Resonant Inc.
Q1 2019 Earnings Call Transcript

Published: 9 May 2019

[Operator:]

Greetings and welcome to Resonant First Quarter 2019 Corporate Update Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Moriah Shilton, of LHA Investor Relations. Thank you. You may begin.

[Moriah Shilton:]

Thank you, operator. On the call today are Resonant's CEO, George Holmes; and CFO, Marty McDermut. Earlier this afternoon, Resonant released financial results for the first 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. 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 George.

[George Holmes:]

Thanks Moriah. Good afternoon and thank you for joining today's call. Joining me today is Marty McDermut, our CFO. Q1 was a game changing quarter for the Company that began with the announcements we made early in January beating our devices accepted and devices shipped for initial royalty metric. But the real highlight for the quarter was beating me announced schools for our XBAR resonators that allowed the successful demonstration of XBAR filters then Mobile World Congress, MWC in 2019. Decent response from approximately 25 invited companies at MWC, which included carriers, OEMs, and device manufacturers. It is clear that the performance we've demonstrated appears to be unmatched. Further validating what we believe to be superior positioning in the 5G market. While we remain focused on execution of the contracts we have in-house that represent greater than $55 million of total potential annual royalty revenues or even more excited about the future. Building on the successful demonstration of our XBAR filters, which would the coming of 5G addresses a market almost double the size of the current our filter market. It makes for a total market of approximately $28 billion. We are also excited by the fact that we believe that we are the only pure plays solutions provider of designs, IP and software. So we targeted at the RFFE market. This quarter we delivered the further affirmation through the expansion of our contractual relationships with existing customers. The growth and adoption of our filter IP standard library and the success for a fabless foundry program, all of which continue to support our business of delivering licensable designs to customers, which enabled new entrance into the market quickly and cost effectively. Let me wrap up my opening remarks by restating the goals we set for ourselves in 2019, which we described as a breakout year for Resonant. We plan to grow our key performance indicators, KPIs on average of 40% year-over-year. Cleanly focusing on ramping royalty revenues, demonstrating the performance and securing a customer for our new XBAR technology for 5G and adding an OEM to our customer base Prior to handing off the call Marty to discuss our financial, I want to spend a few minutes to highlight the major factors driving the market, to provide detailed updates on some of our KPIs, to highlight our successes with our XBAR and BAW development and discuss what this means to Resonant in 2019 and beyond. Major factors driving the market. The 2019 RF market represent a year of anticipation. The ongoing transition to 5G has created monumental opportunity for Resonant and disruption in the return demand. For example, as we highlighted on our last call, the channel more market is driving for early adoption of 5G which is planned for the second half of 2019. Consequently, the demand from Tier 4 and white box suppliers for existing technologies has diminished. Cash causing our fast time to market fabless customers to refocus their efforts on top tier OEM, which have longer qualification cycle. In addition, demand for smartphones is slow as consumers wait for 5G phones. More importantly, the transition to 5G is unlike the prior mobile platform enhancement. 5G support three distinctly different application segments; enhanced mobile broadband, particularly for video; massive machine communication such as IoT and ultra reliable low latency communication such as medical and government applications, all of which require higher filter densities. A great example of the importance of the impending move to 5G is the Apple, Qualcomm settlement in which two technology leaders came together many say unexpectedly to solve many of the very complex problems associated with backend processing of massive amounts of data for 5G. We anticipated these opportunities and began developing the enhancements to our ISN platform and made significant investments in IP that have yielded our XBAR resonators platform. In Mobile World Congress, we demonstrated real filters at 5G frequencies with bandwidth around 600 megahertz. We believe that our XBAR resonators-based solutions have the potential to be game changing for Resonant, our customers in the 5G market, more on this later. So why 5G? The main driver of 5G adoption in the handset is the need for significantly increased data rates to run applications, such as high-definition video. This is putting new demands on the technology inside the handset such as screens, chips and modem, and RFFE which are increasing in complexity and then the number of filters included in each handset. Initial research indicates that 5G handset will require conservatively over 40 additional RF filters versus their 4G counterparts, an increase of approximately 65%. 5Gs impact beyond the handset is that it requires the densification of the network rather than antennas and towers providing coverage. There's need to have small cell nodes much closer to the wireless user similar to the way WiFi has deployed today. This will result in many more nodes in buildings and [indiscernible] of much lower power than for typical tower deployment. Although the volume is significantly less than that of a mobile handset, these infrastructure-based RFFE requirements will become more complex, volumes will grow and time to market will become more important. We expect that leveraging Resonant's ISN platform to deliver infrastructure-based solution to capitalize on our complex filter design capability will become more important and will create opportunities for Resonant coincident with 5G handset deployment. Let me explain what this means for existing technology, 2G, 3G and 4G. The transition to 5G does not cause 2G, 3G and 4G technology to go away. Instead, handsets will continue to require these existing filters so they can operate in the various networks as the world transitions to 5G. Although still critical, the technologies of the existing generations will become more commoditized and unit prices will drop. According to the market research firm Yole, the RF filter market today is approximately $12 billion and approximately 54 billion units being sold are deployed. Those 2G, 3G and 4G units are expected to grow nominally, but the dollars are expected only modestly grow like $2.2 billion by 2025. These factors create a significant new demand in the market and opportunities for Resonant to utilize our ISN design platform to design and build devices to deliver against the requirements of the transitioning 5G market, which have faster time to market and lower cost requirements. So how has this impacted our key performance indicators or KPIs in the first half? As noted on our last call, the softness in Q4 and Q1 did directly impact our royalty ramp in the first half. While we'd hoped to be further along in securing ramping royalty revenues, we are excited by the strength and breadth of our existing and new customer engagement as it continues to speak to what we believe is the inevitability of our ramping royalty revenues in 2019. We continue to see solid qualification momentum and traction between our customers and their customers and it is important to note that while we may take longer to qualify than was originally planned, the revenue potential is greater as handsets from these top tier manufacturers on average remained in the market longer and that are at much higher volumes than Tier 4 and white box handset. Let me tell you what's driving our optimism in the second half. We're seeing solid traction in the expansion with our fabless customers, which have increased the devices, contracted from our library products and are aggressively marketing to phone OEM. Our Filter IP Standard Library further augments our offering these new entrance by enabling a much faster time to market and eliminating the upfront development time of 12 to 18 months for fabless customers. We introduced our first Filter IP Standard Library product in December of last year and already have six licenses. This library product is a very attractive solution to our fabless customer base and we anticipate over time that 90% of our business today, which is focused on custom designs, we'll transition to a large degree to library product engagement. The anticipation of 5G has created a tremendous opportunity to more rapidly deliver 2G, 3G, and 4G solutions to our customers that need to get to the market faster with lower costs. Our fabless/foundry program allows existing manufacturers already supplying to the handset OEMs to enter the market quickly with low cost, high quality RF devices. This provides additional choice of the handset manufacturer as the market continues to commoditize. An example of this is our recent announcement where an existing fabless customer continues to expand its relationship with us by adding four additional licenses for designs from our IP Filter Standard Library. Overall, we continue to be on track to increase our KPIs on average of 40% in 2019 compared to 2018. We believe there's a real positive outlook for Resonant. Over a year-ago, we began to position the company for the impending 5G transition. We enhance our design efficiency from 4.5 to 6.8 designs per designer per year, which we believe to be three to five times the efficiency of most vertically integrated company. Designed capacity is an industry problem. We believe Resonant ISN platform is the solution that enables greater design efficiency, greater precision as the potential to become an industry standard that can solve this very complex problem. We expanded our team of foundry and packaging partners to support the fabless customers. We have introduced our Filter IP Standard Library products and we have added capabilities to ISN platform with BAW's last XBAR resonator. We achieved a major milestone in February at Mobile World Congress. We demonstrated RF Filter fabricator using our XBAR resonator, which utilize standard manufacturing processes. We delivered against the forming formers parameters required by 5G handset bandwidth, high-frequency pyro handling and rejection. For bandwidth, we're now demonstrating approximately 600 megahertz of bandwidth, which we believe is greater than 2x wider bandwidth on a percentage of the total bandwidth basis. The metrics that's most important for 5G then any other 5G acoustic filter that has been demonstrated. For high frequency, the first filter is delivered meet the 5G n79 frequency requirement. For power handling, since Mobile World Congress, we've increased the silvers power handling performance to more than 30 DBM, one watt at the band edge and demonstrated low loss and uniform pass. Power handling is most important because there's frequency's increased transmit distances are reduced and power is increased, the RFFE to achieve transmits to distance. Lastly, rejection, we demonstrate WiFi rejection at high frequency to eliminate interference and allow 5G and WiFi code systems in the phone. To our customer engagements, we have gained third-party verification of early XBAR filter performance. We remain on track to choose and then qualify our first XBAR production foundry partner and to secure our first XBAR customer engagement for the end of the second quarter. So not only this 5G enhance our current product positioning, 5G also creates new opportunities. The 5G bands from three to five-gigahertz present a challenging coexistent problem with the handset, both coexistence of these bands themselves, bands n77 and n79 and with a five-gigahertz WiFi filter. Expert filters allow for low loss transmission of these signals over large bandwidth, while rejecting interference from neighboring frequency in order to realize the full potential of high definition video to the phone. It is significant to note that today there are no good integrated low cost solutions allowing for this coexisting. However, leveraging our ISN platform and our XBAR technology, we have simulated a prototype of a new architecture that provides for the full simultaneous operation of n77, n79 and 5 Gigahertz WiFi using and n77-n79 diplexer and a 5 Gigahertz WiFi filter. The only sub public simulation of a WiFi 5G coexisting solution is this device. This architecture has also been confirmed as a preferred solution by a leading wireless operator and the smaller design footprint will be critical to all handset manufacturers looking to deliver 5G handset without sacrificing the device size and battery life. I'd now like to turn the call over to Marty for a discussion of our financial. Marty?

