Resonant Inc.
Q2 2017 Earnings Call Transcript

Published: 11 Aug 2017

[Operator:]

Greetings, and welcome to the Resonant Q2 2017 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'd now like to turn the conference over to Greg Falesnik, Managing Director for MZ North America, Resonant's Investor Relations Firm. Thank you. You may begin.

[Greg Falesnik:]

Thank you, Operator. Earlier this afternoon, Resonant released financial results for the three months ended June 30, 2017. The release is available on the Investor section of the Company's website at www.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 statement is 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 release. Resonant's CEO, George Holmes, is your host today and he will introduce the rest of the team joining him on the call. With that, I will turn the call over to you George.

[George Holmes:]

Thank you, Greg, and good afternoon to everyone joining us on this call today. With me today is Jeff Killian, our Chief Financial Officer. The momentum we established in 2016 has continued in 2017 as we transformed from a purely development stage company to on – focus on customer engagement, execution and now commercialization. Before getting started and for our new investors that may be joining the call, I'm going to turn things over to Jeff and let him briefly touch on, who Resonant is and what we do. Jeff?

[Jeff Killian:]

Thank you, George. In a nutshell, we design a radio frequency or RF filters for mobile devices using our very robust and powerful set of tools, intellectual property and world class team of PhD physicists and engineers. In layman terms, filters are components in mobile devices that allow the flow of information and data within a band while keeping unwanted signals out. The amount of data consumed by users continues to skyrocket in filters, which are necessary for their successful use of this mobile data, has and will continue to increase exponentially. Today, there are more than 40 billion filters sold each year and experts expect the market to continue growing in a meaningful way reaching $11 billion by 2020. There remain significant constraints in the industry both in terms of complexity of these filters as well as constraints on a number of engineers to design these filters. Enter Resonant; we use a patented Infinite Synthesized Networks, or ISN, software suite to enable filter and module manufacturers to meet required specifications and what we believe to be half the time and half the cost while not changing their manufacturing processes. By leveraging our ISN tools, we have enabled new entrants into the market allowing key component providers to the RF frontend, who do not own a fab to create designs by working closely with our existing foundry partner and leveraging their position in this supply chain. In addition to enabling the fabulous filter segment, we are working with pure play foundry to enter the market as certified partners to sell our designs and leverage our intellectual property. We offer our customers a massive competitive advantage, while simply collecting a per unit royalty for every filter shipped. We are a pure licensing company, which is an asset light business model that keeps costs down and offers us very high margins on the revenues we collect. With that let me hand it back over to George.

[George Holmes:]

