Resonant Inc.

Good day and welcome to Resonance fourth quarter and full year 2020 earnings conference call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Greg Felesnik from the MZ Group, the company's investor relations firm.

Thank you, operator. Please note we will be using a presentation during today's call, which is accessible on the events page of Resonance IR website. If you're with us today via phone, please go to the events page to either view or download the presentation to follow along. Turning to slide two. Earlier this morning, Resonant released financial results for the fourth quarter and full year of 2020. The earnings released that accompanies this call is available on the investor section of the company's website at www.ir.resident.com. Additionally, some of the information in this conference call contains forward-looking statements that involves risks, uncertainties, and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, and anticipate in similar variations identify forward-looking statements, but their absence does not mean that the statements are not forward-looking. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Residence'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 circumstances after the date of this call. With that, it's my pleasure to turn the call over to the Chairman and CEO of Residence, George Holmes. George, the floor is yours.

Thank you, Greg, and thank you, everyone, for joining us on today's call. I'd like to welcome you to the fourth quarter and full year 2020 financial results conference call. Joining me today is Marty McDermott, our CFO, and Dylan Kelly, our COO, will be joining for the Q&A. Turning to slide three, 2020 was a remarkable year for Resonant as the trend towards a connected world continued to accelerate, and therefore, so did the need for effective RF filtering technologies. From mobile video conferencing and streaming to emerging applications such as autonomous vehicles and remote surgery, demand for mobile data continues to grow exponentially. Our proprietary technology platform, at its core, enables the design and manufacturing of wide bandwidth, high frequency RF filters for high performance networks. As the need for data ramps up in our society, we are proud to be able to continue to play a critical role and delivering a new age of connectivity. Let's look at some of the key highlights from our fourth quarter and full year 2020. Revenues for the full year were a record $3.2 million, which is over 330% greater than our revenues in 2019. Let me remind everyone that these are royalty revenues, which suggest the equivalent annual component sales of roughly $30 million based on our historical average royalty rates of approximately 10%. Over 6.9 million units developed with our ISN design technology were shipped by our customers to OEMs in the fourth quarter of 2020, representing a year-over-year increase of over 200% and a sequential quarterly increase of over 65%. This momentum allowed us to hit the milestone of our customer shipping over 50 million RF filters designed with our ISN design technology. This represents real production unit volumes that have been shipped and sold by handset manufacturers to consumers, not just sample or distribution shipments. Even in light of our accelerated unit volumes in Q4 and record revenues for the year, the most significant developments remain with our breakthrough XBAR RF filter technology which is quickly being recognized as one of the best solutions in the industry to unlock the future of next-generation, ultra-fast, high-frequency networks and the applications these networks enable. We continue to work closely and execute upon our strategic partnership with the world's largest RF filter manufacturer to bring XBAR to the market for mobile handsets. We passed the second milestone of the agreement ahead of schedule in October 2020. which included major technical milestones in achieving previously determined performance, packaging, and initial reliability targets. Upon passing this milestone, we received a $2.5 million royalty payment, and most importantly, are now moving into the mass commercialization and high-volume manufacturing phase of the agreement. More on this later, but all of our work with this important customer has remained on track and ahead of our published schedules. In addition to XBAR's progress on the mobile side, we also showcase the ability to successfully manufacture XBAR filters for non-mobile applications using a standard surface acoustic wave or SAW front-end process at multiple foundries. This fundamentally validates our ability to produce these filters faster, better, and cheaper by using only proven high-volume manufacturing processes, as opposed to traditional bulk acoustic wave or BAW foundry processes which are more complex and expensive. To date, six separate foundries have now successfully manufactured our XBAR filters, which again is an industry breakthrough. Why? Because it demonstrates XBAR's simple manufacturing process, applicability to high-volume foundries, and fundamentally lower cost. Indeed, 2020 is a momentous year at Resonant, and I am pleased with the validation of our XBAR-based solutions in the market. We are just now getting to the point where we believe our technology will not only be proven as the best, but also the only solution to unlock the true potential for 5G, 6G, Wi-Fi 5, 6, and 7, ultra-wideband, and potentially even millimeter wave. Driven by this market recognition and potential, we expect 2021 to be the breakout year for our XBAR technology. Turning to slide four, there's a ton of excitement in the media around the promises of 5G. and understandably so, as it will affect every industry and broadly improve many parts of our day-to-day lives. However, I'd like to spend some time clarifying where we are and where we are headed as it relates to the rollout of 5G, as well as the ultra-fast next-generation networks such as Wi-Fi and ultra-wideband, which are often dependent upon each other and are critical to the connected world we all envision in the future. The improvements in speed and latency, with their foundation in power handling at high frequency and wide bandwidth, that next-generation networks