[Martin McDermut:]

Thank you, George, and good afternoon, everyone. The amounts I talk about our gap except we're noted. For the first quarter of 2019 as compared to the fourth quarter of 2018 billings, which include deferred revenues were $54,000 as compared to $177,000 last quarter. Revenues totaled $134,000 compared to $128,000 last quarter. Research and development expenses of $4.4 million compared to $4.1 million last quarter. The modest increase results from higher headcount and our XBAR development efforts. Sales, marketing and administration expenses of $3 million equivalent with the fourth quarter of 2018. Operating loss of $7.2 million compared to a loss of $7 million last quarter. Net loss of $7.1 million or a loss of $0.26 per share based on $27.5 million weighted average shares outstanding compared to a net loss of $6.9 million or a loss of $0.25 per share based on $27.2 million weighted average shares outstanding for the fourth quarter of 2018. Non-GAAP adjusted negative EBITDA of $5.6 million or negative $0.20 per share compared to negative $5.5 million or a negative $0.20 per share last quarter. Cash burn for the first quarter was $6.1 million, $5.6 million resulted from the negative EBITDA and the remainder from capital expenditures and paydown of accrued liabilities. These amounts were partially offset by warrant exercise. Excluding the paydown of accrued liabilities, we expect them to be comparable in the coming quarter. Cash, cash equivalents and investment of $15.2 million compared to $21.3 million at December 31, 2018. In subsequent to the end of the quarter we received approximately $1 million for the exercise of warrants by Park City Capital, one of our largest shareholders. We believe that further support, confidence in management execution. And finally, we ended the first quarter with a total of 71 employees, 18 of whom have a PhD and 51 of whom are part of the technical staff. I would now like to turn the call back to George.

