Resonant Inc.
Q3 2017 Earnings Call Transcript

Published: 10 Nov 2017

[Operator:]

Greetings, and welcome to the Resonant Inc Third Quarter 2017 Earnings 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 quarter ended September 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 call. 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. We continued our momentum in the third quarter as we demonstrated seven straight quarters of execution. Most important we transformed from a purely development stage company who won focus on customer engagement, execution and now commercialization. Partial with our execution has been the disruption and transformation of the Filter supply chain that Resonant is enabling by giving due entrants the ability to enter into the market place quickly and efficiently. These include fabless filter companies and pure play foundaries. Before jumping into it, I would like to highlight a few key achievements that happened during this last quarter and since our last call. An independent third party attribute our technology to being implemented into a tier one phone that is currently available on the market. One of our fabless filter customers is sampling one of our early [indiscernible] to multiple tier one OEMs based in China. We believe the significance of the speed that we with these designs have made it into sampling in a fraction of the time that has taken other major filter and module manufacture deliver solutions is incredible. Further this complex was design on a cheaper process which further validates the value of our ISN tools to our customers. Most recently we announced the one of our customer is qualified a full band filter, which they believe meets the HPUE specifications for China mobile, and is being delivered on a saw or surface platform something that no other company has been able to do. It has what we believe to be equal to or better performance than many of the [bar] and FR solutions on the market to this application. Most importantly it is being delivered by a company who wasn’t capable of delivering complex filters to the market before they engage with Resonate. For our new investors that may be joining the call for the first time, I'm going to turn things over to Jeff to let him briefly touch on who Resonant is and what we do. Jeff?

[Jeff Killian:]

Thank you, George. In the nutshell, we design a radio frequency or RF filters and now extending that capability into modules for mobile devices using our very robust and powerful set of tools, intellectual properties and world-class team of Ph.D. 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 and filters, which are necessary for successful use of this mobile data, has and will continue to increase exponentially. To help to simplify this story, we are creating a series of animated videos that you can find on our website. The first list published last month which described our business end-to-end. Look for our future announcement regarding a video that clearly describes filters and what they do. We expect to produce two more videos this quarter completing the series with a video of our established programs. Presently, there are more than 40 billion filters sold each year with the value of approximately $8 billion and experts expect the market to continuing growing in a meaningful way reaching $11 billion by the year 2020. There are remain significant constraints on the industry both in terms of complexity of these filters as well as constraints on the number of engineers to design these filters. And for Resonant, we use our patented, infinite, simplified network or ISN software suite to enable filter and module manufacturers to meet required specifications and what we believe to be have the time and have 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 the filter fab to create designs by working closely with our existing foundry partners and leveraging their position in the supply chain. In addition to enabling the fabless filter segment, we are working with pure play foundries 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 like business model that keeps cost down and offers us very high margins on the revenues we collect. As noted in George's opening remarks. We continue to retire risk with seven straight quarters of execution. For those of you who will full -- directly and for those of you on this call and we haven't met yet we want to emphasize the fact that this will not be distracted and will continue to have laser focus on execution and delivering shareholder value which begins with the strengthening of the three legs of our stool which we've noted, are our team, tools and technology. Let me touch on each of these. For the team, we continue to add key members to our team with deep industry experience. This year we added two Vice Presidents of engineering to support existing and new contracts allowing us to further execute upon our strategic plan. In May, we've hired Andrew Kay in May, who has over 15 years of relevant management experience of RF filter engineering and packaging, most recently at Skyworks. In July, we hired Sohrab Samadian, who has nearly 20 years of IC development experience in RF and analog design, most recently of microchip and max linear. Also in July, we added Eugene Rankin to our Board of Directors, she has over 25 years of relevant licensing of intellectual property, governance and compliance and regulatory experience in a semiconductor industry. In August, we have appointed Jangwon Jung as the Country Sales Manager for Korea and concurrently opened our office in South Korea. He has extensive experience with other US based companies in supporting and building our presence in the APAC region. He also has an in-depth knowledge of the market, specifically the RF frontend market, which made him a clear choice for developing and managing our operations in the region. By the end of Q4, we will also establish a presence in China to support our many customers there. A key part of our hiring strategy has been to bring our team members who have the capabilities to support our customers along with the necessary experience required by the handset OEMs to get parts qualified. So, essentially, we’ve been adding to our capabilities which will ensure a shorter time to overall revenues. Currently, our technical team numbers 33 employees. Tools, we’ve continued to develop our IHM platform to address the increasingly complex design challenges in the RF frontend. These enhancements include, Process Design Kits or PDKs for the filter foundries to enable a seamless interface with the Resonant tool set. TC SAW or Temperature Compensated Surface Acoustic Wave design capability to take advantage of the progress in the TC SAW processes. Module interface design capability, Resonant can now work with the model designers to optimize the complete subsystem performance. We’ve also recently added the capabilities to support our customers with OEM qualification by adding the capabilities to perform OEM handset test and related quality and reliability test. It is these capabilities that we believe will support our goal of shortening the time it takes OEM to qualify devices and a result shorten the time to revenue for Resonant. Technology, as we have continued to invest in expanding our IT footprint we have engaged storing IP to help us augment our IP portfolio and to aggressively leverage it to increase shareholder value. As you may recall, we entered 2016 with zero customers under contract and no JDAs and no licensing agreements. We now have eight customers, four of them fabless and three members of our foundry program. We’ve contracted developments for over 35 sockets made up of complex filters, duplexers and quadplexers with an approximate market potential on $390 million in growth filter sales. Of those designs, greater than 85% had royalty agreements already negotiated and included upfront payments. With that, let me hand it back over to George Holmes.

