Resonant Inc.

and welcome to Resonance second 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 website. 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 second quarter of 2021. The earnings release that accompanies this call is available on the investor section of the company's website at ir.resonant.com. Additionally, some of the information in this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, and anticipate, and similar variations identify forward-looking statements, but their absence does not mean that the statements are not forward-looking. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Resonance's most recent form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this call, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this call. With that, it is my pleasure to turn the call over to the Chairman and CEO of Resonant, 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 second quarter 2021 Financial Results Conference Call. Joining me on today's call is Marty McDermott, our CFO, as well as Dylan Kelly, our COO, who will be joining the Q&A session. Turning to slide three. The second quarter of 2021 was highlighted by our continued advancements across our operational and strategic priorities. Notable in the quarter were the 17.5 million RF filters designed with our WaveX platform that were shipped to OEMs by our customers in the second quarter of 2021. This represents a year-over-year increase of approximately 450% and a sequential quarterly increase of approximately 104%. This acceleration of shipments has allowed our customers to ship over 79 million resident-designed RF filters to date, and we expect to exceed 100 million units before year-end. Turning to slide four, there are a select group of companies at the forefront of the industry that are facilitating the transition to next-generation, ultra-fast, and high-frequency networks. From device manufacturing to logistics and supply chains to infrastructure management and more, companies and government entities are working together to navigate the optimal path forward to a global wireless-connected community. At the core of this transition is a need for technological innovations that enable the future of global connectivity. Wireless applications of the future, such as connected cars, smart cities, and extended reality, will all require the coexistence of next-generation networks, such as 5G, Wi-Fi 6E, ultra-wideband, and millimeter waves. At Resonant, we have focused on and successfully addressed the requirements for unlocking these next-generation networks with our XBAR RF filter technology. XBAR has increasingly been recognized as the leading solution for these high-frequency communications with further applications into 6G and Wi-Fi 7, which are now in the early stages of technical definition. One of the most significant validations of our proprietary technology and operating model is our strategic partnership with the world's largest RF filter manufacturer. This partner dominates the RF filter space with the largest market share of both RF filter and duplexer segments, and does so by a considerable margin. After a thorough evaluation of Resonance XBAR technology, they quickly realized our unique ability to dramatically improve RF filter performance for next generation wireless networks, while also accelerating their ability to deliver these high performance products to the market. Since our initial engagement, we have already exceeded expectations by successfully demonstrating the XPAR performance, packaging, and initial reliability requirements ahead of schedule. With the most technically challenging milestone completed, we have now turned our focus to the commercialization and high-volume manufacturing phase of the agreement. In tandem with our initial four contracted designs with this strategic partner, we are also working to expand the scope of our agreements and expect to license additional devices with this partner in the remaining months of 2021. As a reminder, this partnership has been focused exclusively on filter designs for mobile handsets. While this is clearly a key product vertical for next-generation connectivity, our XBAR technology is also ideally suited for the non-mobile segment, including mobile infrastructure, Wi-Fi access points, ultra-wideband, and high-frequency IoT applications. We know how valuable our XBAR technology is, evidenced by our understanding that no other player has been able to demonstrate our filter capabilities as suitable as XBAR for next-generation network requirements. In fact, every day that passes without a viable competing solution to XBAR, we firmly believe our technology becomes even more valuable. That said, we have already successfully sampled non-mobile XBAR Wi-Fi devices and expect to announce at least one formal partnership with a key industry player in the non-mobile segment in 2021. However, we are focused on doing the right deal with the right partner that fully reflects the value of our technology and fully rewards our shareholders. We expect XBAR technology and IP to play a dominant role in what's going