[George Holmes:]

Thank you, Marty. In closing, I'd like to highlight some key takeaways from today's call. In our view, 5G is clearly a market disruptor. It will commoditize existing technologies during this market transition. Resonant's ISN platform design efficiency makes us an ideal partner to help maximize profits during the market commoditization, particularly at the time were designed capacity continues to be constrained. We believe partnering with Resonant creates designs faster and more cost effectively than can be done alone. 5G creates opportunities for new wide bandwidth solutions. Respmamt's, expert technology potentially enables not only current designed that require a wide bandwidth like in 79, but future architectures that could include diplexer such as an n77 and n79 solution with up to 1.5 Gigahertz of bandwidth with good WiFi rejection. As in this business model provides tremendous leverage. As a royalty business your asset light. There's a lot of leverage in a patent and trade secret IP protected licensing model such as ours. Our Royalty businesses do not have direct predictability. They tend to have fantastic margin upon conversion. Customer satisfaction and continued interest has been validated as we continue to engage new customers and expand existing customer relationship as demonstrated by our largest Tier 1 filter customer signing two new license agreements in the first quarter. The market disruption has created expanded opportunities as our customers are now engaging primarily the Tier 1, Tier 2 and Tier 3 manufacturers and while they may take a little longer to qualify the revenue potential is substantial as these handsets from top tier manufacturers on average have much higher volume and are expected to reign the market for a longer period of time. Our Filter IP Standard Library strategy is a perfectly time fit for a new commodity filter market as evidenced by a threefold increase in our library design licenses in the first quarter. In closing, I'd like to reiterate as we mentioned in this afternoon's press release, we have confidence in our business model as we believe we are the only pure-play solutions provider to the RF front-end market for design, IP and software that delivers designs on a per unit royalty basis. Our confidence is fueled by the coming of 5G with our XBAR technology. We believe we are uniquely positioned to capitalize on the potential in the RF filter market as is expected to grow from approximately $12 billion a day to $28 billion by 2025. We continue moving toward monetizing our investment to benefit our customers, our employees, and most importantly our shareholders. Now I'd like to turn the call over to the operator for Q&A. Operator?

[Operator:]

[Operator Instructions] Our first question is from Anthony Stoss with Craig-Hallum. Please proceed.

[Anthony Stoss:]

Hey, George and Marty. Quite a few questions. George, can you just confirm on the XBAR which frequency bands are already done? Did I hear 77 and 79? Maybe just take us through that and then it had a couple of follow-up?

[George Holmes:]

Yes. Band 79 is the one that we've actually tested and demonstrated. That's the one we took with us to Mobile World Congress. We've done subsequent testing with a number of customers two or three times at this point to further validate the performance. It has allowed us to prove out the over 600 megahertz of bandwidth and over one watt at the band edge.

[Anthony Stoss:]

Okay. And then maybe for you, Marty, can you quantify how many different phones you guys collected revenue in Q1 in the quarter?

[Martin McDermut:]

How many model phones we hit? I think we're up to two or three on this last quarter.

[Anthony Stoss:]

Okay.

[George Holmes:]

If you sit back and you look at it, I think the thing - Tony let me see if I can kind of jump in on this. As you look at the number of devices that we currently have contracted at the end of the year, we did the 10 and 20 that we beat those two milestones, 20 devices excepted, 10 that we're actually starting to ship a royalty revenues of those 10 that were shipped for royalty revenues, those were targeted at 10 different devices. Now as you look at the things that are starting to see early traction, one of the things that we're seeing happen right now and part of the reason we're excited about the kind of where we are and the activity that we're seeing is, in the first quarter we saw over 800,000 units shipped for royalty revenues. And while royalties were nominal, that showed tremendous traction of these new devices. We expect millions of units in Q2 and tens of millions in Q3 based on our customers' current forecast. Hopefully that kind of gives you some line of sight on how things are moving and kind of the opportunity there as we see. And as we said in the past, these things, each one of these phones is kind of a stair-step step function change in volume once they get accepted and started shipping. We saw a lot of transition in Q4 and Q1 with our customers. The early customers were very aggressive going after the white box and Tier 4 guys. That market completely dried up so they converted and started focusing on Tier 3, Tier 2 and Tier 1 little bit longer qualification cycle, but also larger volumes in that upfront qualification process instead of 25,000 and 50,000 unit volumes you're talking, a couple 100,000 here, 100,000 there as the kinds of things they use in the pre-call runs through the process that happened in Q1.

[Anthony Stoss:]

Okay. Just as a follow-up, George, the customers that are suggesting millions of units in Q2. Are they - have they all been paying customers today? What gives you the confidence that that you're going to see millions and then tens of millions in Q3 and also how many different models you expect to be launched in Q2 that would equate in the millions of units?

[George Holmes:]

I would say in rough numbers, in a half a dozen range is what we would expect to see, starting to see ramping volumes in. As we sit back and you look at the customer confidence, these are customers that haven't historically seen volumes ramp to very high volumes and then pulled back as they missed the design cycle last year as we all know. So some of those early customers, one that had a devices that went into white box designs, they were pretty predictable in their - when they had their forecast and they were forecasting devices. And then our other large customer has some very good success that was identified out there in the marketplace by a teardown company ABI. So I think the predictability is there, once they get through the qualification process, we feel pretty good about what they're telling us so far. They were honest with us with what was happening in Q4 and Q1, which we obviously indicated to you folks.

