Resonant Inc.

Good day, and welcome to Resonance First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Greg Felesnik from MZ Group, the company's investor relations firm.

Please note, we'll be using a presentation during today's call, which is accessible on the events page of Resonance IR websites. If you are with us today via phone, please go to the events page to either view or download the presentation to follow along. Turning to slide two. Earlier today, Resonant released financial results for the first quarter of 2021. The earnings release 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 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 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 residents' most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this call, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this call. With that, it is my pleasure to turn the call over to the Chairman and CEO of Bresnan, 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 our first quarter 2021 financial results conference call. Joining me on today's call is Marty McDermott, our CFO, and Dylan Kelly, our COO, will be joining the Q&A. Turning to slide three, we are off to a momentous start in 2021, working to expand our global footprint of our revolutionary RF filtering technologies as the growth and demand for mobile data continues. Our game-changing XBAR RF filter technology is being increasingly recognized as a leading solution to unlock the future of next-generation, ultra-fast, high-frequency wireless networks and the applications these networks enable. in particular for 5G cellular and Wi-Fi 6 applications. To that end, our work with the world's largest RF filter manufacturer to bring the XBAR technology to the market for mobile handsets not only continues to progress, but has done so ahead of schedule. Everything from the initial performance, the packaging, and expectations for reliability are being met or exceeded, and we are now moving aggressively towards the mass commercialization and high-volume manufacturing phase of the agreement. More importantly, we now have the ability to expand our current engagement beyond the initial four contracted designs and expect to do so before the end of 2021. In 2020, we sampled the first non-mobile XBAR 5 GHz Wi-Fi devices and recently began sampling non-mobile XBAR Wi-Fi 6E or 6 GHz devices. As we move through 2021, we look forward to continuing to demonstrate the impressive performance of our designs and formulating new high-value partnerships. The breakthrough technology of XBAR is demonstrated by our industry partners, who have taken advantage of XBAR's simple manufacturing process, applicability to high-volume foundries, and fundamentally lower-cost solutions. In fact, eight separate foundries have successfully manufactured our XBAR technologies to date. As I stated on our last conference call, we expect 2021 to be an outstanding year for our XBAR technology. Our solutions were developed to be the best in the industry, and now more than ever, this is quickly being recognized by the market and by the major players within the ecosystem. But as we look at the competitive landscape for addressing the requirements of 5G, 6G mobile, Wi-Fi 5, 6, and 7, ultra-wideband, and potentially millimeter wave, We believe our XBAR-based solutions will be the best solutions to unlock the true potential for these next-generation wireless networks. Turning to slide four, those who have been closely following the industry know we are in the very early days of 5G when it comes to performance. With the 5G market expected to contribute roughly $7.6 trillion to the global economy over the next decade, it's easy to understand why the investment going into the space The front end continues to ramp up. In January, mobile network operators in the U.S. spent over $80 billion to acquire a new sub-6 gigahertz RF spectrum on which the next generation of 5G network services will be built. This was a momentous step in the advancement of 5G network deployment, and this validates the national infrastructure of next-generation mobile networks is still in development. But what does this tell us about today's 5G? In its current form, True 5G has yet to expand into many cities, and in few locations where there is 5G coverage, it exhibits subpar performance. In order for networks to reach the high data speeds of True 5G, there are several critical items that need to occur and considerations the market needs to address. I've talked a lot about the potential of Resonance XBAR technology, but let me spend a few minutes discussing what this would look like in a world without X-bar-based filters. The newly acquired sub-6 GHz RF spectrum I just mentioned is a strong indication that the next wave of 5G deployment will be in the sub-6 GHz range. Without X-bar, 5G networks would likely utilize today's aluminum nitride BA-RF filters, which were developed specifically for 4G. Due to their limited high-frequency RF performance, these legacy filters would require many more base stations deployed across the network to deliver the same coverage and consumer experience. Rolling out these additional base stations would be possible, but it's an incredibly more costly approach to achieve true 5G performance. Further, the spectrum wasted due to interference degrading spectral efficiency would be massive. The inefficiency impact would be in the billions of dollars And that is in just the US. Turning to slide five, let me continue under the premise of a world where XBAR does not exist. There is clearly the potential for massive spectral efficiency issues driven by the challenges associated with using RF filters designed with technology developed for 4G on these next generation networks. Legacy BA filter technology inherently does not have the required power handling or bandwidth at high frequencies causing devices such as handsets and routers that utilize these filters to suffer with degraded connectivity and performance. Now let's compare mobile devices leveraging legacy filter technology against devices with Resonance state-of-the-art XBAR technology. You will see that the difference in performance is substantial. The delay in mobile download times is just an example of the differences between using legacy filter technologies versus Resonance XBAR technology. In a modern environment where smart devices, home appliances, connected vehicles, healthcare, and many more applications will rely on optimal speed and low latency, we believe our XBAR technology will be fundamental in meeting the connectivity requirements and performance expected by consumers for these next-generation networks. Turning to slide six, when we discuss the benefits of XBAR when compared to legacy filter technology, the differences in performance are measurable and can be demonstrated. Let's dive into the exact challenges that existing VAW technologies have when it comes to meeting the bandwidth requirements of next generation networks. These networks are expected to expand into higher frequencies, 7 to 12 gigahertz range, for example, which XBAR is ideally suited for. Legacy filter technologies would need external components to be added or would require modules with different topologies in order to operate at these frequencies. Another solution is doping. with additional layers, or other experimentation with material