[George Holmes:]

Thanks, Jeff. I think it’s clear from our progress that our customers are happy with the work we are doing. As we have not only significantly broadened, but we’ve deepen our relationships with them in a meaningful way, with increased volume and complexity of designs. In fact, one key touch point for investors is that nine of the sockets under development are for quadplexers for difficult bands. As we have noted on past calls, we are doing quadplexer designs in SAW/SAW, SAW/TC SAW and TC SAW/TC SAW and we believe that not only with our partners have the shortest development times for these products leveraging our ISM platform but also the greatest pricing and competitive flexibility because of the process technologies we are able to execute these complex designs in. Now I'd like to touch on three key areas that are destructing the future supply chain. Off course we paid significant improvement in design efficiency. We are completing our designs in a much quicker timeframe and are completing more complex designs for our designers. We've improved filters still use existing impact in methods either SAW or TC SAW. Depending on the requirements and capabilities of the given foundry our technologies have the ability improve design efficiency as well. This is an accomplished via shortage and design times and build ring designs utilizing the lower cost manufacturing processes. Yet with the performance comparable of designs using the higher cost manufacturing methods. In fact, our first fabless filter company began sampling SAW/SAW quadplexer with competitive industry performance through the tier one OEMs. In addition, one of our customers recently qualified a full Band 41 filter, which is also being delivered in SAW. It has what we believe to be equal to or do a better performance to many of the [bar of F-bar] solutions on the market today. We've made great strides in design precision as well, producing design for their more complex with fabrication processes at a lower cost. Designs historically have owned and delivered in bulk acoustic wave and film bulk acoustic wave resonator designs are now being done on SAW and TC SAW, resulting in superior performance with steeper rejection. These process improvements have the ability to significantly disrupt the filter supply chain by adding new entrance to the high-end filter market. Second, this year we've added several new fabless filter companies to our staple of customers. Companies with their own product marketing that are now able to specify and manage a third-party foundry to design and build filters. This creates additional disruption of supply chain adding new entrants that are already in the supply chain. Third, we've added pure-play foundaries through our ISN family program making it possible for anyone to buy and resell a design c Causing further disruptions of the supply chain. By focusing on the development of key partnerships is part of our distribution strategy. We've introduced three categories of new competitors and the ones dominated and virtually closed our RF frontend market. Now I'd like to walk you through 2017 to highlight some of our accomplishments for this year, which is marked by an execution and validation that is significantly de-risking our business. In February of this year we made a significant announcement that one of our early customers delivered samples. Over $1 million units of three complex designs to multiple tier one OEMs in China based on our work. Resulting in an earlier than expected major milestone while validating our technology and business model. These shipments validate our capabilities, convert designs into production within 9 to 12 months of signing licensing agreement. Shortly after this event, our lead investor recommends a catalyst of ¥1 million being shift and proactively engage with the company offering an additional 7.5 million in investment which we closed in a private placement and extended our runway by approximately two quarters. Building on the credibility we established with customers in the second quarter we entered into contracts for four new quadplexer designs. Two of these designs were with an establish provider of key components for the RF front-end market in China, who is leveraging the fabless model as I described earlier. Also in the second quarter we contracted for tear downs on a number of new devices, and we're able to verify that our technology was in fact incorporated into at least OEM handset that was generally available on the market. Beyond our early customer sampling of 1 million units this milestone validates our technology and business model in a most significant way. Although we cannot conduct teardowns on every new handset is through this process that we can not only confirm royalties but also in some cases we can validate the timing to convert designs. Shortly after we see the first royalty revenues albeit nominal, they hit as expected. During the third quarter we see third party validation, our technology was incorporated into a tier one niche application phone in less than 12 months from signing a licensing agreement. If true that hardware would be needed to be designed by the OEM om approximately four to five months from signing the licensing agreement or completing a band 2 filter in SAW. As compared to BAW that has typically been used for band two filters this was an industry first. In the last conference call, we discussed that one of our establish filter customers is currently sampling a Resonant design quadplexer to multiple tier one OEMs in China, the speed at which this was designed and made into sampling is a fraction of the time that has taken major filter modeling factors to deliver solutions similar to this. This is the significant achievement and we believe further reduces the market risk for Resonant and further amplifies our opportunity. In August we announced our 8th customer, a leading provider of RF front end components. This new licensing agreement covered a licensing of five bands for use in modules, for using vapor level packaging and one using chip skill packaging. Discussed from our announced they would be leveraging ISN foundry program whose ecosystem includes non-captive soft foundries as well as back end and packaging partners enabling the first fabless SAW model to provide an alternative stable and secure supply chain for our emerging market, module market in Asia. Then a few weeks later in September, we actually signed our first ISN foundry engagement agreement with a tier one component vendor and to our foundry, yet again we believe this de-risked our to go market strategy by providing alternatives in the mobile supply chain. This agreement with our leading foundry partner who is also qualify as tier one vendors helps extend our fabless filter model eco system and offers yet another choice to our fabless model customers. working jointly with key partners who are already engaged in supporting the massive filter market will provide yet another significant competitive advantage to our customers. Just one month later we continued our momentum by signing our second ISN foundry engagement agreement with an established branded filter company, serving China, Korea, Taiwan and United States. This broadened our offerings to include the vendors full foundry services and capabilities for our back-end packaging. Yet again this provides licensees with more foundry choices and services in the emerging module market. Also in October we closed the financing for 9.3 million which Jeff will cover in more detail in his remarks. Our particular note is that with every raise since I join the company in early 2016, we raised a total of over 34 million with a higher stock price, in addition each raise was essential to furthering the growth of the company, both in terms of technology as well as tools and our team. Towards the end of October, we continued our momentum and signed our third ISN foundry agreement with an established surface acoustic wave foundry serving the RF market. This latest member of our ISN foundry program is a full-service foundry with both filter and gallium arsenide foundry capabilities. The company provides top foundry services to tier 1 filter vendors and is currently being utilized to process designs for two of our licensees. Clearly engaging with potential customers who are established providers of foundry services in the RF supply chains enables these news entrants to enter the filter market, adds stability to the overall supply chain of disrupting the dominance of currently entrenched suppliers. But before going further, I'd like to turn the call back over to Jeff to walk you through some of the financials for the third quarter. Jeff?

