Resonant Inc.

Please note we'll 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 phone, please go to the Events page to either view or download the presentation to follow along.

Earlier this afternoon Resonant released financial results for the third quarter of 2020. The earnings release that accompanies this call is available on the Investors section of the company's website at www.ir.resonant.com.

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

George, floor is yours.

Thank you, Greg. And thank you everyone for joining us today.

I'd like to welcome you to our third quarter 2020 financial results call. Joining me today is our Chief Financial Officer, Marty McDermut.

Let's get started by turning to Slide 3. Q3 was a quarter of continued momentum.

Our XBAR platform is quickly becoming recognized for its performance and applicability in meeting the executive demand of 5G. Before we dive deep into XBAR, let's look at some of the key highlights from the third quarter.

Revenues were $1.4 million, which is greater than our revenues in the entire first half of 2020. Over $4.1 million units designed with our ISN technology were shipped in the third quarter of 2020, representing a year-over-year increase of 163%.

Today, our customers have shipped over $46.5 million units designed with our ISN technology. Let me emphasize these are production unit volumes.

Most importantly, we continue to move our breakthrough XBAR technology forward. The mobile side of XBAR, our work with our strategic partner, the world's largest RF filter manufacturer is progressing very well as we achieved our second milestone.

This milestone was a prerequisite that enables the commercialization phase, which required our expert filters to have achieved previously determined performance targets, packaging and initial reliability. On the non-mobile or Wi-Fi side of XBAR, we successfully showcased that our XBAR 5G RF filters can be manufactured on a standard Surface Acoustic Wave or SAW manufacturing process, a technological breakthrough and what we believe as an industry first.

We did this at two additional SAW foundries, bringing the total number of foundries that have manufactured XBAR based devices to six. This is significant because it validates the power of our ISM platform and the inherent manufacturability of a Bulk Acoustic Wave or BAW filter structure, designed and build a SAW manufacturing process.

Every day we expand the manufacturability and capabilities of XBAR, making it more valuable to the industry and key players involved. Turn to Slide 4.

XBAR is clearly being recognized as a breakthrough solution for high frequency 5G applications. It's been referenced in a number of corporate and industry publications.

The best example being a recent report from one of the largest most reputable teardown companies System Plus. In that report, they reviewed the Skyworks' BAW filter, which included a particular reference to our unique XBAR technology in partnership with the world's largest RF filter manufacturer, along with other traditional BAW technologies.

The ongoing validation supports the idea that we are revolutionizing RF filter design and delivering on the true promise of 5G. Move to Slide 5.

Everyone is expecting 5G to be revolutionary. Last month, we host a very successful 5G insights webinar series, a thought leadership event with over 300 investment professionals in media in attendance.

The event featured our advisory board, which has approximately 250 years of combined experience at the industry's largest integrated device manufacturers and OEM handset manufacturers. The live webinars include numerous 5G fireside chat, which were designed to help investors better understand the current state of 5G and the technology roadmap for 5G deployments.

5G is expected to have download speeds more than 50 times faster than 4G. For example, a movie that takes 29 minutes to download on 4G, will take about 34 seconds with the real 5G.

5G latency or the time it takes to send data from one point to another will be 25 times faster than 4G. The data transfer with 5G will be almost instantaneous will unlock new possibilities for mobile data never before imaginable with 4G.

5G will not only be revolutionary to the next generation mobile phones, but also the smart devices, sensors, connected vehicles and more. 5G's low latency and high speeds is what makes the Internet-of-Things possible on a wider scale.

Wi-Fi is no exception, the opportunity is booming. For example, in the U.S., the Wi-Fi 6E band was recently approved over one gigahertz of bandwidth, which is 18% fractional bandwidth at 6.5 gigahertz.

We expect there to be continued efforts of expanding the bandwidth at lower frequencies, which can also be enabled by our expert technology. Now on Slide 6, at the device level, meaning your mobile phone or smart devices, the performance being delivered by today's 5G is not expected to meet consumers' expectations for real 5G, which we have historically defined as Wave 2.

We talked about this before, but it's so important to understand the significance of this, but I'll rehash some of the key points. So what's the problem with 5G today?

Early 5G phones were using inefficient filtering techniques that won't cut it in future generations. Because they rely on the uncrowded use of the 5G spectrum that are not concerned with out-of-band emissions.

The next wave of 5G, what I'm referring to is Wave 2 will deliver high data rate but require much larger bandwidth and protection from interference requiring a different type of resonator technology that is used today. So in many ways, players who talk about having 5G capabilities today are focused on initial coverage, and leveraging it as a marketing tool are not ready to deliver meaningful bandwidth improvements to consumers that will affect things like download speed and latency.

To our knowledge, Resonant's XBAR RF filter technologies uniquely demonstrate the ability to innately meet the complex requirements for bandwidth of 5G applications. Other competing technologies that have been discussed in the market are using doping or additional external components to increase resonator bandwidth, which negatively affects performance and still doesn't meet the full bandwidth requirements of 5G.

And all of these technologies are competing against one another. The beauty of Resonant's business model is that we are enabling RF filter manufacturers rather than competing against them.

By enabling manufacturers, we leverage their relationships with the world's leading OEMs where a single engagement by Resonant yields multiple OEM engagements. So now let's turn to Slide 7.

