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spk09: Good day and welcome to residents third quarter 2021 earnings conference call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and answer session. At that time if you have a question please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator please press star 0. As a reminder today's conference is being recorded. At this time, I'd like to turn the conference over to Greg Feleznik from MC Group, the company's investor relations firm.
spk03: Please note, we'll be using the 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 today, Resonance released financial results for the third quarter of 2021. The earnings release that accompanies this call is available on the investor section of the company's website at 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, 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.
spk07: Thank you, Greg, and thank you, everyone, for joining us on our third quarter 2021 financial results conference call. Joining me today is Marty McDonough. our CFO, as well as Dylan Kelly, our COO, who will be joining us for the Q&A session. Turning to slide three, the third quarter of 2021 was highlighted by Resonance's continued acceleration of its XBAR technologies, once again outperforming our year-end goal by almost a quarter and positioning Resonance for sustainable long-term growth. I'll begin by highlighting two milestones we achieved in the third quarter. First, we expanded our commercial agreement with the world's largest filter manufacturer, doubling the number of vans to be delivered and increasing the value of the contract initially valued at $9 million to a current value ranging between $17 and $43 million in revenue for residents, with this customer alone. This customer's exclusive rights to our XBAR technology for mobile devices ends on March 31, 2022, which is in less than five months. Keep in mind, this customer represents 36% of the RF filter market. which is dominated by seven companies that combined control 96% of the market. More on this shortly. Second, over 100 million devices have been shipped by our customers to OEMs to date. In the third quarter alone, our customers shipped a record 21 million RF filters designed with our WaveX platform. This represents a year-over-year increase of approximately 433% and a sequential quarterly increase of approximately 23%. Resonant's WaveX software and massive IP portfolio continue to provide the required differentiation for our customers. At Resonant, we continue to leverage these accelerating unit shipments to create a customer roadmap for our XBAR technology, which we expect to capitalize on beginning in April 2022 when our mobile exclusivity has expired. As I noted, our strategic partnership with the world's largest RF filter manufacturer, for the development of XBAR-based filters for mobile handsets is a significant validation point for Resonant. Expanding the commercial agreement signed in October 2019 from $9 million to a value ranging from $17 million to $43 million, depending on the complexity of the bands chosen. These upfront payments, based on our historical 7% to 15% royalty rates, are the equivalent of up to $113 million to $614 million in actual filter sales by our customers to OEMs. It should be noted, as a licensing company, we don't have the operating and inventory costs of a fabless or vertically integrated IDM, and as a result, we expect to have very high operating margins. There also remains the potential for us to contract even more designs with this partner, which is especially attractive given their dominant share of the RF and duplexer market. Turning to slide four. Resonance competitive advantage is simple. We believe XBAR is the only filter solution able to natively meet the demands of next generation high frequency networks. Let me expand on exactly what those demands are. Since we are still very early in the transition to 5G, there has been very little 5G data traffic. But as 5G data increases, 5G bands will need to coexist with Wi-Fi bands, creating a much more significant coexistence challenge when compared to 4G and previous generations of Wi-Fi. At the root of this challenge is the extremely wide bandwidth and close proximity of frequency bands, which creates a significant likelihood for signal interference problems between both the individual 5G and Wi-Fi bands, as well as the different technologies themselves. Unless mitigated with high-performance filters, the coexistence between networks will restrict data speeds and cause significant performance problems across the devices using these networks. As 5G advances towards its full potential, the mature network will demand a filter technology that can solve for both the wide bandwidth and interference problems. We believe XBAR is the most effective technology in accomplishing this, and this is increasingly being recognized and validated by the markets. As with all technology transitions, existing providers initially introduce parts based on the legacy technologies. Those parts are deemed good enough by OEMs until more advanced parts become available to meet the demands of the new standards and deliver the consumer experiences that have been promised for the technology. This begs the question, if XBAR is the only solution to solve these interference and bandwidth problems, how are RF filters in today's devices able to meet the demands of 5G? Turning to slide five, again, we are still very early into the rollout of 5G. Since 5G data traffic is still so low today, our filter manufacturers have been able to get away with using strategies to extend performance of legacy 4G technologies. One of the primary methods being employed as a short-term solution is scandium doping of legacy filters that were designed for 4G. Using the scandium doping