[Anthony Stoss:]

And then my last question as we move into hopeful production was the next couple of quarters of XBAR, if you contemplated placing minimums on XBAR and BAW is clearly a premium product versus [indiscernible]?

[George Holmes:]

Well, I think you hit the nail on the head there from an opportunity perspective. Our view is the XBAR technology ultimately is going to dwarf, the market opportunity and the things that we've been working on historically. We've got now roughly $600 million were devices under contract and we think that XBAR technology as a force multiplying effect. So clearly we're going to take advantage of that. It's one of the things that didn't jump out in your questions, but I'm sure we'll come out and subsequent questions that what are we doing about cash? We've got - and I'm going to jump on it right now, if you don't mind Tony, we've got $15 million in cash right now. We are laser focused on ramping royalty revenues for sure, but we're absolutely going to leverage the fact that we've got a technology with XBAR that we believe is the cat's meow. It's the thing that's going to change and potentially revolutionize the market. We're doing things with our band 79 filter. It's got 12.8% bandwidth. Our first simulations, a band 77 I've got 24% bandwidth. When the next greatest thing on the market has got 6%, you can see that that is just such market uplift in the performance of that device or those couple of devices and the fact that we can put those together in a duplexer and deliver 1.5 gigahertz of bandwidth end-to-end. There's nothing out there like that. And when we talked to the big Tier 1 operators, whether it be in the different markets in Asia that are focused in this area, once that I'm sure you know very well, they are very excited about what this means for them, especially as relates to the performance that we're demonstrating to them and the WiFi rejection they get out of it. So one of the key things, then we'd come back to it, obviously ramping royalty revenue, leveraging this strategic asset we have an XBAR also, I don't want to minimize the strategic asset. We have an ISN, I mean, sure, sure ability to actually design this device from October to February and to multiple turns on it such that we could get that 600 megahertz of bandwidth and now in a subsequent design turn, get a full watt and bandage performance I think is pretty remarkable and really shows the power of that tool. And so we're going to, we're going to leverage those things to make sure that we get the cash in here that we need. Hope that helps?

[Anthony Stoss:]

Thanks and best of luck.

[George Holmes:]

Thank you.

[Operator:]

Our next question is from Cody Acree with Loop Capital Markets. Please proceed.

[Cody Acree:]

Yes guys, thanks for taking my question. Maybe George, just following up on your cash, comments. One I guess what are your thoughts on capital raises? What are your alternatives? Where you're focusing, maybe that's for Marty, but then also, with Park City's coming in and exercising warrants, what is your visibility to that being a source of funds going forward, if any?

[George Holmes:]

My goodness, Cody, why don't I turn that around and so you just made the answer for me, I think this is, I think you hit the nail on the head on a couple of fronts. So let me kind of circle back on that. Now I'll let Marty add additional color at the end. What I was trying to identify here for everybody on the call, first and foremost ways to bring cash in here. The most important thing for us and what we're focused on is royalty revenues first. Leveraging our strategic assets, which is XBAR and ISN, whether it be through prepays or strategic investments through partners. Those are the first two things that our Goody Bag, third thing on our Goody Bag is capitalizing on that recognition and what that would mean in the marketplace if we were able to validate those things and then using that as the ability to go convert our warrant. I mean we've got two quarters of cash approximately sitting out there in unexercised warrants. We've been very aggressive with our warrant holders, allowing them to get good benefit and take advantage of opportunity. Historically that allowed us to bring in about 9 million in cash a little over a year-ago. I don't see why we wouldn't be very aggressive about leveraging that those shares that are already in the Cap Table bring additional cash in. And those three things combined are our focus on bringing cash in. As we sit back and look at it, it's not that we don't look at all the alternatives, but we just think the best short-term alternative for this company bringing in cash or those three. Marty, what did I miss there?

[Martin McDermut:]

I think the only thing that's going back to your prepared remarks is that you think we are pretty positive about doing a strategic deal on the XBAR area by the end of the first quarter. So that's what we're really focused in second quarter. That's what we really focused in on versus going out and setting up a raise.

[Cody Acree:]

Great. Thank you for those comments. And George, I guess, can you just give us a bit of an update on the goal of seven figure run rate by the end of the first half. Obviously you said things have not transpired from a licensing royalty rate as expected. What's giving you the visibility that's you can hit that target by the end of the first half?

[George Holmes:]

Well, I mean there's been, good news is we're not the only one that said there were process in Q4 and Q1. All the major guys in the marketplace have talked about the impact of China Mobile and what's happening in the China market the flow down there. I think most of the guys are out there predicting an uptick in the second half. I noted one of the Tier 1s came out yesterday saying they felt that the second half was going to be stronger. I think what we're seeing with our customers is they are already out in front. They have moved past the Tier 4 white box guys. They're working on a Tier 3, Tier 2 and Tier 1 guys. Many of their current suppliers have got their eye off the ball a little bit creating opportunity because of the market uncertainty that has been generated by 5G. So I think that creates opportunity for us. The fact that we thought roughly 800,000 units get shipped for dollars in Q1. Sounds like a big number, it is a big number. It's not a lot of dollars unfortunately. But it's enough to buy as it got out there and got into the marketplace into enough key areas to give us confidence that they're going to be moving ahead, we're going to start seeing some royalty ramp in Q2 and gives us bolsters our confidence in the second half. But what I would tell you Cody is the same thing we've said all along. I know I've got $200 million for the devices that were accepted by our customer that are going to be going into the market for qualification over the course of this year. I know that have that somewhere between 30% and 70% will convert. What I do know is that as we continue to do the work we're doing to support them, we're adding new customers that are using our library of products that have much shorter design cycles for them to get those into production like in the six-month timeframe. We add those two things together and I think you're back to, it's not [indiscernible]. And while we've got those things that we're working, we're going to continue doing that to make sure that inevitability happened, but all of that is dwarfed by the opportunities in 5G and the potential for volume and our leadership position we believe we have with the XBAR satisfying these very complex requirements for 5G. That are really the key players in the marketplace are really going to be determined. I think here in the next 12 months. And if we can be out there in front supporting a couple of key partners, I think we're going to be in a position to do some really nice things. So we're focused on our core business. We're going to continue to focus on our core business. We're going to continue adding products to the library because that has shorter time to revenue. We know these dominoes are going to fall. We're going to continue supporting customers through things like hold testing, handset testing, and making sure that they know how to do matching and when it comes to getting devices qualified by the OEM, and we're going to continue to help and support them if they try to nudge it all the way through. And we're going to do all these other things as well to make sure we've got post multiplying effects. So when these dominos fall, they fall in a big way in our favor.