Thanks, Jeff. On June 22, we hosted a Virtual Roadshow, discussing the evolution of our company over the past several quarters and how we continue to retire risk specifically with five straight quarters of solid execution since the beginning of 2016. 2016 highlighted our ability to engage customers and showcased eye of our team, tools and technology that we bring to the table. Of note, we entered 2016 with zero customers under contract, no JDAs or licensing agreement. We transitioned from being a development stage company to one actively engaged and successful in finding the right partners, who would be early adopters of our technology. To that end, we closed the year with six customers and over 25 filter designs under contracted development with a total value of approximately $200 million in gross filter sales. Of those designs, greater than 85% had royalty agreements already negotiated and all included upfront payments. I’ll also touch on a few other noteworthy accomplishments for 2016. In July, we acquired a strategic software company and partner GVR Trade; a Swiss based company specializing in the consultation and design of surface acoustic wave SAW and bulk acoustic wave BAW devices. This acquisition augmented our ISN technology platform, expanded our IP portfolio and bolstered our team, most notably being Dr. Victor Plessky, one of the worldwide thought leaders in acoustic wave filter design over the past thirty years. We also completed two highly successful capital raises, which brought in $17.5 million in gross proceeds to the company and now allowed us to push the company forward ultimately resulting in increased shareholder value. As we moved into 2017, we continued to de-risk our business with solid execution. We began 2017 with the retirement of one of our founders, Terry Lingren and as we wish Terry luck in his new stage of a life. The company uses this change as a catalyst for reorganization and expansion of our engineering team, which resulted in the hiring of two additional Vice Presidents of Engineering to support existing and new contracts allowing us to further execute upon our strategic plan. First, we hired Andrew Kay in May, who has over fifteen years of relevant management experience of RF filter engineering and packaging, most recently at Skyworks. More recently, in July, we hired Sohrab Samadian, who has over 20 years of IC development experience in RF and analog design at Microchip and MaxLinear. We also announced a major milestone that one of our first licensees successfully shipped over one million units of three separate bands. These shipments validate our capabilities to convert designs into production within nine to twelve months of signing a licensing agreement. Shortly after this event, one of our lead investors, Longboard Capital recognized the catalyst of one million units being shipped and proactive engage the company offering an additional $7.5 million in investment, which we closed in a private placement and extended the runway of the company approximately two additional quarters. Building on the credibility we have established with customers, in the second quarter of 2017, we entered into contracts for four new quadplexers designs. Two of which were with our newly announced seventh customer, who is an established provider of key components for the RF frontend market in China. This new customer leveraging the fabulous model, which as we have described, has the potential to transform the filter and module market by bringing new low cost entrants into the market. Many of our fabulous customers will leverage existing foundry partners as well as backend and packaging partners capitalizing on our transformative position in enabling a fabulous filter supply chain to provide an alternative, stable and secure supply chain for the emerging module market in China. Today, we have seven actively engaged customers with numerous designs for complex filters, duplexers and quadplexers under contract that given our customers current market share represents approximately $300 million of potential filter sales. As we have noted on previous calls, these designs have an average royalty rate of between 7% and 12%, which we find very encouraging as these are significantly higher than what is typical for per unit royalty base companies like Arm, Tessera and Ceva, which tend to see royalty rates in more of the 1% to 5% range. We have highlighted on our June 22nd call that our designs are converting as previously projected. More importantly, our early ISN Ready designs have converted to royalty revenues in Q2 albeit normal royalties. They happened as expected. Beyond our early customer sampling of one million units this milestone validates our technology and business model in the most significant way. Additionally in the second quarter, we contracted for tear downs on a number of devices and we are able to verify that our technology was designed into at least one OEM handset that is generally available on the market. While we cannot conduct tear downs on every new handset, it is through this process that we can not only confirm royalties but also in some cases we can validate the timing to convert designs. We have continued to mature our design capability and predictability. As we have discussed in conference call since early 2016 we expect our licensing agreements for ISN products such as ISN Ready and ISN Pilot for designs of difficult bands to have the ability to convert to revenue in nine months to 18 months from the time the licensing agreements were signed, This has now been validated and revenues are beginning to hit and ramp as expected. For more complex cutting-edge and novel design concepts, which leverage more of Resonant’s IP, we have ISN Advanced Development and ISN Technology that have design times with the potential to convert to revenues in 18 to 24 months. As we continue to develop our ISN foundry program we have characterized and developed designs for a total of seven different foundries on a multiple design and fabrication processes, such as SAW and TC-SAW. And we plan to expand the ISN platform to include BAW in the not too distant future, but before going in further, I’d like to turn the call back over to Jeff to walk us through some of the financials for the second quarter. Jeff.

[Jeff Killian:]