strategy, filter manufacturers add external components to legacy filters, which allows them to extend the filter's bandwidth and capabilities. However, this comes with additional consequences, namely added size, cost, complexity, and the increased potential for signal loss. Additionally, the bandwidth can only be extended so far with this method and will not be able to sufficiently cover the requirements for Wi-Fi 6E or 5G. Over the next several quarters, we expect the limitations of the legacy technologies to become clearer as sampling by our largest customers becomes more prolific and new non-mobile customers begin to sample XBAR devices. Increased sampling will further highlight XBAR performance, which we expect will increase the demand for our revolutionary technology. The other method currently being used is a mix-and-match approach. of acoustic wave filters and resonators with additional components which add size and cost. Clearly, neither of these are viable long-term solutions. The new 5G and Wi-Fi bands are only the beginning of new wireless bands that exist at increasingly higher frequencies and wider bandwidths. The challenges associated with legacy acoustic filter technologies would be amplified with ultra-wideband technology and as satellite bands are repurposed for 5G and 6G. In a world without Axbar, we believe the problems associated with trying to push the boundaries of legacy aluminum nitride bar filters would ripple throughout the wireless network industry infrastructure. Using these legacy filters developed specifically for 4G for the requirements of 5G would degrade spectral efficiency, resulting in an inefficiency that would cost billions of dollars in the U.S. alone. We believe this is based on the increased number of base stations that would need to be deployed to deliver the same coverage and data speeds. Turning to slide six, we continue to believe that Resonance XBAR technology is the only technology capable of natively meeting the requirements of not only true 5G, but also 5 and 6 gigahertz Wi-Fi and ultra-wideband. It is the technology that will unlock the wide bandwidth, high frequency, low loss, and high-power capability networks of the future, as well as the applications that will leverage these next-generation networks. Those at the forefront of the industry are capitalizing the value of our highly differentiated technology. As I mentioned earlier, our work with the world's largest RF filter manufacturer continues to advance as we work toward building the high-volume manufacturing platform for XBAR-based RF filters for use in next-generation wireless applications. Our partnership was initiated after demonstrating XBAR's 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. This is a tremendous validation from the company that holds the leading market share position by a considerable margin. To be specific, they control about 36% of the filter market and 33% of the duplex market. which is more market share than the second and third largest players combined. If we continue to expand our agreement with this partner by adding additional design contracts, we believe this partnership could potentially increase to a $100 million annual revenue opportunity for ResNet when 5G and Wi-Fi 6 reach the full-scale deployments. There are only a relatively small number of RF filter manufacturers that control the market and supply leading OEMs such as Apple and Samsung. By leveraging our partners' established relationships with the world's largest handset OEMs, we expect XBAR technologies to penetrate a large portion of the mobile handset market. While this is clearly a key product vertical for next-generation connectivity, our XBAR technology is also ideally suited for the non-mobile segment. This includes mobile infrastructure, Wi-Fi access points, ultra-wideband, and high-frequency IoT applications. As I mentioned earlier, the exclusivity with our strategic partner leveraging our XBAR technology is only for mobile and allowing us to market our XBAR technology for non-mobile, which we are currently doing. In fact, we already successfully sampled non-mobile XBAR Wi-Fi devices and expect to have a deal signed before the end of 2021 with a Tier 1 customer to develop a non-mobile part. Our ability to execute and expand on the agreement with our partner for mobile handsets while pursuing partnerships in non-mobile segments highlights the effectiveness of our business model. As I mentioned earlier, concurrent with our XBAR-focused efforts, our customers have shipped over 100 million units of Resonance legacy designs for sub-3 GHz applications. Surpassing this milestone ahead of schedule further validates our go-to-market strategy. As a pure-play licensing business, we are uniquely positioned in the market to enable RF filter manufacturers rather than compete with them. This allows us to support various players in the market, driving industry innovation from multiple angles, while maintaining an asset-light, high-margin business model. Turning to slide 7, let me expand on the opportunity for XBAR to unlock next-generation networks in the high-growth, non-mobile segments. Smart cities, connected cars, extended reality, and IoT applications of the future will also rely on next-generation networks, including Wi-Fi 6E and ultra-wideband. These networks are designed to complement 5G as they operate at similar frequencies and bandwidths. The requirements for next-generation Wi-Fi and ultra-wideband filters are similar to those of 5G. Using legacy 4G technologies, this coexistence between networks would create the various performance-related challenges and significant cost issues I outlined earlier. However, by leveraging XBAR's innate ability to meet complex requirements across the range of next-generation networks, Resonance proprietary technology can ensure