[Cody Acree:]

Great. And then just a couple more quick ones. You mentioned in your prepared remarks, commoditization of the 2G to 4G range, but that would be a positive for you or an opportunity for you. Can you just expand on how that commoditization maybe plays into your favor?

[Martin McDermut:]

Yes, absolutely. Well, ISN is the cornerstone there, Cody. I mean, clearly what we see here in the marketplace, and we've seen this since I got here three years ago, there's not enough capacity out there from a number of designers to do the designs. These companies already have at their doorstep and as the ASP come down, which they started coming down a couple of years ago. I mean, we saw one, three quadplex that were almost $2 are now 65%. As that commoditization happened, guys have to sit back and look at their design resource and say, hey, I've got a finite number of designers, how can I best maximize that capability? So I can not only do the work I have to do on two 2G, 3G and 4G, but I can work on the three x number of designs I have to do for 5G. So they're in a hole, the hole is getting deeper, it's getting broader, and one alternative, we think the best alternative actually bridge that gap for them with our ISN platform, leveraging the design efficient we have right now at 6.8 designer per year, which we believe is at least 3x the average design efficiency of the major players in the marketplace. And we know that design efficiency on our end is going to go to double digits this year and leverage that to be right in the sweet spot to support these guys. So that's what we're thinking right now.

[Cody Acree:]

Perfect. And then lastly, can you just talk about what you're seeing as far as the health of the China market? We've had kind of contradicting statements out of Skyworks and Corvo, what are you seeing? And then how much of that is driven by infrastructure versus optimism in the mobile market in the handsets?

[George Holmes:]

That puts me right in the cross hairs, Cody. Thank you for that. That's a great question. So on the infrastructure front, obviously, right, infrastructure today if you look at the numbers the guys are quoting, guys that you cover and guys at others that are covering on the infrastructure side, the quantities there are going to somewhere between triple and 5x over the course of the next five years. Yet the volumes are still pretty low, we do know that the China market is intending to have operating 5G networks by the 100-year anniversary in October. I think they're going to be hard pressed for that if the indications that we're seeing. However, when we meet with the big operators at places like Mobile World Congress and then subsequently, they're moving very, very aggressively on some of these new designs that are clearly handset designs. I mean, n79 is a solution for China and Japan primarily. And if you look at the n77, n79 diplexers, it's kind of focused on those two markets as well. And I think that the feedback we're getting from people in those markets is that is something they would like to see sample by the end of the year. Well that's a tall order that indicates that things are moving pretty aggressively. That said, I mean, when do you think you're going to see handsets in the market place in a big way? 2021. I don't know, that would be my call, but that's design work that's going on - has been going on for the last six, eight months.

[Cody Acree:]

Great. That's it for me. Thanks for all the time.

[George Holmes:]

Thanks.

[Operator:]

Our next question is from Ilya Grozovsky with National Securities. Please proceed.

[Ilya Grozovsky:]

Thanks guys. On the housekeeping side, what was the price on the warrants that were executed this month?

[George Holmes:]

286.

[Ilya Grozovsky:]

Okay. And then can you just George, you're obviously very excited about a 5G XBAR. Can you just talk a little bit about the competitive landscape as you're seeing it? Like what are the alternatives in terms of the performance that your partners are getting versus the alternative? Thanks.

[George Holmes:]

Yes. That's a great question. And what we're seeing, there's not as much data out there. You should like to see at this point. The feedback we're getting in the information that we're seeing so far is things that, for example on band n79 type filters with about half the bandwidth in less than what it band edge is currently kind of what we're seeing from some of the bigger guys. And that's just paper product. We haven't seen anything physically. The only person that I know is that they have a physical product is more of an infrastructure play. That's another MicroCap company who you may be aware of and they've got a solution that they're targeting into the infrastructure market. It has got 345 megahertz of bandwidth at 5.6 gigahertz. That's about 6.2% bandwidth, which is a little less than half the bandwidth we have in our band n79 filter and about a fourth of the bandwidth we have in our band n77, but it's a little bit apples and oranges. That's an infrastructure product, a little bit easier from that perspective has little bit less than from what I can tell, is just barely a wad of the band edge. We're a little bit over a watt at the band edge, so it's a little bit different product targeted a little bit different market, much lower volumes. But that's the only one that I've actually seen plots of recently. Everything else we saw was based on anecdotal discussions in Mobile World Congress, which was now it seems like that was light years ago, but it's still only a couple of months ago on those devices were still paper products at that point in time for acoustic devices. And they were a much lower bandwidth of the lower power.

