can't recognize that until you have the AOC stuffs straightened out.

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [33]

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Well, first, it only includes, as of September 30, includes the balance we had at the end of June, plus the $10 million that we raised, which included $7 million from Murata and $3 million from others. The $2 million prepaid, we -- became payable to us on September 30, but it was not paid until later in October 11, specifically when the $2 million came out so.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [34]

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So does that mean you have to show it sort of an escrow on the balance sheet?

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Martin S. McDermut, Resonant Inc. - CFO & Secretary [35]

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No, it's free kits. It's our right to them under the deal, it's our cash to use. So it's -- right now, the balance sheet as of September 30, set up as a receivable and then it's deferred revenue when that cash was collected. The deferred -- I mean, the receivable goes down, deferred revenue will go up as we recognize revenue on.

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Operator [36]

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Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to George Holmes for closing comments.

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George B. Holmes, Resonant Inc. - Chairman & CEO [37]

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Great. Thank you, operator. I want to wrap this call and talk a little bit about the business and where we find ourselves today. We had an exciting Q3. Clearly, closing the world's largest filter manufacturer, being our first half unit shipments, putting our technology in a third Tier 1 phone and announcing a partnership with Teledyne. Those were fantastic achievements that we're very excited about. But I think there's a lot more to be looking forward to. Obviously, we have lots of opportunity with new potential strategic partners. We've been extending our -- we're planning on extending our relationship with the world's largest filter manufacturer as we get in, get involved and start developing these devices, exciting about that as well. Licensing our software. We didn't talk a lot about that this quarter, but it's something that is still on the horizon for us. The technology that we have there in our ISN platform, we believe is cutting edge, and we see a lot of value in that. Both on a licensing basis and also from a strategic partner perspective and then investigating the potential to capture 100% of the value of our IP and top line revenue. That's an exciting opportunity that we're going to be reporting on as we make progress and determine whether or not that makes sense. Great opportunities for all of us. Hope you guys are excited about what we're doing. I want to thank you again. Have a great day. Thank you much.

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Operator [38]

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Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.