Thanks George. I will begin with a summary of our second quarter 2017 financial results. Revenue for the second quarter of 2017 was $220,000, compared to $156,000 in the first quarter of 2017. The revenue for the second quarter of 2017 is primarily related to upfront payments and modest royalty revenues. Research and development expenses for the second quarter of 2017 totaled $2.2 million compared with $2.1 million for the first quarter of 2017. R&D expenses remained somewhat flat as we continue to focus on our design development contracts. General and administrative expenses for the second quarter of 2017 totaled $2.1 million, compared to $2.8 million in the first quarter of 2017. The decrease primarily resulted from senior executive transition costs that occurred in the first quarter and did not impact the second quarter. Operating loss in the second quarter of 2017 totaled $4.3 million, compared with $4.9 million in the first quarter of 2017. This decrease was primarily due to the decreased G&A expenses. Net loss for the second quarter of 2017 was $4.3 million, compared with a net loss of $4.9 million for the first quarter of 2017. Diluted net loss per share in the second quarter of 2017 was $0.29 and was based on 14.5 million shares outstanding. Diluted net loss per share in the first quarter of 2017 was $0.37 and was based on 13.4 million shares outstanding. On a non-GAAP basis, adjusted EBITDA for the second quarter of 2017, which excludes non-cash charges for stock-based compensation, depreciation and amortization, was a loss of $3.4 million or $0.24 per fully diluted share. This compared with a non-GAAP adjusted EBITDA of loss for the first quarter of 2017 of $4 million or $0.30 per fully diluted share. Stock-based compensation for Q2 2017 totaled $665,000 and was $693,000 for the first quarter of 2017. Cash and investments at June 30, 2017 totaled $9.1 million, compared with $9.8 million at December 31, 2016. We believe we have sufficient cash to support planned operations into 2018. And lastly, I wanted to touch base on our share count, as it stands today. On a fully diluted basis, we currently have 14.7 million shares outstanding. With that, let me now turn the call back to George.

[George Holmes:]

Thanks Jeff. Our focus will continue to be on high value designs to have the greatest potential for higher than industry average per unit royalty revenues. And that can be converted in the shortest amount of time. As we look towards the second half of 2017, we expect to see not only more development agreements with current and new customers but also a continued push towards higher value and higher ASP designs from our customers, which will yield the potential for much higher royalty revenues. We made a significant announcement in February that one of our early customers was beginning to sample products to multiple OEMs. The significance of which was the validation of our model and that we were actually seeing design readiness in time frames shorter than expected. For that customer the added significance was that while they were in the filter business, they had never delivered filters into the mobile market. And they now had done so in less than 12 months. Today we're happy to report, we've been informed by one of our fabless filter customers, they are sampling one of our early quadplexers to multiple Tier 1 OEMs in China based on our designs. The significance of the speed at which these designs have made it to sampling in a fraction of the time that has taken other major filter and module manufacturers to deliver solutions, we believe further reduces the market risk for Resonant and further amplify our opportunities. Today we remain focused on timely predictable execution, as we drive towards recurring royalty revenues. We anticipate that as designs continue to convert to revenue. And we begin to see predictability in our customer's ability to convert their customers of our designs. It is based on the success, as we hope to be in a position to forecast as early as the end of this year, cash flow breakeven in 2018. Now before providing my closing remarks, I'd like to open the lines for Q&A and I will turn it back over to the operator. Operator?

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question is from Cody Acree from Drexel Hamilton. Please go ahead.

[Cody Acree:]

Thank you and congrats on the progress and thanks for taking my question. George, if you could just may follow-up on that last remark, forecast cash flow breakeven in 2018, I guess can you just maybe walk us through with the drivers of that?

[George Holmes:]

That's a great question, Cody. I think that, that's probably one that I need Jeff to jump in here, but from the basics perspective I think what we're trying to do is get ourselves into a position where we understand and have a predictable incredible outcomes not only from our design team, which I think we've seen at this juncture but also from a design conversion perspective from our customers. Because clearly what we have and one of the key metrics that we have to be able to do is be able to give you credible and predictable results on a go-forward basis, when we’re starting to give a forecast of what 2018 will look like. I think we're getting there. We're not there yet, we're going to measure not only our own internal execution between now and the end of the year, but also design conversions. I mean how quickly are our customers going to take the designs that we complete and get them into the marketplace and sort of paying us royalty revenues. I think we're going to see there's a little potential for us to see a number of those over the course of the next four to five months. And if we see them as we expect to, we hope to be in a position sort of talking about in what quarter, in what month we would be at a cash flow breakeven on a month-to-month basis. And I hope to be able to be in a position to do that before the end of the year. Jeff, anything I missed there?