[Jeff Killian:]

Thanks George I will begin with a summary of our third quarter 2017 financial results that we provided earlier today in our earnings release. This earnings release now allocates depreciation and amortization expense by R&D as well as G&A in order to assist the users in making comparisons. Revenue for the third quarter of 2017 was $0106,000 compared to $220,000 in the second quarter of '17. The revenues for the third quarter '17 is primarily related to upfront payments and modest royalty revenues. Research and development expenses for the third quarter of 2017 totaled $2.3 million compared with $2.4 million for the second quarter of '17. The small difference was primarily related to reduced hiring expenses. General and administrative expense for the third quarter of 2017 totaled $2 million compared to $2.1 million in the second quarter of 2017. The small difference was primarily related to headcount changes. Operating loss in the third quarter of 2017 totaled $4.2 million compared with $2.3 million in the second quarter of '17. This decrease was primarily due to reduction operating expenses. Net loss for the third quarter of 2017 was $4.2 million compared to a net loss of $4.3 million for the second quarter of 2017. Diluted net loss per share in the third quarter of '17 was $0.28 and was based on 14.8 million shares outstanding. Diluted net loss per share in the second quarter of 2017 was $0.29 and was based on 45.5 million outstanding. On a non-GAAP basis, adjusted EBITDA for the third quarter of 2017 which excludes non-cash charges for stock based compensation, depreciation and amortization was a loss of $3.4 million or $0.23 per fully diluted share. This compared with non-GAAP adjusted EBITDA for the second quarter of 2017 of a loss of $3.4 million or $0.24 per fully diluted share. Stock based compensation for Q3, 2017 totaled $666,000 and was $665,000 for the second quarter of 2017. Cash and investments at September 30, 2017 totaled $13.5 million compared with $9.1 million at June 30, 2017. At the end of the third quarter, we announced a $9.3 million capital raise, this raise was closed in two separate tranches with $7.6 million received in September 2017 and the balance was received early in October 2017, which is not reflected in our Q3 results. Excluding the capital rates in Q3, the company use $3.1 million in cash during the quarter which is down from $3.9 million used in Q2. The reduced cash burn was due primarily to lower operating expenses and the timing of working capital changes. We believe we have sufficient cash to support plan operations into the second half of 2018. And lastly, I wanted to touch base on our share count as it stands today. We currently have 16.8 million shares outstanding. With that let me now turn the call back to George.