So how did Resonant become the RF filter solution provider with the exclusive technology to deliver upon the full promise of 5G. As we've discussed before, the key differentiators are Infinite Synthesized Networks or ISN multiphysics electronic design automation or EDA software platform, specifically created for the development of RF filters.

ISN enables us to deliver designs faster, better and more cost effectively than competing technologies. But what do I mean by that?

The faster comes from our ability to leverage mathematical models to rapidly design filters that often require few interns through a foundry and provide a path to straightforward integration into modules. The cheaper comes from several areas, fewer engineers are needed and few interns are needed.

A great example is our announcement in August that we manufactured non-mobile XBAR filters on a standard SAW process which is significantly cheaper. The better comes from our ability to solve complex challenges demanded by increasing filter requirements, such as those demanded by 5G.

What's key here is our use of ISN to simulate thousands of variations that we believe just can't be contemplated by traditional methods. Now let's turn to Slide 8.

Today we stand in an attractive intersection. The combination of the demands of 5G, the innovation of new materials, such as engineered substrates, and the strength and speed of ISN which allowed us to create our completely novel XBAR technology.

As I highlighted earlier, XBAR is quickly becoming recognized as uniquely positioned to meet the demands of high frequency 5G applications. The biggest validation of our XBAR technology was clearly the strategic deal and partnership we struck late last year with the world's largest RF filter manufacturer.

As a reminder, this entailed a strategic investment of $7 million into Resonant and Resonant securing a $9 million multiyear commercial agreement for four bands utilizing XBAR technology. In October, we achieved the second milestone under the agreement.

Now we're going to touch on a few key points to help you understand what this means. First and foremost, this means our XBAR filters for 5G, do what we said they would do.

We confirm target performance packaging in initial reliability. Second, it allows us to move to the next phase of the agreement, which focuses on building a commercial platform and high-volume manufacturing of XBAR based RF filters for 5G.

That brings in prepaid royalties in the millions rather than having to wait for unit shipments. To-date, we have received 50% of the prepaid royalties for these first four bands.

So we are one step closer to revolutionizing the industry as we know it. And yes, there are additional milestones required prior to commercial production of our designs.

But probably the most important is that we expect a significant increase in our partners commitment, time and resources to ensure our XBAR technology reaches the market with dominant scale. To explain how significant the opportunity is with this partner.

I'd like to give you an idea of the scale and importance of this engagement. Seven companies control more than 98% of the market for both filters and duplexers.

Our partner is the clear leader in both categories controlling 37% of the filter market, 32% of the duplexer market. Their filter market share is bigger than the second and third largest players combined.

It's a great time to highlight our name partner with only one of the several Tier 1 customers we have today already has established relationships with some of the world's largest handset OEMs. That said, there are no additional resources or partners needed for our customers to penetrate the Tier 1 OEM supply chain which ultimately exemplifies the power of our win many strategies.

I should also highlight that our initial XBAR customer has the market dominance to represent a market potential of over $100 million in annual revenue for Resonant. We're feeling really good about the progress and validation we're getting from the 5G market.

The opportunities and non-mobile that we are engaged with for Wi-Fi and infrastructure applications are focused keenly on XBAR's ability to deliver the performance necessary at high frequency and wide bandwidth. Now before turning it over to Marty, let's wrap up this section by turning to Slide 9.

With all this talk about 5G it's important to note that 4G is still the dominant filter in the market today. It expects to be relevant for many more years, and will continue to grow for several more years.

To give you an idea of scale, the 14 market for our filters to-date is estimated to be worth $7.7 billion. This growth will be largely driven by MIMO and non-stand-alone 5G, which uses 4G as an anchor.

There'll be increasing 4G content, even in 5G phones. They will be used as a backstop for 5G coverage.

These next generation 4G designs will need to have lower cost and higher power than ever before. This is exactly what our technology can provide.

The China handset market which is dominated by smartphones represent 30% of the overall market. We're seeing the market making a big move towards non-U.S.

source content, which is particularly interesting as Resonant has the ability to simply deliver designs targeted at the 4G market, which can be manufactured anywhere such as China. To that end, we have a number of large and dominant filter family partners in Asia, moving very aggressively to enter the marketplace and supply these large Chinese handset manufacturers.

We delivered five RF filter designs in the third quarter to these partners bringing the total to seven for the year. We expect another three in the fourth quarter for a total 10 delivered designs in 2020.

This allows our Chinese partners to provide turnkey filter technology foundry services to the fabless and OEM customers significantly increasing their competitiveness in this marketplace. And these are all companies we have signed per unit royalty licensing agreements and prepaid licensing agreements with already.

I wanted to briefly touch on our patent portfolio, which has continued to grow. Today our patent portfolio numbers over 250 patents filed and issued over 90 focused on XBAR for 5G.

With that I'll pass it over to our Chief Financial Officer, Marty McDermut, for review of our second quarter financial results. Marty?

Thank you, George. Turning to Slide 10, I'll now provide an overview of our financial results.

The amounts I talked about our GAAP except where noted. For the third quarter of 2020 as compared to the second quarter of 2020, billings were approximately $2.7 million as compared to $211,000 last quarter.

Revenues increased 132% to $1.4 million compared to $604,000 last quarter and $79,000 in the same year ago quarter. At the end of the third quarter deferred revenues totaled $2.4 million.

We estimate that amount will be recognized as revenue over the remainder of the contracts. Research and development expenses decreased 9% to $4.4 million, down from $4.8 million last quarter.