[Jeff Killian:]

No, no, I just wanted to echo, what we said moments ago is that, on the back of that forward-looking ramp that we're talking about, we actually had in Q2 royalty revenue that our customers pay for, albeit modest we have evidence of that. And now we're watching that ramp closely and we want to give more guidance when we have the ability to have a stream and we can forecast to predict it.

[George Holmes:]

Let me add one more comment to that, Cody because this is a really good question and one that I think everybody probably has a level of interest in. I mean clearly, I think everybody and we've talked about this on a number of calls believed and we agreed that early designs would be for less sophisticated filters as we proved out our technology and those less sophisticated filters would have lower royalty revenues. And those early designs that’s kind of what they were. But as we moved thorough the quarter-over-quarter from Q2 to Q3, in Q3 we announced we did some TBD filters. In Q3 of last year those TBD filters have good ASPs. And as those products hit into the marketplace that they layer in as we expect to do, though the revenues will increment up. As we marched into Q4, we had some additional, very complex duplexers, we had the opportunity to contract with a couple of more FMIDs that had a combination of duplexers and quadplexers. And then we also had a number of our early quadplexer development in the fourth quarter. And I think of significance, as I noted on this call, we've been notified by one of our early quadplexer customers that they are sampling first quadplexers to a number of tier one OMEs in China. I think those things combined together – if those things come together as expected between now and the end of the year, we should be in a very good position by the time we have our Q4 call to start begin to give some pretty solid forecast for 2018. Long concluded answer, hopefully I answered your question Cody.

[Cody Acree:]

Yes, you did thank you very much. And so there have been some recent tear downs and you made some comments about commercialization. That was kind of a niche market of Smartphone app that’s at least from one of the tear downs, looks like it maybe from Samsung. So I guess can you just talk about how that Samsung is a serial multi-sourcer. And so is this opening a significant door for you or was this just – do you believe more of a one-off.

[George Holmes:]

Well Cody, you can get three things I want to address there. First and foremost, yes, on the mid-quarter call, we talked about the fact that we internally had done our own tear down and had verified that our technology had made it into a niche application phone. We did not report on who the customer was, that was our customer nor who their customer was, nor will we. And so as it relates to the third-party reports, about our technology, as a matter of policy we’re not going to comment on those. But what we can tell you is there is a business out there for those things to happen. Some of the companies that are in the tear down business are more credible than others. What we can say is that the credible companies spend lots of time with the companies they report on to understand their technology, their intellectual property and how those things are applied to different application – different applications. And I can tell you, as a matter of fact, we get lots of inquiries from analysts and tear down companies wanting to understand our IP. And the fact that we have over 50 patents that have actually been published and awarded is a big deal. We've got a pretty broad swath in this space covered. And so there's a lot of folks out there looking for those products and those technologies out there in the marketplace. It's just unfortunate the nature of our business and the fact that we do take our confidentiality agreements very, very seriously, we can't comment on those. That said, let's talk about a couple of other things you mentioned there. As it relates to serial multi-sourcing and does that mean there's opportunities? Let’s take that in a broad strokes, I think, a lot of things that happened last year for a number of the big OEMs created opportunities, creates opportunities for us, creates opportunities for our partners. I think the biggest thing that creates opportunities whether it be serial multi-sourcing or just the sheer demand of the marketplace, that creates the opportunity for us is the fact that the filter market which you know better than I do Cody is grossly understaffed. If you look at even the major Tier 1 filter manufacturers and module manufacturers, they don't have enough filter designers to do the work they have out in front of them. If you look at the throughput on a filter designer today in the marketplace using traditional tools, it's one to two filters a year per designer, is that the average that we've heard from some of the big manufacturers, the vendors of our platform and our tools is we don't do it the way they do it. We leverage our ISM platform, we leverage synthesis and finite element m modeling, which we're a pioneer in. And we are able to, even today, get two to three times the number of filters designed per designer with our capabilities that we haven’t had today. And those capabilities continue to expand. I think our guys are thinking that our platform should be in a position to give our individual designers the ability to do seven designs to ten designs per designer per year in the next six months to nine months. So we're very, very close to doubling our capability yet again. And now that we cover not only SAW and TC-SAW, we have a roadmap to BAW, I think that's just going to make us a better fit to support everybody. Again long drawn-out answer Cody to a multipart question, hopefully I get rid off on it.