to be an incredibly high growth segment of the market in years to come. XBAR was designed to match the new disruptive requirements of next-generation wireless networks. In the same way that FBAR was optimal for 4G and previous generations of Wi-Fi, we believe that our XBAR-based filters are the best solutions to unlock the true potential of 5G, 6G, Wi-Fi 5, 6, and 7, and ultra-wideband. Turning to slide 5. Resonant's key differentiator is our proprietary software design platform, WaveX, which enables us to take an innovative approach to RF filter design. During the quarter, we announced our WaveX design software, which is an upgraded version of our legacy ISN software platform. WaveX is enhanced specifically for advanced RF filter design, such as our X-Bar, featuring full three-dimensional simulation of resonators and filters that is otherwise not possible with today's commercially available tools. The critical requirements of 5G, Wi-Fi, and ultra-wideband filters include optimizing isolation, minimizing insertion loss, maximizing bandwidth, and increasing high-power durability. WaveX enables us to accurately simulate and deliver performance of our XBAR technology across multiple foundries, providing tremendous supply chain flexibility while meeting these complex requirements. The WaveX platform is a cloud-based, full three-dimensional, multi-physics, finite element modeling tool with capabilities that are unmatched in the industry. Ultimately, WaveX enables resonant design RF filters using manufacturing processes that are significantly more cost-effective when compared to traditional bulk acoustic wave or BAW approaches. resulting in superior performance and significantly reduced time to market for our customers. Turning to slide six, our operational strategy is dependent on maintaining a robust intellectual property portfolio around our technology. This is a continual focus at Resonant, and it is important to note that since XBAR is a fundamental, novel filter technology, our resonator structures, processes, and filter designs are all proprietary. it is significant to highlight that Resonant retains all intellectual property for designs we license to our customers. We have grown our patent portfolio by adding over 75 additional filed applications or issued patents since the beginning of the year. To date, we have 375 filed applications or issued patents in the U.S. and internationally. It's no surprise that the bulk of our IP growth has been related to our XBAR-based technologies accounting for greater than 225 of our filed applications or issued patents. At the close of 2017, Resonant was not a significant player in BAW filter intellectual property. However, since the invention of XBAR, we have built a world-leading IP position in bulk acoustic wave filters and remain focused on rapidly expanding our IP portfolio to build a moat around our technology and trade secrets. Turning to slide seven. XBAR is attracting attention due to its inherent capabilities to handle the requirements of next generation wireless, especially when compared to the limitations of other filter solutions in the industry. Let me touch on a few drawbacks of these legacy solutions. Most existing BA filters are based on a piezoelectric material called aluminum nitride, which inherently has significant challenges in meeting the wide bandwidth and high frequency requirements of next generation networks. Combined with an immediate need for these networks to operate at higher frequencies, specifically the 3 to 10 gigahertz range, these legacy filter technologies would require modules with experimental arrangements and added external components. Experimentation with material changes such as doping or some combination of all these methods to improve performance. These processes are costly and unnecessary size, hamper reliability, and have the potential to significantly impact performance. Turning to slide eight, let's expand on some of the challenges associated with using RF filters designed for 4G on next-generation networks. Earlier this year, we shared the plots from third-party testing of scandium-doped aluminum nitride BA filter solutions compared to our XBAR. which showed our X-Bar as a superior solution, providing significantly better power handling and rejection to interfering bands. The performance plot on the left side of the slide, which is from a third-party test lab, demonstrates the limitations of legacy bar aluminum nitride technology for Wi-Fi 6E, with little rejection to 5G and ultra-wideband potential interference. These limitations result in slower data speeds, reduced coverage, and drained battery life. It's important to note that today's aluminum nitride BOS RF filters were developed specifically to meet the demands of 4G, meaning they exhibit limited RF performance at high frequencies. We believe using these legacy filters for the requirements of 5G would result in a massive waste of spectrum due to interference degrading spectral efficiency. This inefficiency impact would be in the billions of dollars in the U.S. alone. For those of you who are interested in