[Ilya Grozovsky:]

Okay, thanks. And then also given your commentary on the current quarter Q2? Are you feeling comfortable giving sort of a revenue range in terms of guidance?

[Martin McDermut:]

What I would say right now is as we stayed the last two quarters, we're behind our meeting or that major milestone. We were trying to hit with $1 million by the first half of the year. We came out with that a couple of quarters ago and we reiterated that last time. I think where we're at right now, Ilya is we are comfortable saying that the unit volumes are going to go from the 700,000, 800,000 unit range to the millions and that's multiple millions of units and Q2 and the tens of billions in Q3. And as we sit back and look at the consensus for 2019, we think that that's in the ballpark of where we think we'll end up. So that's kind of where we are today. We're at the mercy of the macro market as a licenser. We're one step removed from that and we're trying to break down the barriers to make sure we have the Domino's stacked up as high as we can. So when that floodgate opens, it's going to open in a very digital way for us. And what I can tell you is we're poised and we've got some other things. The good news is we got some other things in the works, leveraging our ISN platform in our XBAR solutions that will allow us to do some other things, that could bring cash into the company in particular from a strategic perspective and a prepaid royalty perspective. So I think we should be in good shape, but that's there's a lot of grass between here in the green and we're just going to keep kicking the ball down the road.

[Ilya Grozovsky:]

Got it. Thanks, guys. Thank you.

[Martin McDermut:]

Thank you.

[Operator:]

[Operator Instructions] Our next question comes from Kevin Dede with H.C. Wainwright. Please proceed.

[Kevin Dede:]

Thanks. It's Kevin Dede. Thanks guys for taking the call. George, you said 700,000, 800,000 devices in the March quarter. Do you have a relative number for the December quarter?

[Martin McDermut:]

Yes, $1.8 million, if you recall the December quarter was higher than the first quarter from a royalty revenue perspective. That was the last quarter we saw of some of those early devices as they started to ramp down and we started to see the uptake of the new devices that we announced that we're contracted in at the end of the year.

[Kevin Dede:]

Okay. Fair enough. Thanks. Can you talk a little bit about the licensing and royalty model as it corresponds to designs that you pull from your library? Do your customers see perhaps an advantage in doing that from a cost perspective?

[George Holmes:]

Well it's a great question and absolutely right because if you're doing a full custom, when we contract for devices, unlike fabless companies that we don't actually go through and pay the foundry to do that work. Our customer pays to do that work. So if they are doing a custom product, it takes 12 months to 18 months for us to design it. Depending on how efficient they are in their foundry process and how tightly controlled there, manufacturing processes. They could do a couple of turns or they could do four or five turns and that's on them. Where is if they buy a library product, we've already done that work. We work with foundries that have very, very tight controls on their process. So we designed to a target that target is maintained. We only pay for the devices to get fabricated if they are maintained. And then our customer in turn goes and licenses the product from that foundry. So the - all those developments spends they don't have to pay for. But the other thing, they don't have pay for us the time energy and money spent and allocated to the engineering resource that they have working on those custom products with us during that timeframe. What they end up having is they ended up having a smaller team of people that evaluate the technology of the standard product and then do the qualification and then it becomes an operations issue to engage with the foundry to take that product and make, take it into production. So a lower cost, faster time to market as part of the reason I did in the prepared remarks that I believe that we will see a transition of custom products to more standard products over time. As small companies go as we evolve from a pure startup with no customers, all of our first agreements were full customs because we didn't have the resources to go build standard products. We actually through working with folks like yourself and the other analysts that are out there on the call today. Got some good advice and got engaged and started doing some of these library products. And so we got out and started doing that and did that about a year-ago when we did the raise in April of last year, had a little bit more resource, followed on the backs of that raise in the conversion of the warrants the year before and still having some cash leftover. So we had a nice little Warchest to get those designs done. And now we have a number of devices in our library, six devices under contract and we think that's going to grow. And clearly all of our XBAR products are going to be library of products. That's our intent so that they can be moved very, very quickly into production and be moved into production for multiple customers. So I think the answer your question if I'd have done it the short way out or just said yes, but there's a longer explanation.

[Kevin Dede:]

Thanks George. I think everybody appreciates that. Would you be able to help quantify the royalty range that you were able to Gartner? I mean, in past quarters you've offered that. Could you discuss the royalty range that you were able to Gartner in the March quarter versus what you might gain in a licensing construct versus say what you saw in the fourth quarter?

[Martin McDermut:]

Yes. Well, fourth quarter, first quarter, the average, it stayed about the same. It's a nominal differences fill at 9.25% for Q1. The range is generally 8% to 15% for the majority of our contracts today. We do have a couple of outliers in the 20% range, but the majority of them are in the 8% to 15% range. And we expect that to continue. We tend to get a little bit higher royalty on the products coming out of the library because we've done a lot of the work. So we tend to get - want to get paid. And that I think makes sense. And the good news is, with library products, you don't compete with the internal design resource when you start your engagement. So I think that will continue and I think that until such a time that we license our software which could happen next year, once we start licensing our software, the per unit royalties on the software component, I would expect to be lower. But on stuff to where we're doing software plus IP, plus in the design services, I think that each 15% is going to stay solid for the years to come.

[Kevin Dede:]

Okay. You spend a lot of time on the call characterizing infrastructure versus handset. Could you talk a little to how you see your customers facing infrastructure suppliers? I'd imagine that's an entirely different set and I'm curious to know how well you think they'll do in that fight.