[George Holmes:]

Thanks, Jeff. Our focus will continue beyond high value designs that have the greatest potential for higher than industry average per year royalty revenues and that can be converted to generating royalties in the shortest amount of time. As we look towards the final quarter of 2017, we expect to see not only more development agreements with current new customers but also continue to push towards higher complexity and higher ASPs designs from our current customers, which we yield to tend much higher royalty revenues. Today we remain focus on timely and predictable execution as we drive towards recurring royalty revenues. We anticipate that as designs continue to convert to revenue, we will begin to see predictability in our customer's ability to convert their customers to our designs. Based on these successes we hope to be in a position to forecast when we will reach that first cash flow breakeven quarter. Now, before providing my closing remarks I’d like to open the lines for Q&A. And we’ll 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] Our first question comes from Cody Acree with Drexel Hamilton. Please proceed with your question.

[Cody Acree:]

Thank you, guys, for taking my questions and congrats on the progress. George maybe you alluded to this you and Jeff throughout your script about being included through this teardown in a niche market or niche applications smartphone at a major OEM. And it sounded like in George’s discussion that there was some inclusion of modest royalties during this quarter. Can you maybe just verify that that you’re seeing some level of initial royalties. Is that from this application if you can identify that? And are there any broader indications of possible implementation throughout that OEMs portfolio or into other OEMs that you have visibility to?

[Jeff Killian:]

Hi, Cody this is Jeff. Let me take the first part and hand it back over to George. So, yeah absolutely we’ve talked about the million part shipment that we announced in February and those engineering sample that actually made it into different hands and we’ve seen some discontinued progress modest royalty revenues, modest royalty revenues we referenced those phrases in Q2 and it continues into Q3 and that niche phone that was torn down by others that had evidence of our design, we too are receiving some modest royalty revenue for the last couple of quarters and so like we've said in our script it's really on time with our forecast of taking designs into royalty revenue we're seeing them at exactly the right time with where we originally predicted and we are looking forward to have ramp as we get into a higher volume models and so I will hand over to George for the second part.

[George Holmes:]

And I think that for those over the last two spent our lives selling into the tier one OEMs clearly while there is no direct predictor that you'll be successful with follow-on design wins of a very sophisticated design clearly, it's not unusual and I don’t think that this is going to be any different. I think that it is that ID continues to perform and they continue to see that it is performing as expected. I think there is a really good shot that we will see it designed into other platform no guarantees and clearly, it's going to have to continue to remain to be cost competitive continue to remain to be performance competitive but as it continues to do so I think the opportunity is there. And as a follow-on to that, if it's going to happen with that part it's going to happen sometime in 2018.

[Cody Acree:]

And so now you have eight customers who have three foundry partners each quarter you've given us some number of kind of a gross revenue potential from your customers that we can then kind of back into some kind of assumption of a royalty rate. How do you see the addition of these three foundry partners impacting that linear gross opportunity? does that start to accelerate this at meaningful way or is it -- I guess just how do we think about your expansion of your market opportunity?

[George Holmes:]

That’s a real deep question Cody and I think we're seeing here from a market opportunity standpoint, I think everybody on the call highlight that we did put up a new investor deck on our website it went on after the close today and for those you that did not have an opportunity to look at it you'll see that we've now depicted very clearly how we view the market. We've been talking about this now for some time where we said we started our business engaging with vertically integrated companies and we started the expansion of that footprint really modeling after what happened in semi-conductors into fabless companies and then into most recently into pure play foundries. We've had some good success there this year and what you see it's very graphically depicted on this slide is that we've taken what was less than a dozen major suppliers that we had access to that were fully integrated device suppliers and our filter stakes and now because we've added RF components suppliers as potential candidates to be fabless filter manufacturers and now the RF passive manufacturers as well we've kind of tripled or quadrupled the number of potential customers now attacking this overall market. And then you add to that the foundry component that just makes that opportunities set of customers even larger and for us it's the one of the many strategy clearly all of these companies have their own sales force if they are going up for the OEMs I mean that is ultimately at the end of the day that's where the greatly trends starts as when you get the OEMs buying your parts and volume and what we've done which we believe has the potential to be very disruptive the overall supply chain as we given those OEMs more opportunities, people to buy from and by giving them more opportunities we think that creates more opportunity for us. And so how has that grown from last quarter to this quarter, the number continues to grow the total devices under contract based on kind of the NAV and market share numbers is just north of 380 million, which based on our current contract in royalty rates a number for us at roughly in the 42 million range, it’s a little bit higher than the numbers we have last year, it's somewhere between 380 and 390 is the number we're we at, from our devices under contract and that equates to 7% to 12% royalty rate is just 40 million potential licensing revenue.

