Resonant Inc.
Q4 2020 Earnings Call Transcript

Published: 15 Mar 2021

[Operator:]

Good day and welcome to Resonant's Fourth Quarter and Full Year 2020 Earnings Conference Call. Today's conference call is being recorded. At this time I would like to turn the conference over to Greg Falesnik, from the MZ Group, the Company's Investor Relations firm.

[Greg Falesnik:]

Thank you operator. 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. Turning to Slide 2, earlier this morning Resonant released financial results for the fourth quarter and full year 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 and similar variations identify forward-looking statements, but their absence does not mean that the statements are not forward-looking.

[George B. Holmes:]

Thank you Greg and thank you everyone for joining us on today’s call. I would like to welcome you to the fourth quarter and full year 2020 financial results conference call. Joining me today is Marty McDermut our CFO and Dylan Kelly our COO who will be joining for the Q&A. Turning to Slide 3, 2020 was a remarkable year for Resonant as the trend towards the connected world continued to accelerate, and therefore so did the need for effective RF building technologies. For mobile video conferencing and streaming, through emerging applications such as autonomous vehicles and remote surgery, demand for mobile data continues to grow exponentially. Our proprietary technology platform at its core enables the design and manufacturing of wide bandwidth, high frequency RF filters for high performance networks. As the need for data ramps up in our society, we are proud to be able to continue to play a critical role in delivering a new age of connectivity. Let's look at some of the key highlights from our fourth quarter and full year 2020. Revenues for the full year were a record $3.2 million, which is over 330% greater than our revenues in 2019. Let me remind everyone that these are royalty revenues which suggest the equivalent annual component sales of roughly $30 million based on our historical average royalty rates of approximately 10%. Over 6.9 million units developed with our ISN design technology were shipped by our customers to OEM's in the fourth quarter of 2020, representing a year-over-year increase of over 200% and a sequential quarterly increase of over 65%. This momentum allowed us to hit the milestone of our customers shipping over 50 million RF filters designed with our ISN design technology. This represents real production unit volumes that have been shipped and sold by handset manufacturers to consumers, not just sample or distribution shipments.

[Martin McDermut:]

Thank you, George. Turning to Slide 15, I'll now provide an overview of our financial results. The amounts I talk about are GAAP except where noted. Billings were minimal in the fourth quarter as compared to $82,000 in the same year ago quarter. Billings were approximately $3.2 million in 2020 as compared to $2.2 million in 2019. Revenues increased 32% year-over-year to $607,000 in the fourth quarter as compared to $459,000 in the same year ago quarter. Annual revenues increased 330% year-over-year to $3.2 million in 2020 as compared to $735,000 in 2019. At the end of the fourth quarter, deferred revenues totaled $1.8 million. We estimate that amount will be recognized as revenue over the remainder of the contract. Research and development expenses totaled $4.8 million in the fourth quarter as compared to $5.2 million in the same prior year quarter. The lower amount primarily results from reduced headcount initiated in Q1 of 2020, as well as reduced travel expenses due to COVID-19 partially offset by higher patent related expenses. Research and development expenses totaled $19.5 million in 2020 as compared to $18.9 million in 2019, with the increase primarily due to expanded design activities on our ISN platform, XBAR technology and filter design development, and patent related expenses partially offset by reduced headcount and lower travel expenses. Sales, marketing, and administrative expenses totaled $3 million in the fourth quarter as compared to $3.1 million in the prior year quarter. The lower amount is primarily due to lower travel expenses. Sales, marketing, and administrative expenses totaled $12.2 million in 2020 as compared to $12 million in 2019 with a slight increase primarily a result of higher public company related expenses and compensation expenses, partially offset by lower travel expenses. Our operating loss of $7.1 million in the fourth quarter, as compared to an operating loss of $7.9 million in the prior year quarter. Operating loss of $28.5 million in 2020 was compared to an operating loss of $30.2 million in 2019. Net loss was $7.1 million in the fourth quarter or a loss of $0.13 per share, based on 55 million weighted average shares outstanding compared to a net loss of $7.8 million or a net loss of $0.24 per share, based on 32.7 million weighted average shares outstanding for the prior year quarter. Net loss was $28.4 million for 2020 or a loss of $0.55 per share, based on 51.3 million weighted average shares outstanding as compared to a net loss of $29.9 million for 2019 or a loss of $1.02 per share based on 29.4 million weighted average shares outstanding. Non-GAAP adjusted EBITDA was a loss of $5.5 million or a loss of $0.10 per share in the fourth quarter, compared to an adjusted EBITDA loss of $6 million or negative $0.18 per share in the prior year quarter. Non-GAAP adjusted EBITDA was a loss of $21.7 million or negative $0.42 per share for 2020 compared to negative $23.4 million or negative $0.80 per share in 2019. Cash and cash equivalents totaled $25 million at December 31, 2020 which included $11 million of net proceeds from the sale of equity under our ATM program. Remember, we have no debt. With current cash on hand, we have enough to last into calendar year 2022. On December 31, 2020 we had a total of 67 employees, 16 of whom have a Ph.D. and 48 of whom are part of the technical staff. And then finally turning to Slide 16 on the topic of guidance. As we highlighted in our preannouncement, we expect revenues in the first quarter of 2021 to be in line to slightly ahead of revenues in the fourth quarter of 2020. For the full year of 2021, we expect both unit volumes and revenues to be significantly greater than 2020. I'd now like to turn the call back to George for closing remarks. George.