require to open the door to massive connectivity between people and things are taking shape on a broader scale. Mobile phones, smart devices, home appliances, connected vehicles, and many more applications are poised to benefit from this real-time communication. And all of the networks powering these applications need RF filter solutions, such as the ones Resonance XBAR technology enables. While the network operators are working hard to deliver nationwide 5G coverage in its initial form, we're in the very early stages in its performance and capability. We are essentially rounding first base with today's 5G, as it's only available in relatively few cities across a limited number of expensive devices that exhibit less than marketed performance. The revolutionary improvements that 5G networks will provide is not yet available. Real 5G data speeds will be 100 times faster than 4G. with latency 25 times that of 4G. And this will only be achievable with protection against interference. In January, US mobile network operators spent over $80 billion to acquire a new sub-6 gigahertz RF spectrum, upon which their 5G network services will be built, a new record. This is another indication of our forecast that the second wave of 5G deployment will be in the sub-6 gigahertz range. It won't be until 5G's third wave for full millimeter wave deployment. What this means is, in the absence of XBAR technologies being deployed, the market would leverage aluminum nitride BAW, which has shorter range, requiring more base stations to be deployed in the operator's networks, which equals higher costs. We believe there is a potential for billions of dollars of spectrum that could be wasted in the U.S. alone due to interference degrading spectral efficiency, or based on the increased number of base stations to deliver the same coverage. 5G will also depend on next-generation networks, such as Wi-Fi 6E and ultra-wideband, which bring additional capacity and speed, as well as extreme location accuracy. These new networks serve as a backstop to the 5G cellular network, which can easily reach capacity and become overloaded. Turning to slide five, the challenge that exists with these networks is unlike any other in the history of wireless technology. Delivering stated performance to these next-generation networks requires every device to have high-performance RF filters. It's well documented that the RF filters that were designed for 4G requirements are not technically well-suited and cannot scale to meet the demands of these next-generation networks due to the physics behind the base technologies not having the required power handling and bandwidth at high frequencies. So let's take a few minutes to explore what would happen in a world where resonance X-bar technology did not exist. The handset OEMs are going to demand that the market's leading providers of RF filters deliver the best solutions they can. They can support the standards of 5G operation. Remember, 98% of the RF filter market is controlled by seven companies. Turning to slide six. Without XBAR, those legacy filter technologies will be adapted to deliver the best solutions available, pushing the boundaries of their existing performance by adding external components or creating modules with different topologies to try to deliver at least the minimum performance thresholds required. Another well-known approach is experimenting with material changes to increase performance. We had an external lab measure the performance of a typical aluminum nitride BOS solution compared to an X-bar solution, and here's what they found. Turning to slide seven, these creative approaches using traditional BOS structures still fall remarkably short to the desired performance of 5G, Wi-Fi 6E, and ultra-wideband, when it comes to interference protection, loss, power handling, size, and cost. All of these new wireless technologies represent a challenge resulting in performance compromises for legacy filter technologies, choking the intended throughput of 5G. However, Wi-Fi 6E with the widest bandwidth of 1,200 megahertz is still the most significant challenge, especially in the handset, where all previous generations of cellular, Wi-Fi, and ultra-wideband must coexist. The performance plot from a third-party test lab highlights the limitations of legacy BAA aluminum nitride technology for Wi-Fi 6E, with little rejection to 5G and ultra-wideband potential interference, which will slow data speeds, reduce coverage, and drain battery life. Power is critical in these new high-frequency applications, because as you increase frequency, you have to increase power to maintain the same coverage and speed. These solutions, in many cases, fall short of the typical XBAR solution by up to 75% for total power at the band edge. As we move to slide 8, Resonance XBAR technology provides the bridge from today's early rollout of 5G, the wide bandwidth, high frequency, low loss, and high power capability that we expect from the true 5G, Wi-Fi and ultra-wideband to coexist with maximum performance. And we believe we are the only company that has the technologies that can meet these next-generation requirements innately. Slide 9. Third-party test results highlight measured, state-of-the-art Wi-Fi 6E filter data with what we believe is the best-in-class performance when compared to legacy BAW technology currently available in the market. In both cases, the performance was measured by a third-party test lab, and the improved rejection using our XBAR technology is clearly demonstrated removing interference, and not choking the flow of data. Resonant is now in the position to sample fully acoustic Wi-Fi 6E devices with 1,200 megahertz of bandwidth and 5 gigahertz Wi-Fi filters with over 740 megahertz of bandwidth, both with more than 30 dB rejection to potential interferers. We believe these are best-in-class devices. As a result of our work and industry-leading progress, we're being asked to spearhead several thought leadership events and panels relating to the role of RF filters in 5G and next-generation networks. In 2020 and through March of 2021, our team has led eight roundtable events, many of which you can find links to on our website. At the beginning of 2021, we also