[Martin McDermut:]

That's a great question. And it's one where I think us having an ISN design platform and an IP Standard Library of product is going to bode very, very well for us. You can engage with those Tier 1 manufacturers and literally get products in their hands very, very quickly. For us, it's nothing new. Fortunately our devices, we've got very good power durability, which is one of the key things that guys tend to look for in those CPE types applications i.e. Wi-Fi routers and whatnot. And so as I sit back and look at it, the work that we've done already we've been asked to take a look at some of those devices. The thing that's a challenge for us today unless we have a customer that wants to go after four or five of those guys, it just didn't make sense for us to go do a library of product for them today. But it may here in the coming future because as long as it's not an additive expense to us and we can get it as a byproduct leveraging a small tweet through our ISN platform to get them a device, I think it's all bets are off. Why wouldn't you go do it? It's just the incremental. As it relates to from a customer acquisition standpoint, most of our customers are dealing with these guys already.

[Kevin Dede:]

They are. Okay. One thing that you didn't spend much time on was the - having your ISN development software platform available on the web, I was wondering if you'd offer an update on that?

[George Holmes:]

Hang tight is what I would tell you. It's coming. As we sit back and look at our ISN platform, clearly last year we made some major moves. We introduced two different modules to customers. Our PMTx tool and then our ISN compare tool that allows people to do a real time evaluation of devices they want to take into the marketplace against others that are already out there in the marketplace comparing that to your internal manufacturing process capability to see you could actually get there. I mean two very, very powerful tools that we made available. I wouldn't be surprised if you saw us based on how we're architecting our ISN platform is modular. You would never expect or we would never expect to go into a customer and forced lift out everything they're doing and say, hey, just take ISN. That's not realistic. And the other thing that's not realistic is having a new tool that you haven't proven. So if you sit back and look at how the big EDA companies got into the business and got into the marketplace, it took them a long time to prove that their tool could do as good as their customers internal tools that they were using, delivered solution. We are actually trying to get that validation through the development of these devices that we're doing on a custom basis and through our IP Standard Library. So we can actually demonstrate that yes, we say we can simulate a part, here's 50 parts that we've done that are one, three quadplexer use, 500 parts that we've done that are in the Band one, two and three. So we will have that validation points so that when and if we go to elevate those products into the marketplace, we'll have those validation points already done. That said, two devices are already out there. I wouldn't be surprised if you saw partner leveraging some of the modules we have and leveraging fact, we've designed them through API. API interfaces, so that they can be leveraged by other standard products that are already in the marketplace that have a broader footprint, but more to come on that. That's work to do in the future. But is clearly something that we're mindful of because we want to basically be a seamless adder to the toolset of our customers and be able to get the per unit royalties that we're currently getting.

[Kevin Dede:]

So you've mentioned that XBAR foundry work standard process and you brought XBAR n79 in Mobile World Congress people were pretty impressed. Now you're working on combining that with a 77. I'm wondering if that's still all the same foundry process, if it's still the same foundry partner and maybe a little more granularity on the timeline you were expecting?

[George Holmes:]

Well, we use two foundry partners today and I think we talked about that last couple of quarters. We seamlessly move parts between the two foundries, which I think is indicative that it's a very standard process and we're able to move between the two foundries to deliver the solutions that we delivered, not only from Mobile World Congress, but for demonstration with third-party customers or potential customers. So I think that that speaks pretty well to the fact that we're not doing anything exotic. We're currently in the process of engaging with production grade of foundries and we - I think I noted in the prepared remarks that we expect to lock and load one of our first production days foundries this quarter, as well as lock in our first customer. So that's about all I have for you granularity wise at this point. But what I can tell you is that we were doing stuff today on four inch, we'll be doing it on four and six inch wafers and that that's coming this quarter.

[Kevin Dede:]

Okay. I'm going to pick on Marty for a little bit. You can take a break, George. Marty, I was wondering why everybody starting to pull these operating lease rights of use assets separately on their balance sheet?

[Martin McDermut:]

There's the fast we came out and made it a mandatory accounting change effective January 1. So we followed it. The impact was to basically gross up both sides of the balance sheet. There's no impact to the P&L from the change. It's still a straight line amortization. You should see that on all your clients.

[Kevin Dede:]

Yes. No, I have, that's why I figured I'd ask you. I trust your response, Marty. Thanks very much gentlemen for entertaining my questions. Much appreciated.

[George Holmes:]

Thanks.

[Operator:]

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

[Rajvindra Gill:]

Yes. Thanks for taking my questions. You touched a little bit about this George, but I wanted to get a sense about the traction in your IP Standard Library. Last quarter you stated that you had one licensee for this product with additional customers, both existing and new expressing kind of great interest and expecting to convert them in the coming quarters. How do we think about the revenue opportunity from these potential customers?

[George Holmes:]

Well, it's a great question. Let me hit the first thing first. We've now got two customers contract with six total devices, under contract. And that we noted in impressive leases it happened in Q4 and Q1. What we haven't said at this juncture is the only device that we've actually highlighted is in the library today is the one that's on our website, which is the 1.3 quad. We expect to be adding the other devices under our website is as soon as they come out from underneath their hold back, which will happen sometime this quarter and we'll start marketing a broader set of devices in the IP Standard Library. What we're seeing is customers like the IP Standard Library for all the obvious reasons. One, there's no custom development. They don't have to basically match their internal team against [indiscernible] with ours to get development done. They aren't having the spin devices on their own nickel to get them done. And they can take a part that's already been tested all the way through handset testing in most cases. We've done age tall, all the reliability testing as well and they'd take apart and then they just have to go do their internal qualification. So it happened very, very quickly for them. So instead of 24-month to 30-month timeframe, they can get this all the way into ramping royalty revenues is short as maybe six months. So we see this is a not only a real opportunity for them, which is why we're seeing excitement around it, but also a real opportunity for us to actually potentially changed the trajectory within this current fiscal year. I mean, that's the exciting thing about library products. You can actually have an impact of a design that you bring to market in the year that you actually released in the market where if you're doing full customs and I signed a full custom today, two years from now we're going to see the opportunity come into play, which is why we're seeing ramping royalties happened in the first half of this year for things that we contracted when I first got here 2.5 years ago. So it's not happening as fast as we'd like it to and a market hasn't helped all that much, but I think it's going to make a company a better company and stronger because our guys, instead of going after the Tier 4s and white boxes, they're going after Tier 3s, 2s and 1s. And fortunately for us, we got good things happen and we got lucky with our XBAR technology last year with the invention coming out of the box, hot and working and hitting every milestone that we set for ourselves there. So those two things combined and we will be pushing XBAR into the library. And so that will be another private that hits the library before the end of the year.