Sales, marketing and administration expenses totaled $3.1 million and increase of $100,000 when compared to last quarter. Operating loss improved to $6.1 million, compared to an operating loss of $7.2 million last quarter.

Net loss improved to $6.1 million or a loss of $0.11 per share, based on 53.2 million weighted average shares outstanding compared to a net loss of $7.2 million or a net loss of $0.14 per share based on 52.9 million weighted average shares outstanding for the second quarter of 2020. Non-GAAP adjusted EBITDA improved to a loss of $4.4 million or a loss of $0.08 per share compared to an adjusted EBITDA loss of $5.4 million, or negative $0.10 per share last quarter.

Cash and cash equivalents totaled $20.1 million at September 30, 2020 with no debt. On September 30, we had a total of 65 employees 18 of whom have a PhD, and 46 of whom are part of the technical staff.

And then finally turning to Slide 11, on the top of guidance. In third quarter, we received a large prepayment related to our second milestone.

And while these prepayments greatly enhanced the recognition of revenue in the future and overall cash position, they also create quarterly fluctuations. We expect our fourth quarter revenues to look more similar to the first and second quarters' of the year, but it's worth noting our continued progress.

For instance, revenues and volumes for the first three quarters increased consistently on a sequential basis. And if we removed the large prepayment in the third quarter, we would expect another sequential increase in the fourth quarter as well.

That said, the business is clearly on a steady upward trajectory and our guidance that revenues and unit volumes in the second half of 2020 will be greater than the first half of 2020 remains intact. I will also note to the extent possible, we will do our best in these uncertain times of COVID to continue providing quarterly guidance related to revenues and volumes.

I'd now like to turn the call back to George for closing remarks. George?

Thanks Marty. Moving on to Slide 12, the third quarter is set the stage for exciting close to 2020.

Highlighted this quarter is our successful pull-in by almost a quarter of the second milestone of our mobile XBAR contract. This milestone which required our XBAR filters to have achieved previously determined targeted performance packaging and initial reliability is a prerequisite that enables the commercialization phase of this agreement.

As noted, our XBAR strategic partner has over 30% market share in the major critical segments of the RF filter market. It's bigger than the second and third largest players combined.

The two key highlights are one to the many go-to-market strategy along with named and unnamed market leading Tier 1 customers that don't need partners to ramp volumes and capture market share of the Tier 1 handset manufacturers because they are already there. And two our initial XBAR customer has the market dominant for representing a market potential of over $100 million in annual revenue for Resonant.

To wrap things up what she will look for in the coming quarters. Here are some metrics and milestones to track.

While the pandemic has created challenges we remain focused on closing and XBAR non-mobile customer. Current engagements are progressing nicely and our new foundry engagements have increased our ability to sample devices to customers.

We expect to deliver another three devices to our China foundry partners in the fourth quarter putting is at 10 devices delivered in 2020. We expect these partners start shipping products to their customers in late 2021.

Taken together, this showcase is a success in the early innings with the key foundry suppliers in China. We'll begin to represent the majority of the unit volumes moving forward.

Given the sheer size of the market, companies we partnered with and the value we add to their businesses. In 2021, we expect to expand the device that we have on our contract with our XBAR technology in both mobile and non-mobile applications.

Turning to slide 13, as I wrap things up, I want to thank all of our employees, Board and Advisory Board members, for all their hard work that has contributed to our current success. We could not have done it without them.

And with that, I'll hand it over the operator to begin our question-and-answer session. Operator?

Thanks for taking my questions. Hi, George.

Hi Marty. Just wanted to kind of go back into some of your partnerships, not to exclude your largest partner, but just how you're looking at that strategy overall, looking at - milestones that you expect to achieve with other customers?

And then maybe going back to your largest, just what are some of the - that if you can put some parameters around where do you think that strategic partnership goes for you or you've got now wireless and automotives, where do we go from here?

It's a great question, Cody. And I want to highlight here also, I've asked Dylan Kelly to join Marty and I to heart of this Q&A here at the end.

So we've got our anchor tenant here for the technical questions in case it gets over Marty's in my head. So we'll make that known to everybody on the call.

As we noted earlier in the year, when we took some costs out of the business, we did kind of - close out some of our initial customers. Clearly when we were just coming out of the gates and really trying to validate the technology that we had with ISN, we had to get, a bunch of designs contracted.

And some of those designs we got them all the way through and ready for production and those customers were not able to kind of take it the next mile. So those customers, we decided as part of that cost savings.

We were going to kind of focus on the guys that really had the horsepower to get products into the marketplace. And we did that starting in Q1, and we really have been focused in large part, rather than the customers, the designs we had been doing historically, one-off custom designs for all the different bands to 10 plus customers to focus on really the library products and consolidating our design effort and being able to pour designs from foundry, the foundry and in particular, focus on the large Chinese foundries is, as we really saw the migration of that segment of the marketplace to indigenous suppliers for the big OEMs in China.

I think that's worked out very well for us. I mean clearly, our sub 3 gigahertz portfolio is doing quite well.

We highlighted that we've delivered seven of those designs so far. We think we'll deliver another three here between now and the end of the year.

And those customers are moving quickly to get those devices qualified and as Marty and I have called the ball we'll take that will be in a position to ship product in the second half of the year. That said, that really is going to be our focus for the sub 3 gigahertz space.