[George B. Holmes:]

Thanks, Marty. Now let's turn to Slide 17, for what's track in 2021. While this year with full of accomplishments to be celebrated, our work ahead is cut out for us as the critical challenges that face our industry quickly approach. We are just getting started. As we look forward to 2021, we expect our volumes and revenues for the year to be significantly higher as we accelerate the pace of what we saw in 2020. Our legacy and foundry programs will continue to grow and provide the initial foothold for customer expansion into XBAR based relationships. 2021 will be a breakout year for our XBAR technology and we expect continued and ongoing validation from the market that XBAR based solutions may be the only viable solution to meet the demands of not only 5G but also 6G, Wi-Fi 5, 6, and 7, ultra-wide band and potentially even millimeter wave. We will expand our relationship with the world's largest RF filter manufacturer as we work with them to build a high volume manufacturing platform for XBAR filters that will meet the exacting demands of the largest mobile handset OEMs in the world. We expect to secure a contract in the first half of the year, focused on XBAR for non-mobile applications, which could include autonomous and electric vehicles, other internet of things or infrastructure applications. I want to thank all of our employees, board and advisory members for their dedication. This year in particular, as we navigated the COVID-19 pandemic and as we seek to revolutionize the connection between people and things, your hard work has translated to the growing success of our company. With that, I'll hand it over to the operator, to begin our question-and-answer session. Operator.

[Operator:]

Thank you. . Our first question is from Tore Svanberg with Stifel. Please proceed.

[Tore Svanberg:]

Yes, thank you and congratulations on the continuous success here. First of all, George could elaborate a little bit more on the sort of third and fourth milestones for your largest contract customer? I think in the past you've talked about commercialization of the products potentially being on track for second 2021, and just wondering if that's still the case?

[George B. Holmes:]

Well, we're still tracking Tore to meet the objectives of our customer. They highlighted in their press release that they wanted to have devices out into the mobile space at the end of this year, and they continue to plan to do that. We plan to continue to support them in all of the efforts to make that happen. I think what you'll see from us from a milestone perspective on the current agreement is meeting kind of the next milestone this year, and really focused on expanding the footprint with that customer into other devices. And those will not only be in the mobile sector, but I wouldn't be surprised if we saw devices from them in the non-mobile sector as well, because they're moving quick.

[Tore Svanberg:]

Very good. And as a follow-up question, this time around you've talked a little bit more about two new things; one is ultra-wide band, the other one is automotive. So, could you perhaps elaborate on why that's the case so you're now engaging with potential partners on filters for either one of those two segments?

[George B. Holmes:]

Yeah sure, and I'm going to hand this off to Dylan so he can kind of chime in and talk about why XBAR’s technology is applicable in those spaces and why we think we're ideally positioned. Dylan?

[Dylan J. Kelly:]

Good morning Tore. I think we see UWB becoming much more popular as a location service over the last year or so. And as those are widely deployed in handsets, there's definitely a major interference case between Wi-Fi and UWB. And so, that's again, it's a new filtering requirement that wasn't really present before, and similarly in automotive into so many modules being shipped in vehicles now, basically every car has an LTE module and modem in it, and they all migrate to 5G. And again, with automotive telemetry using 5G is going to be a lot of new filtering requirements there because If you know the failures of the communication, interference has to be squashed.

[Tore Svanberg:]

Very good. Just one last question if I may, on the Wi-Fi side, you’ve talked about potentially announcing a contract or a customer there first half of this year. Is that still on track, and I assume that would be separate from your cellular contract, their largest contract?