a seamless experience for consumers while preventing data overload, which would otherwise overwhelm the 5G network. The number of Wi-Fi 6E systems in the market is expected to grow from over 300 billion devices this year to greater than 1.7 billion in 2025. Given the expected growth rate of this market, securing a deal for the design of XBAR filters for non-mobile devices with a tier one customer before year end of 2021 remains a high priority. Turning to slide eight, our ability to disrupt the RF supply chain by taking an innovative approach to RF filter design is driven by our proprietary software design platform, WaveX, which is used to design advanced RF filters such as X-Bar, featuring full three-dimensional simulation of resonators and filters that is otherwise not possible with today's commercially available tools. The WaveX platform is a cloud-based modeling tool with capabilities we believe are unmatched in the industry. This software platform enables us to accurately simulate and deliver performance of our X-Bar technology across multiple foundries. providing tremendous supply chain flexibility while meeting the complex requirements of filters for next generation wireless networks. Ultimately, WaveX enables residents to design RF filters using manufacturing processes that are significantly more cost effective than compared to traditional bulk acoustic wave or BA approaches, resulting in superior performance and a significantly reduced time to market for our customers. Turning to slide nine. Our competitive advantage is rooted in the robust intellectual property portfolio around our technology that we maintain. Our resonant structures, processes, and filter designs are highly proprietary, and resonant retains the intellectual property for the designs we license to our customers. We currently have more than 390 filed applications or issued patents in the U.S. and internationally, 90 of which were filed this year. Worth noting, Greater than 240 of these patents are related to XBAR technology. With that, I'll pass it over to our Chief Financial Officer, Marty McDermott, for a review of our third quarter 2021 financial results and what drove them. Marty?
spk05: Thank you, George. Turning to slide 10, I'll now provide an overview of our financial results. The amounts I talk about are GAAP, except were noted. Billings, a non-GAAP measure, were $4.1 million in the third quarter as compared to $2.7 million in the same year-ago quarter. Subsequent to the end of the third quarter, we billed $3 million, or 50% of the payment for the first ban released against the new expanded commercial agreement with the world's largest filter manufacturer, which will also increase our deferred revenues by $3 million. were $425,000 in the third quarter, compared to revenues of $1.4 million in the same year-ago quarter, during which we received a large milestone prepayment. Worth noting, the contract execution timing of our expanded agreement with our strategic partner was signed on September 30, 2021. While having no impact on revenues for the quarter, it will have a positive impact on upcoming quarters going forward. At the end of the third quarter, deferred revenues total $4.4 million as compared to $766,000 in the prior quarter. We estimate that these amounts will be recognized as revenue over the remainder of the contracts. Please note that revenue recognition for development agreements such as those for XBAR are complex and cause uneven quarterly revenue recognition. As we add more agreements with prepaid royalty components, this will smooth out revenues as they ramp up. Research and development expenses total $5.9 million in the third quarter as compared to $4.4 million in the same prior year quarter. The increase is primarily a result of increased costs relating to the development of our WaveX and XBAR technologies, increases in compensation expenses as a result of increased headcount, and increased costs associated with expanding our patent portfolio. Sales, marketing, and administrative expenses total $3.5 million in the third quarter as compared to $3.1 million in the prior year quarter. The increase is primarily related to increased compensation expenses for employees and consultants to support these efforts. Our operating loss was $9 million in the third quarter as compared to an operating loss of $6.1 million in the prior year quarter. Net loss was $9 million in the third quarter, or a loss of 14 cents per share based on 63.1 million weighted average shares outstanding, compared to a net loss of $6.1 million, or a loss of 11 cents per share based on 53.2 million weighted average shares outstanding for the prior year quarter. Non-GAAP adjusted EBITDA loss was $6.8 million, or a loss of 11 cents per share in the third quarter, compared to an adjusted EBITDA loss of $4.4 million, or a loss of 8 cents per share in the prior year quarter. Cash and cash equivalents totaled $15.3 million on September 30, 2021. Subsequent to the end of this last quarter, we received $6.1 million of cash from the sale of common stock and expect to receive in the next few days $7 million as part of the combined upfront payments under the expanded commercial agreement. Remember, we have no debt. On September 30th, 2021, we had a total of 73 employees, 18 of whom have a PhD and 52 of whom are part of the technical staff. Finally, turning to slide 11 on the topic of guidance. We expect significant growth moving forward as we begin to recognize revenue on the newly expanded designs with our strategic partner, as well as anticipated revenues from contracts for non-mobile applications. We are forecasting $600,000 in revenue in the fourth quarter 2021 and expect to end the year with approximately $8 million of deferred revenue. I'd now like to turn the call back to George for closing remarks. George?