announced that Resident became a member of the Wi-Fi Alliance, a global nonprofit industry association of companies who share a vision of seamless connectivity. As we transition to slide 10, Let me once again highlight that our unique technical capabilities stem from leveraging our state-of-the-art ISN design software platform, a key differentiator as we leverage a three-dimensional, multi-physics, finite element modeling tool to rapidly create precise designs. This precision results in rapid generation of designs with fewer turns in the manufacturing process and ultimately reduced time for integration into modules. versus the standard iterative and imprecise process that is typical in the industry today. Moving on to slide 11. What's fundamental in this methodology is that as we complete designs for our customers by leveraging our ISN design platform, we actually retain all of the IP. To that end, in 2020, we focus on building a significant protective intellectual property mode around our technology that is increasingly validated by our partners and appreciated by the market. We grew our patent portfolio by 50% year over year to over 300 issued and pending patents in the U.S. and internationally. The bulk of this growth relates to our XBAR technology, and today we have over 150 patents issued and pending for XBAR-related technologies to support high-frequency networks like 5 and 6G, Wi-Fi 5, 6, and 7, ultra-wideband, and millimeter waves. Slide 12. Before we move on and wrap up this section, I want to highlight the advisory board team we have assembled and all of their hard work through 2020 and early 2021. Along with helping lead our business strategy and execution, advisory team has played a thought leadership role by educating the market on the role that XBAR is and will be playing in the rollout of next generation wireless networks. As previously noted, in the last year, advisory team participated in panels at eight conferences and seminars discussing the current state of the filter market and the main drivers of next-generation networks. Most recently, we have expanded our advisory leadership to include several thought leaders who have joined our technical advisory committee. You can find a complete set of biographies on the advisory team and technical committee on our website. Slide 13. Just as we differentiated our approach to developing our technology and IP from the very beginning, we took a strategic approach to our business model. Rather than competing with the RF filter manufacturers, we are enabling them. We believe the world's leading OEMs will be increasingly dependent on manufacturers who leverage our filter designs to deliver products into the market. It is our belief that finding RF filter solutions that can meet the demands of high-frequency applications is going to be paramount for the industry, and XBAR is quickly gaining recognition. As a reminder, we entered into a partnership with the world's largest RF filter manufacturer last year. The deal consisted of a strategic investment of $7 million into Resonant, as well as a $9 million multi-year commercial agreement for four bands utilizing XBAR technology. The agreement laid out four milestones to ensure a mutually beneficial and productive process from the start. As I mentioned earlier, we achieved the second milestone under the agreement in October. well ahead of schedule. This is incredibly significant, as it validates our XBAR filters for 5G, meaning they do what we say they are going to do, and we confirm targeted performance, packaging, and initial reliability. This achievement brings in prepaid royalties in the millions of dollars rather than having to wait for unit shipments. We have received 50% of the prepaid royalties for these first four bands to date. We are now focused on the next phase of the agreement, which focuses on building a commercial platform and high-volume manufacturing of XBAR-based RF filters for 5G applications. From here, we have two more milestones to hit as our designs move to commercial production and high-volume OEM shipments. Our work with this partner is going exactly as anticipated, and there remains the potential for us to contract with them for additional designs this year. This partner alone could represent a potential of over $100 million in annual revenue for Resonant. While that seems like a big step from where we are today, it becomes clear when observing our partner's position in the industry. The top seven filter manufacturers control over 98% of the market for filters and duplexers. Our partner has the largest market share in both categories, controlling 37% of the filter market and 32% of the duplexer market. Their filter market share is bigger than the second and third largest players combined. Further, our partner has established relationships with some of the world's largest handset OEMs, which allows us to leverage their expertise to bring XBAR into the market versus doing it ourselves. Moving to slide 14, existing partnerships uniquely position resident for success with next generation mobile handset applications. However, let me remind you that Resonance Filter Design application reaches beyond mobile. We are engaged with other Tier 1 customers in Wi-Fi and infrastructure applications that require high frequency and wide bandwidth performance. In fact, recently we secured a high-volume 2.4 GHz SAW Wi-Fi socket with a Tier 1 handset OEM in our commencing shipments of our first XBAR Wi-Fi 6E samples. We've announced that one of our existing partners, a Tier 1 RF filter manufacturer began shipping high-value band RF filters designed by Resonant into the automotive market. As manufacturers look to deliver 5G functionality in next-generation vehicles, our X-Bar technology is an ideal fit for auto manufacturers to optimize performance on low-cost production processes. As we move forward through the first half of this year, we expect to secure a contract focused on XBAR for non-mobile applications, which could include autonomous and electric vehicles, other IoT, CPE, or infrastructure applications. With that, I'll pass it over to our Chief Financial Officer, Marty McDermott, for a review of our fourth quarter and full year 2020 financial results. Marty?