[George B. Holmes:]

Well, I think it could easily be accomplished Tore where you see Wi-Fi deals coming in multitude of different factors from a multitude of different customers. I think the key thing that we have is with these latest and greatest Wi-Fi solutions, the performance is -- we're really excited about it. And what we see is we've got a full band, acoustic-only solution that's going to we believe really change the way the market's looking at these types of devices as evidenced by some of the stuff we talked about today on the call.

[Tore Svanberg:]

Great, good, and congrats on the continuous progress here. Thank you.

[George B. Holmes:]

Thanks Tore.

[Operator:]

Our next question is from Raji Gill with Needham and Company. Please proceed.

[George B. Holmes:]

Hey Raji, are you there?

[Raji Gill:]

Hi, can you hear me. Sorry I was on mute, sorry about that. Thank you for taking my questions. A question on the non-mobile opportunity for XBAR, you talked about seeing some traction in the first half of 2021. I wonder if you can kind of maybe frame that in terms of how big that opportunity could be and how you think about that as part of kind of your long-term growth trajectory?

[George B. Holmes:]

Okay, well first let me -- I'm going to let Dylan jump in and talk a little bit about the technology itself and what we're seeing with these early devices that we're going to start sampling here in the next week or so. We’ll talk about that briefly and then I'll kick in and talk about what we think that opportunity is? Dylan.

[Dylan J. Kelly:]

Yes, so I think what's really changed is historically acoustic filters weren’t used in a lot of Wi-Fi applications. There was a ceramic filter technology before. Now, we're seeing what the makers of the access point CPE devices want to operate, 5 and 6 gigahertz bands simultaneously. But then, you really need the performance of acoustical wave filters, and so at the end of the deck, comparison against, well, we can find in the market as the best competing technology, and you’ll see those major limitations in the implementation of aluminum nitride BAW. To beat all the different rejection requirements will be necessary, both on the infrastructure side as well as smartphones. So, we had pretty strong conviction all year that we are really differentiated in this space and I think we've got the data to prove it now. So, it's pretty exciting time for us.

[George B. Holmes:]

And from a market opportunity, Raji, I think what we're seeing is, the Wi-Fi market while historically has not been deemed to be as large as the mobile market, I think the latest data suggest that as they're moving into the acoustic filter requirements that that market's going to be about as big as cellular for acoustic filters. So, we're excited about it. It's a market opportunity that plays well with our technology. And it's just going higher in frequency, creating even greater opportunity for us in the long-term.

[Raji Gill:]

Yes, thank you for that. Just a question, follow-up question Dylan, on the coexistence filter. So, the Wi-Fi 6E devices will have both bands in one device. And I think, using Resonant’s technology, which is kind of a single wideband filter as a solution that can kind of solve some of the issues that some of the manufacturers are trying to use, which is two filters to meet these requirements and that could impact performance. So just on that, I was wondering if you can kind of elaborate a little bit further, and you touched upon on the presentation, but how that kind of differentiation of using a single wideband filter is creating kind of this competitive advantage in Wi-Fi 6E?

[Dylan J. Kelly:]

Yes, so the one thing I say -- I should have hoped for was that the move to the 6E which will have both the 5 and 6 gig bands running simultaneously, and on top of it, it is for these MIMO systems, multiple input, multiple output, it's working with four antennas for a 5 gigahertz band, four antennas for the 6 gigahertz band, each one of those needs a filter. So now it is 8 filters in a box and that's why the scale of the market is getting pretty interesting relative to the size of mobile. And then what happens when you do the multiple filter implementation that our competition is pursuing, there's certainly a size and cost impact and we also have potentially performance issues across those transition frequencies and most likely going to have additional loss, which ultimately results in the shorter range for your Wi-Fi network.

[Raji Gill:]

Thank you and just my last question in terms of the success that you're getting on the foundry side, you mentioned you have now six separate small foundries now of manufactured XBAR, I was wondering how you kind of think about the foundry strategy as part of the strategy of developing an overall ecosystem to start supporting XBAR and how that will kind of fuel more adoption of that technology? Thank you.

[George B. Holmes:]

It's an interesting play for us that allows us to very cost effectively be able to build samples to actually go to market direct but also used to a tool for business development where we can show, they've been looking consistently surprised at the ability to be able to do this, to go use off the shelf SAW process and build these XBAR devices. And so that's really wonderful to go in and we'll talk with the other tier one makers and show them hardware and get them very interested in the technology.