[Cody Acree:]

No, thank you very much. And may be lastly just as you worked through your manufacturing partners and they go into different OEMs are you discerning any concentration among the OEMs? Obviously it sounds like there may be some Korean penetration you've spent a lot of time in China. I guess just where do you expect that your end products end up?

[George Holmes:]

It’s a great question Cody and I wish I could answer it for you. Because for the most part we don't know. I mean our customers are very, very secretive about where their designs end up because they don't want to get – they don't want the OEMs going around them to come to us directly and I think that's understandable. I mean our business model is to support our customers. And so to the extent that they want us to support them with their end customer we’ll do so. Probably the greatest visibility we get is like we did in February where our partner told us that they had three devices that they supplied to four different Chinese OEMs, that was kind of the level of resolution that we got from them. Our most recent conversation with our partners that’s supplying quadplexers to Tier ones, clearly we have an indication who those Tier ones might be. But I don't think that’s in our partners best interest or ours to talk about them specifically. But I think it's safe to say obviously we have spoken to the fact that we have Chinese OEMs, we have Korean OEMs that are there, that our customers are working with and we’re supporting those markets, we’re very concerned that we understand the end market applications, in particular things that are very, very, I think, strategic advantages for us and our capabilities and our technologies, our power handling. Power handling is a very big deal in China, because they don't always use Tier 1 PA manufacturers in their designs. So you have to have, from a filter standpoint, very good power handling we’ll be able to withstand some of the issues that are created by the EPAs. But I think from our perspective, that probably answers your question the best I can, that we’re focused in those two markets primarily.

[Cody Acree:]

And I guess just lastly on that, I guess how are you ensuring that you're getting paid for what you do?

[Jeff Killian:]

So our contract call out for frequent reporting from our customers, we believe our customers are reporting to it all the designs that they have shipped. We see the reports come in as evidence in the second quarter and have supported that. From time to time we're doing tear downs to make certain that we inspect what we expect in this regard. So I think that we've got the two-pronged approach to make sure that we have got the accurate information, so we can collect our royalties and report accurate numbers to the investors in The Street.

[Cody Acree:]

Great. Thank you guys, congrats.

[George Holmes:]

Hey Cody, one last thing. I think the good news for us is we tear downs, as we knew tear downs and pay for tear downs to support those activities that Jeff just described, what we do is we educate the tear down companies, so we don't have to do all the work. Obviously if they go out and identify our technology and a product we're unaware of, that creates an opportunity for us to do an audit. So we have tools that are disposal. Clearly we’ll use them we won’t be any different than anybody else, its an licensing business from that regard.

[Cody Acree:]

Great. Thanks Jeff.

[Jeff Killian:]

Yes, thank you.

[Operator:]

[Operator Instructions] And our next question comes from Kevin Dede from Rodman & Renshaw. Please go ahead.

[Kevin Dede:]

Good afternoon, George, Jeff. Thanks for taking my question. George, feel free to cut me off, I've got a list of things and I'd be happy to hop to the end of the queue. First thing, can you just talk a little bit about monitoring your progress, you mentioned seven fabs, I think seven customers but no mention of design wins. And I'm wondering if you can just sort of make sure that I've got my number straight. And take us through how we should continue to monitor your progress going forward at least from that aspect, revenues aside?