[Rajvindra Gill:]

Okay. Thank you for that. And congratulate on demoing the XBAR filter, supporting the band n79 to the customers at MWC. Who did you select for your lead partner? I think you had stayed in the past, but you had selected a lead partner for this filter in 2Q.

[George Holmes:]

We said we expect to have one contracted in second quarter. We have not finished that yet. We've still got some work to do. But we have - what I would tell you is there is a large list of potential candidates that we're working with, a number of which that have already evaluated the parts. And we're just kind a going through the contractual process, trying to figure out who's the best partner. I mean clearly with a technology such as this, you can either go big and hopes that the one you go big with is the right one or you can go broad, which means you have to do a little bit more of the work yourself. And we're evaluating that right now. We're trying to get everybody up and educated on the technology and the good news is kind of while we're doing that we're seeing lots of activity around our ISN platform as well. For all the reasons I stated in the prepared remarks on the call.

[Rajvindra Gill:]

Okay, great. And you touched also about this with a lot of great detail, but just conceptually I just want to take a step back and kind of try to understand how you kind of intend to broaden the customer concentration in the near and long-term. I think in the near-term, there's significant contraction of royalty revenue composed by a small number of customers by expanding that, that's going to derisk that issue. Just want to get your thoughts on customer concentration and kind of expansion of that?

[George Holmes:]

Okay. Yes, it's a great question. And clearly back when I got started here two years ago, there was really only a dozen options for potential customers because if you are a design licensing company, developing software and licensing your IP on a per unit royalty basis, you have to be working with guys that had their own foundry or at least what we thought is the only opportunity. So there was really only a dozen guys that made up 85%, 90% of the market. Fortunately, we modeled the business after EDA companies and IP licensing companies and really took advantage of the model of fabless semiconductor companies is something that we wanted to model against. Unfortunately, there were foundries and packaging partners out there that wanted to get into this segment of the business so that when we went out and engage with them and started building our team of foundry and packaging partners, there was a group of guys out there that wanted to do that. So that when we went to these companies that were already in the supply chain for the mobile handset, PA manufacturers, switch manufacturers guys who in reference designs, they had companies they can go to and stay out of the box for the designs that they wanted to contract with us. And that opened up the market today to what we're tracking is about 50 companies that we consider guys that we would like to do business with potentially. And of those 50 companies, we've got 11 contracted today. We still have a high density with a couple of customers. I think that's good news on one side from the perspective that we've got customers that know us intimately well, that continued to write us new checks. I think that bodes well for at least their belief in the technology and belief in us and belief in the fact that these things will inevitably reach royalty revenues into the marketplace because that's when they get paid as well. But we're also looking at the breadth and I think the breadth is important. And I like the fact that we have roughly half our customers are fabless today. Today we only have a small handful, six devices of the - over 75 we have contracted or out of our IP Standard Library. I'd feel much better if that was half, but we didn't have the money to go develop those back then. So we're working on it and we're going to continue building out our library as we can. And I think through having a combination of an IP Standard Library, faster time to market from a design efficiency perspective, we're going to enable some of these new entrants to move in very, very quickly. And I think they're going to capture share. I mean the good news is, the nice thing about it, this whole commoditization that I talked about actually plays into that piece of the market opportunity growth as well, because think about the Tier 1 don't really want to go after the next-generation solution. They're not really excited about going after the next band three. If it's a smaller package, higher specs and the lower ASP, we're a new entrant will think that's really cool because they can get in and they can deliver a bunch of parts. Well, if I have that part in a Standard Library and I can able to guy to get into that market very, very quickly, that's found money for them and they can start building the footprint and a foothold into the marketplace. I think these things combined together play well for us and the market opportunity for us as we sit back and position ourselves for the inevitability of the transition of the market that's going to be driven by 5G is creating opportunities all across the board for us and we just got to do the best we can to be prepared for it.

[Rajvindra Gill:]

Great, and thanks for all that excellent color. Appreciate it.

[George Holmes:]

Yep, no worries.

[Operator:]

Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to George Holmes for closing remarks.

[George Holmes:]

Great. Thank you, operator. This first quarter has delivered on a number of key fronts. Our ISN platform has demonstrated that we can deliver new technology quickly to meet the demanding specifications of 5G with our XBAR resonator technology and n79 filters. We conducted third-party testing that validated the performance of these new XBARf filters greater than 600 megahertz of bandwidth, or greater than we have heard from any other supplier and with one water power handling at the band edge, both critical specifications for 5G as market commoditizes during this year of anticipation, Resonant will continue to deliver new designs quickly and cost effectively using ISN and further leverage our IP Standard Library to get products into the market on an even faster basis. As the only pure play solution provider of software and IP based solutions on a per unit royalty basis, we are confident in what we believe is the inevitability of a ramping royalty revenues to create value for our customers, employees, and most importantly, our shareholders. Thank you everyone for joining today's call.

[Operator:]

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