[Dylan J. Kelly:]

Yeah, Raji it's an interesting byproduct of our existing business, right. When we started this company, in 2014 we were focused on vertically integrated filter manufacturers. We got into the foundry business looking for ways to collapse to time to market. What with the work that we did to really understand how you could couple the capabilities of these pure play foundries with our tools such that we could kind of deliver these devices very cost effectively, just really became an added bonus as we got into the development of XBAR and being able to go out and show that we can go get XBAR devices manufactured on a number of different foundries. And we're talking about a number of new foundries now today as well. So it's I think one of the very definite competitive advantages we have. We're using a very well-known process. It's not a difficult thing to do to spin up a news foundry on XBAR, whereas if you had to go spin up a new foundry on a custom BAW process, I think that's pretty difficult. So, and its proven to be pretty difficult. And so I think we're pretty lucky here. And really, it allows us to show how competitively advantage this technology is today and will be even more so in the future.

[Raji Gill:]

Appreciate it, thank you.

[Operator:]

Our next question is from Cody Acree with Loop Capital, please proceed.

[Cody Acree:]

Yes, thank you. Thank you, hey. And thanks for taking my questions. Just onto that point to multiple foundry, SAW foundries, what does that do to the pricing curve, to your competitors, I guess how much of a price improvement are your partners, your customers partnering with foundries able to come in and be competitive with the internal manufacturing FABS as of possibly from Broadcom or Corbo ?

[George B. Holmes:]

That's a great question, and if we sit back and look at it and I'll take you back three or four years ago when we were talking about the fundamental differences in cost structures of SAW versus TC SAW versus BAW devices, and we were saying that at that point in time, SAW structures were about 30% of the cost of a BAW and a TC SAW was about 60%. So if you sit back and kind of use that and extrapolate that forward and now you're doing an XBAR based device, I think they're are going to be significantly advantaged if you were doing a head to head comparison of equal to performance device. I think you're going to be out of the box in better shape from a cost structure standpoint. That said, it's not apples to apples, right. I mean, you're having the scandium doped , you are having to use different architectures with these BAW devices I think that, I'll go back to your conversation with Mike and I two years ago at CES. If we could build it, they will come and I think that's what we're finding right now today, Cody. It's we're demonstrating devices that have markedly better performance than what you can do with either a scandium doped or a hybrid architecture of an existing BAW structure. So, if it was apples to apples, you've got a significant cost advantage. Once you start having to do all these other ancillary things to make these devices kind of get close in performance, it just gets better.

[Cody Acree:]

And one follow-up there and then my final just, your fabulous customers able then to -- are they passing that along, I guess, and/or are they using that to improve their margins or is that weighted more towards their customer benefits and therefore more likelihood that you ramp into the market faster?

[George B. Holmes:]

That’s a great question that, you know, whether you would assume that we aren't focused on the major IDMs which we are. We're using the fabulous relationships we have to demonstrate XBAR devices. If you recall historically we just partnered with companies and they identified a part for us to design, we did a design and then we had to wait 12 to 18 months for them to figure out how to build it. Today, we leverage the foundry relationships such that we can show samples to potential IDMs and OEMs, in references, I manufacturers that might want to leverage XBAR technology. For the IDMs, they would want to port that technology into their process much like we're doing with our friends in Japan that we're currently engaged with. Then we've got others that are looking at doing the same thing in other parts of the world. And then lastly, obviously, we have the capability to enable our reference design manufacturer, even a large OEM because of those foundry relationships. So, when it comes to how would the foundries be pricing it to those partners, I guess it depends on the leverage that the partner would have. If you're talking with a tier one OEM that uses these foundries for other activities, there's probably going to be tremendous leverage. If you're talking about a new entrant that's trying to get into the market, I would have guessed that these foundries are going to be having more of a margin share type of arrangement with them, because they're both new and they don't have the customer, our customer wouldn't have the power to negotiate.

[Cody Acree:]

Okay, great. Thank you. And lastly, just as you're looking, let's say at the end of 2021, as you go through these expansions from just wireless, and you look more Wi-Fi and auto and IoT infrastructure, what do you think the year 2022 mix could look like, just your royalty mix versus the end applications?

[George B. Holmes:]

Oh, that's a good question Cody, I'm not sure I've got a great answer for that, at this point. You know, if we sit back and order -- if we look at the companies that we are talking to today, I could easily see a mix, where only 40% of revenues coming out of mobile, because, we have one customer there who's got an exclusive through March of next year, and they're going to be the only ones that are going to market there. And we're teeing up and loading up a lot of guys on the Wi-Fi front. But, I think it can come to a balance pretty quickly thereafter in the 2023 timeframe, where we'd see a pretty balanced Wi-Fi infrastructure, non-mobile set of customers with our mobile customers. Does that make sense.