[Jeff Killian:]

And I think George just to echo, when we first started trying provide this data to help the investors and the analyst understand the market, I think the first time we depicted our customers market share based upon their ASP, we're in $280 million range earlier this year and so as we said today its inched up to 380 million to 390 million, so strong progress in that area.

[Cody Acree:]

Thanks, you guys for the detail and Jeff, just one last question for you, you mentioned in your script just the infrastructure build out to support the growth, you're expecting. Can you talk about what that might that impact might have on your OpEx or your burn rate going forward?

[Jeff Killian:]

Certainly, we had some, our timing was good in Q3, we were good stewards of cash, our operating expense was actually down modestly in both categories quarter on quarter, we continue to get some benefit from there working capital. So, our cash burn before after you take away the capital raise we were down to 3.1 million, so a pure cash burn prospective before capital raises, we have come down from 43 to 39 to 31 and that’s being said we're now getting full quarter cost, critical, new additions we have to our staff that we highlighted in our script, VP and key test engineers and others. So, we will continue to build out our headcount as though we should see that cash burn tick up as we go back to increased headcount to support our increased customer and contract basis. So, we will be spending more in the future then we did in Q3.

[George Holmes:]

And I think one other things with key here and Cody let me just pile on to that because I think it's important to note and Jeff discussed it during the prepared remarks, that I think it's something for you and for everybody on the call. If you look at the heads that we're adding today, clearly, we’re investing in the infrastructure and build of our core ISN platform. But one of the things that we started doing starting midyear and really has continued today is we're adding to the capabilities we have to support our customers to take the products the last mile. That’s something that our customers weren't really ready for us to help them with in the first half of the year, we got engaged, had some really good success midyear and we have continued to invest in that area whether it be people where we hired key talent out of some of the major module manufactures that are focused primarily on handset testing and how to get RF devices qualified enhancements, we get guys that joined our team that are specialist there from the big module folks. And then we will also buying the equipment and partnering with companies that have equipment in this area that do things like reliability testing, long-term life testing and things of that nature so that we can help our customers actually shorten their time to ultimate conversion of their designs into OEM handsets. Hope that helps.

[Cody Acree:]

It does. And I'm sorry George, just to clarify. You said that the cash burn would pick up a bit. Do you have any color as to the pace of that uptick?

[George Holmes:]

So, we haven't given a lot of forward guidance. But if you look at the year average, we're running about $3.8 million a quarter on average for the 3 quarters of '17. So, I expect it to be in that average run rate $3.5 million to $4 million kind of going forward based upon timing.

[Operator:]

Our next question comes from Kevin Dede with Rodman & Renshaw. Please proceed with your question.

[Kevin Dede:]

Hi guys, thanks for taking the call. So, I was going to sort of ask you to quantify expenses too, Jeff so thanks for that. But when you said you are at 16-8 outstanding. So where do you think the full numbers for the fourth quarter? I'd imagine probably just going through the housekeeping first, but just want to make sure sort of on the same page?

[Jeff Killian:]

Yeah so, the 16-8 number that we've given you would include the full capital raise. Because that's as of the 10-Q filing. So that's got capital raise in it. And every quarter we have very modest stock orders investing. So, the 16-8 to 16-9 number should be dead on for year-end.

[Kevin Dede:]

Alright good yeah, thanks. Okay. I'm wondering George and Jeff if you've been able to sort of think through the financial model. I know gross margins based on royalties are going to be minimal. But when you expect to start generating enough of them? How do you think that margins are going to fall out? Have you thought about that, is there any sort of guidance you can offer?