When it comes to, the higher frequencies and what we're doing with XBAR clearly, we are focused on what's happening with our largest, the largest filter manufacturer and the partnership we have with them. The fact that we're highlighted this last quarter and, in our announcements, right after the end of the quarter that they are our strategic partner in mobile.

We're really focusing on them as it relates to capitalizing on their market prowess, and their ability to manufacture products and very high volume. I think that's going to be key for us.

Clearly, we're fortunate that we don't have to have partners take our parts into the marketplace. We can leverage our customers, and their ability, and their relationships with the big OEMs.

We don't need somebody else to go do that for us. These customers have identified us, and our technology is something that they want to leverage.

They push it through their foundries and then leverage their relationships into the marketplace, I think that's going to be very good for us clearly with the world's largest filter manufacturer, the fact they got north of 30% share in the mobile space, that's clearly going to be something that we lean on, and we get very, very excited about as we move into the manufacturing phase. But I think additionally, as you look at what we're doing in the non-mobile segment, we've done several webinars here over the course last three to five months, and those have all been focused on what we're doing in Wi-Fi, both at 5, 6 gigahertz.

And I think we're going to be very well positioned there. Same types of relationships with big IBM's and being able to leverage their capabilities to get products into the marketplace.

And fortunately, when it comes to the top seven companies, we've got several partnerships already locked and loaded. And as we announced, just this morning, our oldest customer has kind of expanded their footprint, and now is in automotive, Dylan, is there anything I missed there on that question?

We can hear about - probably the general traction, where we're positioned with manufacturing the filter through commercial SAW foundries, the XBAR filters they've gotten us where we can go out and aggressively promote the technology. And I just say, we're getting lots of traction.

We continue to validate the differentiation against the traditional BAW technologies, the aluminum nitride BAW.

Let's maybe stay with Dylan for just a second. Dylan, as you - I guess - are one of the newer ads.

When you look around the industry, are you finding any surprises about what your competition is doing? Is there anybody that's really looking at the world the way you are or are there things in development that we might not see as investors down the hill in the next several quarters?

I'd say surprisingly, no. Coming from a silicon world, where there is so much innovation and change.

In the acoustics world, the time between breakthroughs is measured in decades, not years. And so we've talked about before, it was originally the SAW technology brought in the 60s, TC SAW got matured say in the 90s, FBAR really came to the fore in the 2000s.

And that's kind of been in until this XBAR technology. And so I think as we've messaged before that XBAR should be to 5G what FBAR was to 4G, I think that continues to have legs.

Yes. Thank you, George, and congratulations on the record quarter.

First question is on the second milestone with your partner, or your largest customer? Can you maybe elaborate on exactly what that means for you as far as taking things to the next level?

I know you talked about that $100 million opportunity. But what does that milestone mean for potential other contracts down the road?

That's a great question, Tore. And I'll kind of touch on that and then I'll let Dylan kind of chime in here at the end.

You know, as I sit back and look at it, you know, clearly, I think when we went to Mobile World Congress last year, I mean, the technology was relatively new, right? We invented it in June, July of 2018.

We did that initial demonstration at IUS in late 2018. And we came to market in February with kind of the first band 79 filter that had this greater than 10% bandwidth and nice power handling and people looked at it and said, well, is that a one off?

You know, can they really do that in scale? I mean, that's the challenge, right that companies that are working on disruptive technology is getting to scale.

I mean having the ability to come out of the chute and get a new technology and get it to scale quickly. You know, that's just really, really hard to do.

And not only is it hard to do technically, finding companies that are willing to bet on these companies with disruptive technology is very, very hard to think you're going to get a Tier 1 or a Tier 2 OEM handset manufacturer, to sign up with a company with new and novel technology, it's just - it really is for investors, they need to understand that just doesn't happen. There may be sample quantities, there may be some common initial volumes, but until they've gone through these OEMs, they spent a year evaluating quality, reliability, ability to ramp to scale, long-term reliability of the product before they will actually take it and put it into their product.

I mean, I know and there is a lot of folks out there that are on this call, know that some of the bigger OEMs, they'll put a million units out into the marketplace just to test the quality and reliability. I think for us, the key thing is, we have validated this technology with the largest filter manufacturer, they have validated the parts, do what we said they would do, they've evaluated the fact that it can be manufactured through the initial packaging requirements for these devices.

And they completed initial reliability. And they know they can take it and ramp it into production.

And the good news for us is, they don't have to go through the quality audits with the big filter manufacturers, they're selling billions of dollars' worth a part. And that's with vis-à-vis billions of units and billions of dollars, where their devices to these companies already today.

And that's just one of our customers. So we have other customers there in the hundreds of millions of dollars.

Also, in that top seven, represent 98%. So I think for us, as we sit back and look at this validation, I think it's tremendous.

I mean, guys can actually now sit back and look at, hey, they don't have to be first, they can be second, third or fourth, and know that the biggest guy in the planet is already validated. You got to believe they're showing this technology to their customers.

And by showing it to their customers, there is going to be a lot of folks that don't want to be left out. And I think that presents a real opportunity for us.

I mean, Dylan, you're kind of in the middle of it. What do you think?

Yes, I think it was laid out in a collaboration agreement. His initial phase was really around proving out what are the capabilities of the technology, how it can be extended, and so on.