[Cody Acree:]

Excellent, it does. Thank you, George. Thank you, appreciate it.

[George B. Holmes:]

Thank you much.

[Operator:]

. Our next question is from Kevin Dede with H.C. Wainwright. Please proceed.

[Kevin Dede:]

Good morning guys, thanks for taking my question. George, so just can we follow up on the dollar side of the question that Tore asked on the large customer. I think you referenced 9 million as part of milestone payments. And I think you spoke to it during your prepared remarks. I think what have you realized that, I think you mentioned 2.5 million was that -- is that what you've recognized thus far and can you speak to what you're expecting in terms of the commercial side this year and then what that would leave for the balance of 2022?

[George B. Holmes:]

Well, Kevin it is a great question, let me see if I can answer it for you. As Marty would note, and would remind me, I'm not going to get out of my skis and talk about the forecast for the balance of the year, much more than next quarter. But let's see if I can answer your question. $9 million of prepaid royalties, that's exactly what these were. Those prepaid royalties, we got the first pre-payment at the signing of the contract, we get the second pre-payment when we reach this major milestone in October which validated the technical aspects as highlighted in our press release this morning, and it also created a platform where they had validated initial liability and manufacturability of those devices. So those prepaid royalties equals 50% of that $9 million. Those deals, that early deal for XBAR, which early mover advantage pricing that that customer got was at 2.25 million per device. As we've noted, it takes 12 concurrent deals at that pricing to get this business to cash flow, and we feel good about the trajectory we have with them on expanding the number of devices we have under contract with them this year. And that's the mission, right? Once you've passed the initial milestones, then you kind of move on to looking at what's next. And that's kind of where we find ourselves today. And then you look at what we're doing with other customers also on the prepaid royalty front, as we've noted, we expected to kind of get our first Wi-Fi customer this coming quarter. And I think those will be kind of similar kind of deals. So, pretty good trajectory for us for the balance of this year. And as Marty and I both noted, in the prepared remarks, we expect 2021 to be significantly higher than 2020.

[Kevin Dede:]

Okay, fair enough, George, thanks. Thanks for the detail. On exclusivity associated with that large customer, working in an auto environment and non-mobile sort of sidesteps the requirements that you're obligated to them on, I guess is sort of where I'm fitting?

[George B. Holmes:]

It is a little bit different, we have the ability of freedom to operate in all non-mobile applications. So a non-mobile application is Wi-Fi CPE, infrastructure, automotive, these are all non-mobile applications, we have the freedom operate in those areas.

[Kevin Dede:]

Okay. Last one for me is -- yeah, sorry, go ahead.

[George B. Holmes:]

If you recall, the exclusivity ends one year from the end of this month. So we're within literally one design cycle of being out of our exclusivity period for the major mobile application. So exciting time.

[Kevin Dede:]

Agreed. Okay. You referenced multiple times in your prepared remarks and in your slides, George this third party test lab, when you did some analysis on aluminum nitride, can you talk about who that was and maybe who funded the test, I'm trying to get to somehow rationalize whatever bias may have been brought incorporated in that, given that it's a third party, I understand, I'm just curious?

[George B. Holmes:]

Well obviously Kevin, there's tear downs that are done, we don't have parts in the marketplace. So the only way you can get third party testing done is if you provide the parts to them, and you pay the bill. And so in this case, we went out and searched and bought in the market via distribution, some of the cutting edge parts that are being marketed out there to the different Wi-Fi and CPE players. We bought those parts provided them to a test lab, along with our own parts, and they did head to head testing, comparative testing. And their test results matched very closely to the test results that we had and also test results we've seen at other customers. But obviously our customers are not going to share their test results out there in the marketplace generally.

[Kevin Dede:]

Yeah, no, understood. Understood. Fair enough. Thanks for the additional color. Appreciate it.

[George B. Holmes:]

Absolutely.

[Operator:]

Thank you. We have concluded our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

[George B. Holmes:]

Thank you, operator. In closing, 2020 was a remarkable year. 2021 stands to be even better. Our XBAR technology has the potential to enable our partners to dominate the new 5G, Wi-Fi and other high frequency applications. There's truly a lot to be excited about and a lot to look forward to. I want to thank all of our shareholders for their ongoing support and with that, I'll close today's call. Thank you, everyone.

[Operator:]

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.