[Jeff Killian:]

That's a very timely question. Matter of fact our VP of Finance, Lisa Wells working very closely with our auditors as the new revenue recognition standards for contract milestone recognition going forward. And so that will be applicable on January 1. And regardless of the GAAP standard, the infrastructure that George just articulated, the key investments in people, tools and that we build out for ISN, that cost is already sunk. So, the people are here, the facilities are here, the tools they use to get our customers designed are already in place. Potentially GAAP rules will make us classify some of that cost already in the income statement up to cost-to-goods sold. But I believe it should be modest. So, as we adopt the new adapt the new GAAP standards, my suggestion is that we really focus on the operating income line, because the expenses we have in our model and in our historic number will be there regardless if I put them on cost-to-good sold or operating expenses. That you'll see that every dollar falls through in a very, very high velocity manner to the operating income as it comes in from our customers on a royalty revenue side.

[Kevin Dede:]

Okay, thanks Jeff. I guess we'll just have to keep asking you as time goes on.

[Jeff Killian:]

That's great. So, I don't have better answer we're in the process of adopting those new rules right now.

[Kevin Dede:]

No, no. I think right, of course so much of this is predicated on what you're able to recognize on the top two. So, and that's all right on the call. George, you mentioned multiple times, I guess [boasted] just sort of the increase in design cycle times. And I’m wondering if you’re any closer to quantifying it outside so that general umbrella of half the time. Given that you’ve gotten -- what is it now more than 35 socket wins. I’m wondering if you’ve been able to look over the past 24 months and give us more insight into how rapidly that design time has changed?

[George Holmes:]

Well, I think Kevin we’ve been we’ve talking about this now for almost better part of 18 months on what our design cycle times are. We’ve kind of named them I think three calls ago what we called ISN Ready, ISN Pilot, ISN Advanced depending on the time it takes to get from signing the contract for sampling of product to our customers. That’s the nine months to 12 months to 12 months to 18 months that 18 months to 36 months and then for full custom design ISN Advance, it could be as long as it takes to get the project done. I think those timelines we’ve been conservative on which is evidenced by the fact that 3-million-unit shift in about nine months is on the frontend of that nine months to 12 months, you’ve seen this teardown that happened with the Tier 1 phone, clearly that phone hit the marketplace in late February that means that that part had to get sampled to that OEM and probably October which says that we got that design done in less than six months. So, sometimes you get lucky you can get things done quickly and then make it all the way through the process, but we’re saying on average nine months to 12 months makes sense. Then as you look at customer qualification i.e. qualification at the OEM, qualification deal OEM is the thing that we are working hard on the class, we’ve talked about that on a number of occasions as well depending on whether it’s a Tier 1 OEM being six months to 12 months for qualification depending what the device is or whether there would be a Tier 2, Q3, Q4 OEM that can range anywhere from about a month through about three months. Our challis just to try view get our designs to our customers that are good enough after the first or second turn such that they can pre-sample and start preloading the OEMs and we’ve got a good five or six designs under our belt with each of our major customers at this point. And then our new customers are coming along quickly where we’re able to work with them and they are able to validate our measure to model performance, we talked about that in some detail if you recall on this most recent press release on BAN 41. I measured the model performances quite exceptional. So, that gives customers a lot of confidence that when they see a design and we are working with them on a design to optimize it that when they see the next model they can go, okay hey this makes sense lets go ahead and pre-sample that, which will shorten that overall conversion time at the OEM. We’re still going to forecast six months to 12 months for the Tier 1s and one month to three months for everybody else just because I think that’s the conservative thing and until we get a large enough sample size of products in production that are generating royalty revenues, which we said we hope to have better days by the end of this year and there are currently things that are on track that will do that.

[Kevin Dede:]

Okay. All right. That will be by the end of fear. So, at the year-end conference call the royalty give us sort of another layer deep on how that efficiencies sort of coming through and have some measure of it?

[George Holmes:]

We've provided measures of the efficiency before Kevin. I think what you are really trying to get to is not only measures of the efficiency because efficiency tells you when you model a part, what comes out the other end once you build the part, that's really what that gives you. I think what you are really trying to look for is conversion time how fast things convert and how fast do we deliver products to customers such as they are in a position to start sampling. We have historically not been a big beater of our chest when we accomplished those feats except when we get something that's massively significant like we demonstrated on this Band 41 announcement and the quadplexer discussion we had last quarter. We may consider getting a little bit more aggressive on that front and talking about the number of parts we will have, we have that are qualified with OEMs. I mean at our customers not at the OEMs so that you'll know you will have an idea of how many products are out there being sampled with OEMs. That could be possible by the year-end and there we will just have to wait and see.

[Kevin Dede:]

I think the other aspect of that is like the number of design hours and the number of returns so can you offer some insight on how you are seeing that change?