As we put in our announcement, going into the second phase is really about going to manufacturing, and address - going - flashing out the commercialization plan. And this is only for four devices.

And if we look at 5G handsets it is like the wave to this coming up, we're talking about maybe 100 filters in a device, and that's just for one OEM, as we go by platform or different OEMs, or different configurations and customization. So we're talking on an annual basis, hundreds of filters been designed.

And as it stands today, we have four that are in the contract. So huge opportunity for expanding what's under contract.

Yes, that's great perspective. Thank you.

And on the Wi-Fi opportunity, I know George, you've said in the past that you're hoping to maybe announce a partnership. Maybe this year, not certainly next year, but maybe update us on the timeline there?

Yes. And, I'll have Dylan chime in on this one as well.

I mean, we are moving ahead very aggressively. We're doing evaluation of the devices.

As we noted a little over a quarter ago, we supplied samples of the first devices, to some of our partners. Today, we are continuing that effort.

I think part of the work that we did, we talked a little bit about this in the prepared remarks in the call, part of the ability that we had to demonstrate that we could deliver these devices on against a number of different SAW foundries gives us the ability to sample devices to more than just the largest IDMs in the space. We're actually able to sample devices to carriers, their integrators, some of the guys that are doing references on, and we're really able to get lots of really good feedback about what this technology can do and what it can mean in the marketplace.

And I think we're still seeing that the wide bandwidth that we can deliver for these 60 applications is going to be game changing. So do I think that we'll have that done this quarter?

Clearly, I am optimistic. I sure wish we were over the COVID thing.

So I could with Dylan sitting in front of customers face-to-face on a more regular basis, but we're still getting out there. And we're still getting out and doing the work that we can.

And I think that if it's not this quarter, it will be very soon thereafter. Dylan?

Yes, I'll just say we got - we have hardware, and ultra five and six gigahertz bands that's demonstrating the full bandwidth. We're getting samples prepared I think as George mentioned, getting in front of people has proved challenging.

We haven't quite opened doors back up where we hoped we would. But still we can work, we're making great progress.

And as George mentioned, continued to show differentiated performance against both the incumbent valid to resonator technology but it's clearly, it's not going to be good enough for these new bands, preclinical existence, as well as the aluminum nitride BAW where they just don't have the bandwidth. We can do in multiple filters to cover what we do in one.

Sounds good just one last one for Marty, Marty the R&D continued to come down, which is great. Is this kind of the level we should expect going forward?

No, I think I thought we set it up earlier in the year is that we stepped it down. We refocused our efforts, but then expected to grow the expenses back as we went through the year.

Now exactly when that would happen it's got pushed out a little bit. So it's going to get pushed up this next quarter and into early next year.

Okay thank you and yes.

I was going to say that Dylan is doing a fine job driving his organization and the people we're talking to are driving us to really push us and get some real - development done. So, we're spending the money.

Yes, thank you, and congrats as well on the solid momentum. You had mentioned that in 2021, that you expect the majority of the volume next year to be driven by your traction with these Chinese foundries.

So I just wanted to get a little more clarity on that. And in terms of your business with the with the Chinese foundries you had five designs in Q3?

What is the mix of the of the business, is it standard licensing, is it prepaid agreement? And how do we think about that mix of business with the foundries as we go into 2021?

Yes, hey this is great. I really appreciate the question.

Allow me to give a little bit of clarification when I try to do that - during some of the previous questions that were asked. These majority of the volume is specifically around our sub-3 gigahertz segment of our product offerings.

So that is the library products. So when we look at, historically what we are seeing unit volumes, ramp system of our historical customers, that had full customs.

We see a transition, as we go into - 2021 so that becoming more of our library-based products for these large Chinese foundry customers and them going after the large OEMs in China. So that's the transition that I'm talking about.

So as I sit back and look at that, and what that will mean it's going to continue to happen over the course of probably the next six to 12 months, where we see some of our legacy designed, kind of reach full volume and begin to start tapering off. We'll start seeing these new opportunities that we signed up early this year and late last year, starting to take a hold.

Of the designs that we have mentioned today, those are all designs based on prepaid royalties. And so, it's all part of the mix from a revenue perspective that Marty reports on.

Because we're as we go through the process of development, and do revenue recognition, according to 606 those things get clipped off. They are part of the offering that we actually do that is a combination of prepaid royalties.

And when they hit a hurdle mark in volume, they convert over to royalty-based agreements. So, we get paid an upfront number through the development that pays for our development of these devices and small profit.

And then as they are successful in the marketplace, we're able to reap the rewards on the back end along with our customer as they ramp volumes.

In terms of, your traction outside of the mobile space we're seeing a lot of traction there in Wi-Fi CPE. You talked about this design on the automotive side, wondering if you could maybe elaborate further there.

And then also, what are your thoughts in terms of failure infrastructure, specifically massive MIMO, kind of expanding explore into that area?

Okay, two things. First and foremost, we've got about as much as we can talk about as it relates to that automotive agreement.

As you know historically, we've not been able to talk about our customers in the specific bands of those agreements, once they get into the marketplace. All of our announcements are actually run by our customers, and they're pretty, pretty tight lipped about what these devices are.

Because they don't want people to able to triangulate what work we do for them versus the work they do for themselves. But I can tell you this is one of our earliest customers, the customer that's been with us, since 2016.