[George Holmes:]

Yes, and Kevin, that's a great question. And I think where we're at right now is as you look at it. I mean clearly I started back in February of 2016 and the team at that juncture didn't have any customers or products under contract at that point in time. And we didn't have any developments underway, so clearly to show traction I know it was really important for us to get out and be able to talk about every single design win that we've got. And two customers for the first three quarters of 2016 and we racked up a bunch of designs with those companies. And that's really the only measure, which that we had is a stake in the ground of what it is that we were doing. Today I think we've gotten past, keeping a wand relist of all the designs that we have under contract. Those designs on many occasions have morphed into multiple designs. So even for us it’s difficult to keep track of the multitude of actual sockets that we're working on. So we have gone to reporting on customers as the major gate that we're going to speak to I think that's going to be important or still talk about the wins when they happen but we are going to give a tally much more generically over 25, over 50, over 100, over 250, but I think the real measure for everybody is as you know as those things convert to royalty revenues that’s the thing we're all looking for. And clearly, they are predictors of royalty revenue success but I think the most important two metrics I think right now that we have to give you is what we believe to be filter revenues, potential filter revenues under contract which we had given now and every call since January. And we're up to just north of $300 million based on our customers’ current positions in the marketplace against the designs they have in place with us assuming they get a similar market share to what they've gotten on every other product that they sell into the mobile filter market. That's a pretty good number from a top line standpoint, it's currently attributed to seven different customers and we're giving you our best expectation of what those royalties could be in 7% to 12%. So hopefully that has given me a good range on revenue – a good range on the opportunity and the real milestone I think here is customers because that is going to continue to expand naturally what our mission is right now. And then as we convert that market opportunity 7% to 12% on $300 million and how those designs actually convert and whether or not our first customers convert 100% of them, 80% of them, 70% of them as soon as we have that metric we’ll start reporting that as well. I don't expect that to be in a position where we can give it credibly until the first quarter, second quarter of next year but it be one that I think will search track. And we’ll give you a sense of where we are, where we are going. Does that help?

[Kevin Dede:]

Yes, yes. That definitely helps. Could you characterize customers versus fab. So that I have a better feeling for, I guess where you can take your addressable market?

[George Holmes:]

Well, okay, that's a good question. The interesting thing, the numbers are the same in customers and fabs today, seven and seven. But it's not the same seven and seven. Obviously, we had two developmental fabs upfront, so those seven customers are actually laying their products on five fabs right now. I’m happy to add that to what we report on a go-forward basis. I think one thing you will probably see from us as we go forward is you've heard us talk about the fact that we've got kind of three classes of customers, which is a customer that actually designs and develop products for themselves under their own brand leveraging their own fab that's one category of customers. Another category of customer is the fabless customer, which is a customer that has its own marketing team, defines its own specifications comes to us and asks us to design a filter for them. And then leverage is one of the fabs that we have qualified in the past, we call those are our fabless partners. And then we have pure-play foundries, which is a new category that we're working on right now, which is to enable a pure-play foundry, there are SAW or TC-SAW foundry, enable them with multitude of our designs. And a repository of our IP that they could take build only inventory and deliver into the marketplace to virtually all of their customers and that would be a third category. We don't have any of those yet, we are working on them. Hope to have someone in that category here in the coming quarters but clearly as we bring all three of those to bear on to the filter market as it has existed historically for the last 10 years. The things that we're doing are incredibly disruptive because now the guys at the top of the food chain have a multitude of other players that they're going to have to compete with for those high value designs. And we're enabling that and we believe that’s going to be a significant opportunity for our partners, which will create a significant opportunity with some of those Tier 1 players as they try to get faster and cheaper design solutions. And we think we're an opportunity that's an opportunity for us to deliver those to them. So we think there is a lot of opportunity here we're just now beginning to capitalize on it. We’ve got a good 18 months under our belt right now. We're beginning to hit on all strides, we've got a very powerful engineering team. I mean that was started by our three founders still led by two of our technical founders. And now we have three VPs of engineering that are driving our advance development, our engineering operations in our product engineering teams. Such that we can rapidly deliver products to our customers even more – in a more expeditious way. So I think we're well positioned to capitalize on these three opportunities.