changes to increase performance. These R&D efforts are very expensive, add unnecessary size, present challenges to reliability, and have the potential for increased signal loss. XBAR, on the other hand, inherently meets these requirements for these frequencies with its wide bandwidth capability and high power handling, ultimately at much lower cost. The results from external lab testing of this Wi-Fi 6E filter data demonstrate why our XBAR-based solution provides substantial rejection of all unwanted signals while not constraining the flow of data. This is why XBAR-based solutions show the best results available in the market. To summarize, on slide 7, we believe Resn is the only company that has technologies capable of natively meeting the requirements of true 5G. 5 and 6 gigahertz Wi-Fi, and ultra-wideband. Through XBAR, we are bridging the gap from today's early rollout of 5G, the coexisting ecosystem of next-generation networks that will bring wide bandwidth, high frequency, low loss, and high power capability. As we've talked about, residents' filter design applications also reach far beyond mobile, and we continue active discussions with additional potential customers for non-mobile applications, which also require high frequency and wide bandwidth performance. Today, our engagements include Tier 1 customers in Wi-Fi and infrastructure applications. In fact, in the first quarter, we began sampling fully acoustic Wi-Fi 6E devices with 1,200 megahertz of bandwidth and 5 gigahertz Wi-Fi filters with 740 megahertz of bandwidth, both with more than 30 dB rejection to potential interferers. We also announced at the beginning of the year that Resonant became a member of the Wi-Fi Alliance, a global nonprofit industry association of companies who share the vision of seamless connectivity. Turning to slide eight, I will briefly comment on ISN, our proprietary design platform that is the backbone of our capabilities and which serves as a key differentiator for Resonant, allowing us to revolutionize the three to seven gigahertz RF front end. By leveraging a three-dimensional, multi-physics, finite element modeling tool, we're able to generate precise design at rapid speed with fewer turns in the manufacturing process. The platform enables integration into modules at a pace that we believe is at least twice as fast as the standard, imprecise process that is employed by the rest of the industry. This past quarter, we have increased the capabilities of our three-dimensional finite element modeling for acoustic wave filters by tenfold, enabling us to optimize complete filter designs. Today, we believe Resonant is the only company with this capability. Most filter companies utilize simpler models such as COM and Mason or BBD modeling, which are empirical design techniques with many iterations limiting the optimization for complete RF solutions. Turning to slide nine. Over the past year, we've focused on building out our intellectual property, or IP mode, around our technology. This is essential to our operational strategy as we retain all of the IP for our designs we license to our customers. We continued the expansion of our Robles patent portfolio during the first quarter as we added over 30 additional patents since the beginning of 2021. To date, we have over 330 patents issued and pending in the U.S. and internationally. As our XBAR technology is increasingly validated by our partners, we have focused most of this IP growth around XBAR, and we now have more than 175 patents issued and pending for XBAR-related technologies. Moving to slide 10, Resonant maintains a unique position within the RF filter market, meaning we do not compete with RF filter manufacturers. On the contrary, we are leveraging our technology platform to enable the world's largest filter manufacturers, And in doing so, helping the leading global OEMs deliver products into the market with state-of-the-art filters. This strategic approach allowed us to enter into a partnership with the world's largest RF filter manufacturer late in 2019. To recap the agreement for those newer to our story, the deal consisted of a strategic investment of $7 million into resin, as well as a $9 million multi-year commercial agreement utilizing our XBAR technology. As I mentioned earlier, we achieved the second of four milestones under this agreement in October. This was a critical point of the process, as it validated our XBAR filters for 5G with confirmed targeted performance, packaging, and initial reliability. As a result of this achievement, which occurred ahead of schedule, we have been able to monetize the partnership in form of prepaid royalties. To date, we have received 50% of the prepaid royalties for the initial contract. As a next step with this partner, we will move to the commercial production phase of the agreement and turn our focus to high volume manufacturing of XBAR based RF filters for 5G applications. Our work with this partner validates our belief that finding RF filter solutions that can meet the demands of high frequency applications is paramount for the industry. Going forward, there remains the potential for us to contract with this partner for additional designs this year. as we work towards the remaining two milestones of the agreement. Allow me to put the opportunity of this partnership into perspective by observing the competitive landscape of the RF filter manufacturing industry. A few key facts are as follows. 98% of the market for filters and duplexes is controlled by the top seven filter manufacturers. 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, third largest filter players combined. Further, our partner has established relationships with some of the world's largest OEMs, which allows us to leverage their expertise to bring XBAR into the market versus doing it ourselves. Given these market dynamics, this partner loan represents the potential of over $100 million of annual revenue for Resonance. Turning to slide 11. I'll conclude this section by highlighting the team we have assembled for our advisory board, which consists of leaders with significant experience at the forefront of the industry. Not only has our advisory team provided us with invaluable guidance on our business strategy, but the team has been very active with industry thought leadership. Throughout 2020 and during the first quarter of 2021, our team has led eight roundtable events to discuss the current state of the art filter market. the main drivers of next-generation networks, and the role XBAR will play in the industry going forward. Many of these event discussions and panels are available for replay on our website. In February, we expanded our advisory team to welcome several thought leaders to our Technical Advisory Committee. This newly formed committee is focused on expanding residents' intellectual property portfolio and advancing adoption and development of our XBAR technology, We will continue working closely with them and believe the caliber of the advisory board and the technical leadership committee speaks to the value that our technology brings to the market. You can find full biographies of our advisory board and technical advisory committee on our website. Now, with that, I'll pass it over to our Chief Financial Officer, Marty McDermott, for a review of our first quarter 2021 financial results and what drove them. Marty?