[George Holmes:]

I don’t think we are prepared to talk about that in the level of details that you are going to be happy with at this point, Kevin. I mean the things that we are working on right now that's a pretty proprietary thing between us, our customers on the number of design hours it takes for us to do designs. Suffice it to say, we've said we could do designs and so lower meant to production in less than five turns and we're doing that. You look at the market average, you cover some of the other filter companies I think you know that that's much faster than they get the products into a sample able stage when it comes to the number of turns they have to go through to get products out the door.

[Kevin Dede:]

So, I understand that the part of this strategy I guess taxable implementation now, is the design house that you want to build in China or opened can you give us some more detail on that and I guess more importantly help us to feel comfortable that you are not going to lose your IP?

[George Holmes:]

Good that are two big questions. So, we are not opening a design center we are or opening a customer support center basically in sales and applications engineering office in China, the same thing we have done in Korea. We are it's under our brand in Korea, so it's our people in Korea, we are subcontracting to another person for a full-time person that will support us but just based on the requirements to have your own entity in China we're doing it through a third party, just give us more efficient from my cost standpoint. But that person will be spending a 100% of their time out of box working for us and we are working for that person right now. We've been pretty successful on hiring folks of late and I think that's going to continue and I think we will have that person on board in the first quarter. So, I think that is going to continue to help us collapse the time it takes for us to get our customers to get them in front of the OEMs to help them close design wins. And I think that it should be fully lock and loaded as I said in the first quarter.

[Kevin Dede:]

Well, you know George I'm always relied on your view in the industry and there has been a lot of consolidation on the semi-conductor side, right seems like it all going to buy everybody. And I'm just wondering how do you think about partnering upon filters into the filter side, what's you take on, what you think some of these larger companies are thinking about and how you think they might be able to generate synergies in there process technology./ I know we have spoken before and you can see some of the guys and you mentioned today too, some of the guys that are in fact might be able to translate some of that technology, I'm just kind wondering, how you see that and what do you think the potential is that even though you're growing your customer base at 3x to 4x, what might be happening in that end market from the 20,000 foot prospective.

[George Holmes:]

It’s a pretty big question, and pretty tall order on this call I think, and I think that might good decision for us to take offline but I would tell you in general as we look at the market today for us with all this stuff that’s going out there in the market place, all the things that are going on whether it be consolidation, whether it be guys, divesting from different business units and what not, what we can tell you from what we see the market opportunity for what it is that we do it continues to grow. When we sit back and talk to companies and provide them the opportunity to get in and get engage and whether to them buy from a tier 1 company to work with us, to design their own filters, have it manufactured and fabricated on the third-party foundry, they think that’s a great idea and we see that opportunity is going to continue to grow, we think that’s going to add tremendous amount of disruption in the overall supply chain. As you know the big OEMs like to have choice, they don’t have has much choice as they would like to have today and you bring big tier 1 semiconductor companies into the play, into this space that has been dominated by four or five guys and give them the opportunity to sell parts to the tier 1. I think that you're going to see that they are going to get some market share pretty quickly and we're going to be enabling that so. I think net net, while I'm not answering your bigger question, I'm telling you that I think from market opportunity for us is going to continue to grow, this is why we're focusing in the areas, we are focused, is why we have continue to expand, create this whole fabless segment of the market place now enabling a number of different companies in that space to go out and compete and I think that the non-captive foundry business is going to be very, very critical to the overall success that we have and the disruption we're creating in the market place. I think I can virtually guarantee you're going to see as bring out more partners in that area as more companies see what we're doing, get excited about it and want to lean in and partner with us in those areas and I think I'm pretty confident that you're going to see more activity in that area from us between now and the end of the year.

[Jeff Killian:]

And the other issue Kevin to echo what George said on this consolidation in market place is that our tools work agnostically across all processes. So, we were not a winner or a loser with the consolidation, we’re winner on both sides.

[George Holmes:]

Well that comes to play from everything that we talked about right is, we sit back and we work to enable the masses, in fact don’t requirements changes or process technology today. We work on SAW and TC SAW, we got active work underway and looking how can take our tools that we believe is best in class and apply it to bond FR. And we're actively looking at that and comparing that to what market opportunity would ultimately generate for us. But clearly there is customers that we have today that have a multitude of different process technologies in their goody bag, in fact we can support more than one is a good thing.

[Operator:]

[Operator Instructions]. Our next question comes from Quinn Bolton with Needham & Company. Please proceed with your question.

[Quinn Bolton:]

Wanted to just ask on a Band 41 that you announced is now a sampling. It looks like you guys completed that design within sort of under that 12 to 15 months timeframe. So that's good to see now that its sampling to OEMs. Sounds like we should be thinking that could get designed into a phone perhaps as short as one to three months if it's tier 2 tier 3 OEM and maybe 6 to 9 months if it's a tier 1 OEM?