And one that is been a very good customer over the course of the life of our sub-3 gigahertz portfolio. And they are aggressively working with us to identify what they can do with our next generation products, whether it be on the software side or what they could potentially do with us in the 5G arena, but as it relates to Wi-Fi and CPE.

Dylan do you want to touch on those?

Yes, and I think we're usually dig into the massive MIMO.

Yes.

And so I just - I got to focus on that one Raji, because I'm so excited about the holding the same there. Basically yes as we better understand the physics of how this XBAR resonator work.

It's really different from traditional acoustic filter technologies. And what we're finding is we do think that the innate power handling capability is quite high.

And so we've definitely been looking at this massive MIMO opportunity as - used to be, you have a macro base station with one antenna, and now it has 32 to 64 antennas. And each antenna element needs a filter.

And those power requirements have come down closer to handset levels, it still an order of let's say, two to four times higher than handset. I think within reach.

It's a very interesting, a sizable market that's commanded good margins traditionally. And I think if you're paying industry analysts, they would say this has always been kind of the holy grail is to bring acoustic solution to replace the cavity filters or brick ceramics that are there now.

So it's an - exciting area of research for us.

And then last question from me, Marty. We're talking about the Murata business and how to recognize that, you said it's kind of its lumpy.

So in Q4 returns back the revenue returned back to where it was at Q1, Q2, 500,000 to 600,000 yet still growing excluding the payment sequentially. How do we think about them the Murata revenue recognition, as we go into calendar 2021?

How does that kind of the cadence of that revenue start to kind of hit the P&L?

Well, that we've only given - we only give a quarter look out.

Yes.

Yes, that's traditionally what we've done because of the - because that's what we feel - we are comfortable I think we're getting really good at that. Looking back at what we've done over the past five quarters.

We've done a really good job of, looking out setting the right expectations. So I don't want to get out there too far.

I think if you look at them, just look at how the revenues come in on this past - you know in the past year, that might be some guidance for looking forward as hey, sort of steady, sort of steady growth.

First, can you just take a step back and sort of refresh our memory on the 46 so million devices that you said that you designed. Can you give us sort of I don't know an approximate ASP?

And then could you kind of jump that figure to a comparison of what you'd see in 4G and the stuff that you expect to recognize royalties on the second half of next year?

Kevin, you are always on and aren't yet. As you know, we don't break that down for probably obvious reasons, at this juncture just because of where we're at.

But I mean obviously, I think what we have said, historically as you've seen the sub-3 gigahertz an ASP is come down. They've come down really dramatically over the past four years.

I mean, when we started, when I started here, in 2016, you were seeing, one three quads at $1.65, they're at $0.30 today $0.30 to $0.35 today. So, that is kind of one of the anchor tenants from a value perspective.

So I think we're seeing that trend overall is going to continue. So you're talking, nickels and dimes, not quarters, $0.50 pieces in dollars.

On the sub-3 gigahertz devices, except as it relates to some of these other applications that are lower volume that we're seeing, I mean, sub-3 gigahertz devices being used as kind of backup to 5G devices. So I think you will see that in some specific applications, you can see pretty specific uplifts in ASPs - for the most part, nickels and dimes in sub-3 gigahertz segment of the market.

And I think we're seeing half dollars up to silver dollars in the 5G space, depending on if they are single filters or if we're migrating out and looking at duplexes and also dependent on whether or not it's a handset opportunity or something that would be in CPE or infrastructure. I mean, Dylan is that fair?

Absolutely.

Then with the takeaway being that yes huge crunch in sub-3 gigahertz, but some of the 4G stuff is still sophisticated enough to command a little bit better ASP is that fair?

Yes, I think that's fair. And part of the thing that we're doing Kevin, I mean is clearly one of the things that we saw.

And I think you're acutely aware of this, when you've got design timelines on full custom devices that take 18 to 24 to as much as 30 months on a full custom device to get into the marketplace. And during that timeframe, you're seeing pretty aggressive price decline that is challenging, is you're ending the market with some disruptive technology.

And part of the reason we migrated our business model to prepayments is to one curb that and also part of the reason we moved to not only prepayments, but standard library products so that we're not doing full custom designs for every customer. So now we've got library products that we basically port from foundry-to-foundry for these large Tier 1 that we're working with.

We are able to mitigate the design costs there, shorten the design cycle very substantially. And moreover, because it's kind of on the back end of life cycle curve, the qualification cycle on the back end, especially because these companies are all on the ABL for these big OEMs in China is shorter.

So, this is why we say we think that devices that we completed, designs will be completed in 2020 have the ability to see, unit volume starting to ramp in late 2021 significantly shorter cycle times all the way through the process. And for us, the cost to develop is significantly lower as well.

But okay, payment?

Prepayments clearly have changed the game for us. And 24 or 36 months ago, we just weren't in a position to command that from our customers.

We were - our company being, very, very happy getting the designs we got and frankly, it allowed us to hone our craft, allowed us to get in a position where we could do the things we do with ISN. And probably most importantly, is through those efforts that we were able to develop these XBAR-based devices and do it as efficiently as it looks like we've done.

So cautious, the takeaway here is that - you structured prepayment agreements with or on contracts outside of XBAR is that the takeaway?

Yes.

Okay.

We message that in press releases at the beginning of this year that we got some pretty significant prepayments out of at least one of those large Asian foundry partners that we have. And we're continuing to work that - with all of our customers at this point.