the details of spectral efficiency, you can find a detailed white paper on the subject on our website. Further, relying on legacy RF filter solutions would require a massive infrastructure expansion to deliver the same coverage and consumer experience as an XBAR-based network. This approach would require operators to roll out many more base stations across the network, an extremely expensive approach. The cost liability of using these legacy filters to achieve true 5G performance reaches far beyond the device manufacturers. Devices such as handsets, routers that utilize these filters would suffer from poor connectivity. This is due to the legacy filter technology's inability to protect signals from interference over large bandwidth at high frequency. These issues would be apparent across the increasingly connected ecosystem of devices. from home appliances to connected vehicles and healthcare devices. Our modern world is dependent on solutions that enable optimal connectivity and performance. Turning to slide 9, I'll stress once again, we believe our XBAR technology is the only technology capable of natively meeting the requirements of true 5G, 5 and 6 gigahertz Wi-Fi, and ultra-wideband. In addition, XBAR has a roadmap beyond these immediate wireless standards without the inherent limitations of aluminum nitride BOS solutions. XBAR bridges the gap from today's early rollout of 5G to the promise of wide bandwidth, high frequency, low loss, high power capability networks, all while delivering significant cost efficiencies. Turning to slide 10, key to our continued growth is the fact that we are not a competitor to our filter manufacturers, but rather we enable them by helping them deliver products with state-of-the-art technologies to market at a rapid pace. Our go-to-market strategy as a pure-play licensing business has been well received, as evidenced by our partnership with the world's largest RF filter manufacturer, which included a $9 million multi-year commercial agreement for our XBAR technology. Additionally, our customers have shipped over 79 million units of our legacy designs for sub-3 GHz applications, providing further validation of our licensing model. We expect to surpass 100 million devices shipped with resident IP before year-end. Now let me spend a few minutes on the overall market for our filters. The market for filters and duplexers is extremely concentrated, with the top seven filter manufacturers controlling 96% of the market. Our partner has the largest market share in both categories. controlling 36% of the filter market and 33% of the duplexer market. They are also the largest filter supplier by a significant margin, as evidenced by their filter market share being larger than the second and third largest players combined. By leveraging our partners' established relationships with the world's largest handset OEMs, we expect XBAR Technologies to penetrate a large portion of the market. This partnership alone represents the potential for over $100 billion in annual revenue for ResNet. Under our agreement, there are four milestones, the second of which was completed ahead of schedule in October of last year. With our XBAR filters validated for the target performance, packaging, and initial reliability, we are able to proceed with the monetization of the partnership in the form of prepaid royalties of which we have received 50% for the initial contract to date. Together, We are now focused on the commercial production and high-volume manufacturing of XBAR-based filters for next-generation wireless applications. With only two milestones remaining on the initial agreement, we expect to sign additional design contracts with this partner in 2021, and we'll announce these developments to the market as they are achieved. Turning to slide 11. While the mobile market segment has historically dominated the RF filter markets, There's also a tremendous opportunity in the rapidly growing non-mobile segment. Smart cities, connected cars, and IoT of the future will rely on next-generation networks, including Wi-Fi 6E and ultra-wideband, that are designed to complement 5G. This coexistence between networks will ensure a seamless experience for consumers, preventing data overload, which would otherwise overwhelm a 5G network. Next-generation Wi-Fi and ultra-wideband operate at similar frequencies and bandwidth as 5G, so the requirements for next-generation Wi-Fi and ultra-wideband filters are similar to those of 5G. XBAR's innate ability to meet these complex requirements uniquely positions Resonant to capitalize on the emerging non-mobile market. The number of Wi-Fi 6E systems in the market is expected to grow from over 300 million this year to greater than 1.7 billion devices in 2025. These projections show an increasingly attractive market, and we are aggressively working to secure a deal for the design of XBAR filters for non-mobile devices by the end of this year. With that, I'll pass it over to our Chief Financial Officer, Marty McDermott, for a review of our second quarter 2021 financial results and what drove them. Marty? Thank you, George.