[Kevin Dede:]

Okay. That was great. Thanks.

[George Holmes:]

Out of your time, Kevin, I'm sorry about that.

[Kevin Dede:]

Are you okay, if I keep going?

[George Holmes:]

Yes, keep going, keep going.

[Kevin Dede:]

All right. Let's wrap Jeff in a little bit. Let's talk about the cash burn in the quarter, let's talk about the balance of royalty versus prepayment revenues. Maybe when you think that that lever tips and we start seeing more royalty versus prepayment, you think that’s the current quarter, the fourth quarter how does that change your cash burn, where do you think cash sort of falls out this quarter vis-à-vis the hires that you've made. So a lot of things sort of wrapped in there but I think there's some important topic?

[Jeff Killian:]

No, I think you're right on target, Kevin. So again guessing the opportunity to restate what we've said here a couple of times that we've got royalty revenue in Q2 albeit modest and customers are paying us for royalty. And it's obvious modest amount it's really not even called out in our $220,000 revenue, which is primarily driven by your upfront and deposits. That being said, this is one of 30-plus designs we have in and that's the whole ramp that we've been talking about. So as more designs and more ramps get into engineering samples, get into our customer's hands, get into the devices and the royalty begins to fall, you could actually say, a large amount of those 30-plus contracts hit, we said before that's giving us somewhere in the $21 million to $36 million of annual royalty revenue opportunities coming into the company and a small portion of that could clearly reaches or establish a cash flow break even on a quarterly basis. In Q2 we burnt $3.9 million in cash, all in, all checks, all payments. Working capital was down $300,000. We stayed into that $3.9 million a little bit, that's just all about timing of vendor payments. That being said, we bet cash to latest – even if we don't get royalty revenue into 2018, but we're going to watch that ramp very, very closely. That ramp can also be enhanced by enhanced deposits. As we give more of these license agreements and designs in-house, we actually have some sound customers asking for us to pay more attention to them that could warrant different types of upfront payments. As our customers ramp, another idea would be with the future royalty stream based upon their market share with those brand are there upfront royalty payments that they would be interested in making a deposit on our behalf with the right type of structure. And then we also have out there and you've seen it in our detail is that we had some warrants that were exercised in the fourth quarter of 2016. And you know, warrants may exercise from cash in time to time, and those are other sources. And so we are watching this very, very closely. But our ability to forecast revenue from customers as we’ve talked about moments ago with all these variables is the same reason that I can't give you a quarter, an estimate of when will be cash flow break even. But we think it's going to be, if you will. So we're watching very, very closely.

[Kevin Dede:]

Fair enough, Jeff. Is there anything sort of near-term maybe that you can speak to where we could actually see maybe royalty start to outpace deposits and prepayments? Would that balance in your quarterly sales mix changes?

[Jeff Killian:]

I can't think of anything off the top of my head. We would be putting out there. That type of detail usually is in our earnings release like we had this afternoon or in our related 10-Q. And George and I, to be honest, have not talked about it. If there was a milestone, how could we do a press release in a quarter without getting into a 10-Q type of detail footnote disclosed through back of our revenue and its mix? And so I can't think of a milestone that I can hang my hat on to answer that question except for the Qs in the earnings releases.

[George Holmes:]

And I think, Kevin, from a milestone perspective, we're going to be – we're so focused on making sure that not only we’re executing and delivering, but our customers are executing and delivering. And making sure we're supporting them when they need our support. And making sure those things are happening very predictably. Those are the tools that we're going to have that we're building – we believe we're going to have in place as we credibility and predictably execute and deliver, and our customers do the same between now and the end of the year that is going to give us the ability when we have our Q4 call to start giving you greater visibility into the kinds of things you're looking for here and also greater visibility into when we believe we can get the cash flow break even on a month to month, quarter to quarter again hopefully on an annualized basis. And we believe we’ll be in that position. Our current expectation is be in a position to talk about on the Q4 call.