Right otherwise, though we should assume that. I mean I know you address this just a couple of minutes ago, for an earlier questioner.

But otherwise, those I mean the business model there is the same right, you're being paid on royalties based on unit shift?

No today, we have legacy business, which is small, upfront, and per unit royalties, then those royalty rates on average were seven to 12%, as low as five as high as 20. Then we have three different versions of prepayments.

And we're getting all three at this juncture. We have a fully paid up license, like we have with the world's largest filter manufacturer.

And then we have a couple of different versions of either, a paid-up license with a hurdle rate, which has a little bit lower royalty rate than a prepayment that is just covering our engineering costs. And we start getting paid royalties on the very first device.

So three different versions of prepayments all in the mix for what we're doing today, out in the marketplace, and that we're currently contracting for. And it gives us I think, a nice blend from a not only a billings perspective, but also from a revenue perspective from a rev rec standpoint.

All right, so can we roll up our sleeves a little bit and dig in to the timeline on XBAR, and it getting to market? I know you've got through the second of four milestones.

Give us a hint on what the net and when you think you'll start seeing that XBAR stuff in the market?

Well I mean, here's what I would tell you Kevin, because the details of the contract have not been shared. Those are pretty tightly kept secrets, obviously.

But what I can't tell you the exclusivity ends - in the end the first quarter in 2022. So, I think that gives you your boundary, it's reasonable to expect that that is a boundary that we're going to try to beat and have them into production by that timeframe.

If you look at their press releases, which I can point you to their press releases when we signed the original agreement, talked about ramping production in the latter part of 2021 with volume production in 2022, which is consistent with at least one of the Tier 1 OEM handset manufacturers release schedules.

Okay. Thanks George.

But that's 30,000 foot, I don't know.

Yes, no, that's all I needed right. I have lost track of it and I apologize?

Yes, don't worry, don't worry.

For forcing you drag me through it again, but I think it's helpful from me as well, well as everyone else on the call?

Yes, absolutely.

All right, so can we flip back to I think its Slide number 6 where, imagine - I know Dylan Kelly's on the call, but imagine the rest of us aren't Dylan Kelly's league right. So, we're talking about the technology involved for what you need to address the next wave of 5G?

Can you dig a little bit deeper on the difference in technology with a resonator per se as you alluded to on the call and what you think your competitors are bringing to market that allows them to call their filter as 5G capable? Thanks.

Yes, I think it was not us.

I mean, you don't feel obligated to step in Dylan I mean, I laid this one on George's lap?

As you like, Oh, my goodness, he's put me on the spot, I think.

No, no, it's up to you. It's your call George.

No, Kevin, always good to take questions from you. So I think the two things here, right, and I will let Dylan backstop me here.

So he doesn't cringe when I start talking technical. So - but there is two things here that I think to keep in mind.

Clearly, there are devices that have been introduced in the marketplace that have 5G filters in them today. And they are some combination of different technologies, whether they be acoustic ceramic devices depending or some hybrid solutions going into the market.

And they are actually delivering and able to receive 5G signals. But I think the real challenge is, as you look at what the expectation from the consumer and from the enterprise for a 5G network and having the ability to have download speeds that take your high-def movie, that takes you 20 plus minutes to download today on your traditional 4G LTE network and be able to do it in submitted timeframes, if you're the only guy in the neighborhood with a 5G base station, and you've got your 5G phone, you're going to have download speeds that are probably better than your north of 20 minutes.

But if you've got 100 people in the neighborhood, you're going to be not getting much better download speeds, then you would be getting today. And that's in large part due to the performance of the RF filters, and the RF front-end and in its entirety.

There is a lot of work that's going on right now to set a footprint from an infrastructure perspective, set our footprint from a network, if you look at the operators and what they're trying to do to get nationwide coverage, whether it be in sub 6 or in millimeter wave technology, and as we go through and get these devices into the marketplace, what ultimately matters is what's delivered to you at the phone and the user experience that you have. We don't believe in the people that we talked to in the marketplace have agreed that, it's going to take some time, we say that we're currently in that Wave 1 setting the footprint stage of the market adoption, and when we get to by - we get to Wave 2, we'll start seeing that real 5G types of performance getting to you as a consumer.

I mean, you got to keep in mind, Kevin, you've been around long enough, you're an old man like I am, and you've been around long enough to know that these new wireless technologies don't come on the scene and ramp up quickly, get fully deployed overnight. I mean, if you look at these technologies, they tend to have a lifespan of 20 to 30 years, they have a slow ramp, a nice highest square peak, and then a long taper on the back-end.

And you see lots of overlap, because you have to have the support of backwards compatibility as you go through and deploy these network. So I think that we're at the front end, I think it's exciting time, I think there is going to be some really cool new features and applications.

But what you're going to want, is you're going to want a fully autonomous vehicle leveraging 5g filters and central technology in your car, and you want ultra-low latency. You don't want to have latency that requires you at 60 miles an hour to go ploughing into the car in front of you.

You want those things to be very, very fast to respond, and you just don't have that capability today. Let me hand it over to Dylan, who has been sitting here screaming because I'm probably butchering the technology.

Dylan, what have I gotten wrong here? And what can you do to correct me on my overlay of the 5G market today?

Well, I think get the big picture, right. I think I just - if I had to get down to a technical level, I will try to keep it simple.

The incumbent high-performance technologies aluminum nitride BAW, it does not natively have bandwidth to cover these bands. And so they have to trade off they can make.