[George Holmes:]

Yeah, I think that's safe to say for sure. That part of the sampling I think they've been sampling that product now for well over a month. So, we feel very good about it. I think it's the first of many in that kind of frequency range that you'll see from our partners and this is just the first one. And the nice thing that we have and that we can bring to bear is that fact that not only do we designs on SAW we're doing them on TC-SAW as well. So, we could get broader temperature ranges and what not for some of the other market requirements perhaps maybe delivering a product that would support strength as well. Today the part that we have focused on maybe because it’s the biggest market for it is the Band 41 for China Mobile and this part meets it, handily beats the best products out there in the marketplace handily and does it for APV.

[Jeff Killian:]

What's interesting about that comment, and Kevin hit on it to just a moment ago is our tools make our customers faster. And faster for them is very important but not all customers knew they are fast as each there. So, for us if maybe all can do it 1 month or 3 month I think the best-in-class new better than clearly once you're taking longer due to process but regardless our tools make our customers faster and that means they are more competitive in the marketplace. So, it's hard to put general range of different customers.

[Quinn Bolton:]

And I guess you guys have some images in that press release that show your better performance than the leading broad-based Band 41 filter. And I'm just wondering you guys been sampling to OEMs now for about a month. Have you guys getting feedback that at the OEM level that they're doing the test and confirming that kind of better performance or is it perhaps too early for that kind of feedback yet?

[Jeff Killian:]

So, I think that we are getting feedback from our customers. They're telling us mostly where they're sampling and how that process is going. Some customers are more forthright with where they sample, others it's still hard to pull out. But we do track it very very closely. And we're beginning to get some very strong feedback. In some cases, their sales channel is now pulling on them to make sure the release is out there because our design part and whether it would be a discrete filter duplex or on a module is a very very competitive from a specification process. And in most cases, is at a lower price point on their ASP. Because clearly, we put it into a cheaper process than what they were doing before. So, we're even hearing in some examples where sales channels are pulling our design and to make sure that the engineers will leave some sooner than later. So those are very, very favorable for us.

[Quinn Bolton:]

Okay. The second question I have just kind of regarding some of your quadplexers, looks like an increasing number of your designs are now for quadplexers. [Indiscernible] a week or so ago in their conference call talked about that the China market and I think China mobile in particular looking at potentially lowering the price where they require carrier aggregation support from RMB3,000 price level down to about RMB1,500 price level and they said that if that happens the amount of phones that China that could go carrier ag from like 15% to 55.0% which sounds like you could potentially significantly expand the market for frontend devices in China but perhaps more importantly for quadplexers. Are you guys hearing sort of similar things I mean you getting in pretty excited about the opportunities for quadplexers in the China market? Thanks.

[George Holmes:]

That is just a great insight because when we sit back and you look at it and you look at some of the companies that are selling quadplexers into the China market today they have been struggling from a margin perspective, because their fundamental bill of materials cost is significantly higher than a solution that we’ve delivered on [indiscernible] TC SAW or even TC SAW - TC SAW, so you’ve got to believe that the markets is going from 15% to 50% and our customers have the ability to deliver those solutions faster, better, cheaper and deliver them on lower cost processes that’s going to put them in a very good stead as that market explodes in China. So, I think the answer to your question is fundamentally yes, we’re hearing that, we’re getting pushed very, very hard to deliver parts in - we got nine designs in our contract right now, we’ve got a bunch of parts that guys want to get into the marketplace in the first half of the year. We’re currently forecasting quads really kind for us hitting volume ramp in the second half, but if they can pull it in they will pull it in and I think you’re talking and you hit the nail on the head on what’s driving it. So, I think that our customers are going to take market share away from the guys that are in entrenched, they’re going to do it because they’ve got parts that are as good or better and they are cheaper.

[Operator:]

Ladies and gentlemen, we have the reach the end of the question-and-answer session. And I would like to turn the call back to George Holmes, Chief Executive Officer of Resonant for closing remarks.

[George Holmes:]

Thank you very much. In closing, I want to reaffirm that this team will not been distracted and that are laser focused on execution and building long-term value will continue. We will continue to capitalize on Resonant's exceptional technology, growing market opportunity in the marketwise and a world class team of engineers, key management and exceptionally strong Board of Directors. I’m extremely proud of the accomplishment that we have today and strongly believe our technology team and tools will bring a tremendous amount of value to the prefer industry for resulting in predictable, recurring royalty revenues for the company. In conclusion, we thank you for your support. And thanks again for your attention.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. You may now disconnect.