[Kevin Dede:]

Okay, fair enough. Can I keep going?

[George Holmes:]

Yes, sure. One, two more questions and then we’ll call it, if that's okay.

[Kevin Dede:]

Yes, no problem. I’ll go to the back of the queue because I have more than that. Thanks, George. All right. So can we talk about how maybe the number of design wins per customer has changed or maybe how the number of turns or spins per design has changed?

[George Holmes:]

Both great questions. Clearly you have a trajectory for the number of designs per customer that happened in 2016 as we saw our early customers when we only had two ramps from two and three designs, respectively, to having double, triple and quadruple those number of designs with us by the end of the year. And we're seeing that same kind of behavior with the new customers that we come – that come on board with us. Customers typically want to come in, do some work with us, validate the work that they're doing with us, and then extend the work that they're doing with us. We feel very lucky that one of our newest customers gave us two quadplexers to deliver on to two different foundries. Tremendous challenge gives us great opportunity, gives them great flexibility if they want to drive that into the market quickly and ultimately be in a position to support a large number of customers that they have in the China market. As it relates to turns, I think we talked about turns specifically on our last call. And where we talk that using traditional methods that you’re a typical, filter manufacturer, depending on the complexity of the design could have turns to get products into the marketplace ranging anywhere from 7 to 20 turns to get a product into the marketplace, and sampling, and ultimately delivering it in volume production. We have actually had designs that got to customer sampling in a single turn, but the expectation we have is three to five. That's what we budget, is three to five turns, and we're well within budget right now. We are not reporting on the specifics of that, but it's in that range which is usually less than half what the traditional kind of benchmark per competitiveness has been historically in the marketplace.

[Kevin Dede:]

Okay. So George, I threw them out there sort of open ended, I guess what I'm hoping is that you might think about a little bit and maybe you can talk to us next time. And maybe offer a little more insight just on how those metrics have improved. Last question for me is just on – mentioned that you had of your BAW roadmap. I wonder if you could talk to some of the road markers and the signs along the way that sort of we can look out for you to see how you're making progress towards that end.

[George Holmes:]

It's a great question, Kevin, and it's premature for us to talk about that. That’s probably going to be something we'll be able to talk about in the Q4 call. As we make progress this year on the early developments, we're basically right now in the process of quantifying the requirements, so we’re in a requirement to development stage for that. BAW is a completely different architecture as you well know. Although we do have some of the most broad reaching patents in the area of finite element modeling, it’s one of the areas that we're going to spend. A lot of time trying to understand and ultimately if we end up doing that project with a partner it will be something that we have to take off the table from a discussion standpoint. So it'll depend whether or not that project is so funded or whether or not it's funded by a partner, whether or not we're going to be in a position to talk about in further detail.

[Kevin Dede:]

Fair enough, fair enough. But there's no question, I mean given the comprehensive applicability of finite element modeling that you'd be able to bring that approach in that substrate?

[George Holmes:]

We're quite confident that we’ll be able to do that.

[Kevin Dede:]

Thank you so much George for all the latitude and all the detail. Greatly appreciate it.

[George Holmes:]

No worries. Thanks, Kevin.

[Operator:]

Thank you. This does conclude the question-and-answer session. I’d like to turn the floor back over to Mr. Holmes for any closing comments.

[George Holmes:]

Great. Thank you, operator. In closing, we believe that we've demonstrated six solid quarters of repeated execution ahead of our expectation. With the milestones achieved this quarter such as royalty revenues, verification that our solutions are readily available in phones that are in the market today, and now with this latest news of early sampling of quadplexers to tier 1 OEMs in China. So at this stage for Resonant, and its customers, and its investors to be successful. Thank you again for your attention. Good bye.

[Operator:]

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