One, there is tricks where you can extend the bandwidth that harms the rejection to interferes. And so that's what George is talking about as the network intensifies, you'll have performance problems within interference.

The other path is you split the band and the sub-bands, that's a brute force approach that adds cost and size. And the other issue with that is it adds extra loss, and if it causes loss, it impacts range.

So either your device won't work as far away from the base station, or the operators have to deploy more infrastructure which certainly costly. So all things being equal, if you have a filter technology that covers all of it, that's going to be a winning solution.

And that's where we think we're positioned timing wise for this WAVE 2 and 21 through 23.

Okay, so my understanding limited as it is Dylan that some of your device manufacturers using BAW are adjusting - I guess milling part of the last layer of deposition to adjust the - I guess, just to adjust the frequency range. And what you're saying is that, it's still not going to be sufficient to capture what needed to capture in a gigahertz bandwidth?

Correct that million is just trimming for yield. It's nicely improving the bass capability.

Okay.

This is old material science that says, there is certain material has certain coupling capability, which results in a bandwidth. And we've chosen to use lithium niobate material, which is broadly published to have a better capability, no one just figured out how to use it in a way that we're using it before.

Okay. How difficult is it for your foundry partners to make the adjustments they need to on the line to incorporate the specifications that they need to or the adjustments that they need to that spat out from the ISM modeling?

Yes, I mean, the real beauty is that, we really did take the approach of trying to utilize existing size, structure and processes. So, as we announced back in August, we did two runs through two different commercial SAW foundries, first pass success on both with the off the shelf process, they already had no change.

Oh, no change. Okay.

Well, gentlemen, thank you. Thank you for entertaining me George as always.

It's pleasure. I appreciate it.

Congrats on the progress.

Great, thank you very much.

Since you ended the design cycle for WAVE 2 devices, basically now, is there any visibility with your XBAR partner into like the number of sockets they're pitching? Or how many they may have won?

Or is there any visibility into that? Number one.

And then number two, in China, 4G when do you expect to hit like the per unit royalty run rate there? Thanks.

Bill, landed two great questions. First question, that's one for our partner to answer and not one for us to answer.

Sorry about that. The good news for us frankly is we're on a prepaid royalty basis for those devices.

And if you recall, the four devices that we have contracted with them are fully paid up. So it doesn't matter to us whether or not they have no customers, or 50 customers for those devices, we've already been paid.

And that is a choice we made when we went into the contract period, because we thought it was best for us on those four devices. What I'd also like to highlight as Dylan noted, there are hundreds of new devices that are going to be developed.

And for us, we get to 12 concurrent devices, and with that customer under this contract team, this business cash flows. So we think it's a pretty nifty little model for us and one in which is you sit back and look at it, you get 100 devices that you know, a couple million dollars a piece that becomes pretty good a little business.

So that's kind of the answer I have for you on that front. Now, if we look in the 4G devices, again that is also prepaid with a hurdle rate that most of those Chinese customers are a prepaid with a hurdle rate, which pulls down their royalty rate from our traditional 10% to the 5% to 7% range.

So where we have historically been 7% to 12%, where we get our small upfront and get all of our payments on the back-end, when we do a pre-pay with a hurdle rate from a unit volume standpoint, we tend to do that on a 5% to 7% royalty rate. Hope that answers your question.

Yes, so I was just asking like when on average, do you expect like more revenues in 4G, becoming on the per unit royal rate versus up fronts, and then I understand the front's with the XBAR customer, but there is going to be some design wins for the market as a whole, to be comfortable with your filters…

Bill, let's go with the fact that they own 30 plus percent market share. And they contracted with us after evaluating every single technology out there, and viewed our XBAR technology as the one they wanted to bet on.

And they're already indicating that they believe this technology is worth in the hundreds of millions of dollars per contract. So for these four devices, they said, it's somewhere between $90 million and $180 million for the life of these devices.

So they have confidence. I can't speak to any more than that from their perspective, because that's what's in the public domain.

I can tell you that, I doubt if they haven't any intent to lose share. So considering that there is lots of new devices, they're going to be developed annually for 5G, I think we are in very good position, as long as we continue to execute to get those.

As it relates to the 4G, let me come back and try to answer your question on that. For those customers, we said they're going to start ramping in the second half of the year 2021.

My expectation is they will - it'll take them that second half the year to get through their hurdle rate. And we won't start seeing additional or these - on those initial devices until the following year.

That makes sense, assuming they're successful. Keep in mind, though, we have additional devices we're going to be doing with these companies.

And so this just represents the revenues we're seeing right now the early devices we've contracted. Dylan, did I miss anything on that.

Great, thank you operator. Today marks just another great milestone for the company.

Hopefully, we've been able to highlight the significance of our partnership with the world's largest RF filter supplier. The meeting or beating of our guidance for the third quarter on all fronts and moving to the manufacturing development phase, our XBAR mobile contract, we've expanded the footprint of our library products with our Chinese customers.

We're poised to expand our engagements with other Tier 1 IDM's based on the performance of our XBAR solutions for Wi-Fi and infrastructure applications. In particular, with the validation being able to deliver BAW structures built on standard and SAW foundries.

I think this really marks high note in the company's history, and it's an exciting milestone and marks all the exciting things that are to come. I'd like to thank everybody for joining us today and have a great day.