spk07: Thanks, Marty. Now let's turn to slide 12 for what to track in the fourth quarter and into 2022. As Marty stated, we expect our business to continue accelerating and grow significantly in 2022. Our legacy and founding programs will continue to grow and provide the initial footholds for customer expansion into XBAR-based relationships. As expected, we expanded our partnership with the world's largest filter manufacturer. Together, we will continue building a high-volume manufacturing platform for XBAR-based filters that will meet the exacting demands of the largest mobile handset OEMs in the world. We expect continued and ongoing validation from the market that XBAR-based solutions are the only practical solution to meet the demands of not only 5G, but also 6G and Wi-Fi 6 and 7, ultra-wideband, and potentially even millimeter wave, driving a breakout year for XBAR technology. We expect to secure a contract by the end of 2021 with a Tier 1 partner focused on XBAR for non-mobile applications, which could include autonomous and electric vehicles, Internet of Things, and infrastructure applications. With that, I'd like to thank you all for joining us today and look forward to providing updates in the coming quarters as we continue to execute on our operational strategy and work toward our mission to revolutionize the connection between people and things. I'll now hand it over to the operator to begin our question and answer session. Operator?
spk10: Thank you. If you would like to register for a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one and the three. Our first question is from the line of Tori Spanberg with Stifel. Please go ahead.
spk00: Yes, thank you, George, Marty, and Dylan. First question is on the Murata extension program, and I know the exclusivity ends next year. I was just wondering why did Murata not want exclusivity or perhaps a different way of asking that question, did you not want them to have that exclusivity?
spk07: Well, I mean, I think you can imagine that, you know, when we're negotiating these deals, if you have the opportunity and you're a customer to extend your exclusivity, you would surely want to do that. Not allowing other Tier 1 IDMs to have access to this technology would give you a tremendous competitive advantage. That's why they would want to do it. Clearly, the reason we wouldn't want to do it is the market opportunity. We've lived for 30 months under an exclusivity agreement that didn't allow us to market this technology to other Tier 1 IDMs. And we think and believe that the XBAR technology has such a transformational benefit to handset manufacturers having as many companies as possible delivering XBAR-based technology into the marketplace for the handset OEMs. is going to be key to our long-term success. So, clearly, I would say that, hey, fantastic job. We actually were able to renegotiate the kind of next-generation extension of this agreement, adding up to $45 million of additional revenue for the company, and we're able to do so without having to give away exclusivity.
spk00: Great. No, thanks for clarifying that. Second question, you said one of the things to track – is going to be the high-volume manufacturing platform for expert filters. I was just hoping you could elaborate a little bit on that. Obviously, you know, your largest partner you're working with on that, but, you know, as the exclusivity ends, you know, will you then be able to go and work with potential foundries on the actual platform?
spk07: Well, we already are working with other foundries on the XBAR platform. As we previously noted, we have seven foundries that have actually built XBAR-based filters or their components. So we already have a great deal of experience porting the technology into other foundries that allow us to give great flexibility to potential customers. I think what this does is, exclusive to the end, we can target those companies that are specifically focused for mobile handsets and want us to port this technology to them. Makes sense.
spk00: Just one last question for Marty. Marty, I know this is really difficult, but the $8 million in deferred revenues, any feel for when you could potentially add that to the P&L 2022, 2023? And again, I do recognize it's pretty difficult.
spk05: That will, yeah, I mean, that's a reasonable question. Yeah, that's going to come in over 2022 and over 2023. And I think the most important thing is, you know, we expect to add to that with the exclusivity running off. We expect, you know, we have a pent-up demand for other people getting to the technology and the non-mobile. So that's the base. We got that in the bag. We're going to bring it in over the next couple of years, and we're welcome there to add to it.
spk07: Yeah, I think the big thing here, Tori, is we continue to look at this and we do additional deals, whether they be fully paid up prepaid royalties, which bring in immediate cash, like the $7 million we announced we brought in today, these next generation deals we have will likely have some combination of prepaid royalties and royalties that are based on per unit shipments, which creates a tremendous upside opportunity going forward. Clearly, Having a little over $40 million worth of runway from the world's largest filter manufacturer is not a bad thing, but it gives us lots of flexibility and ability to be really creative and take advantage of the technology as we contract with new customers.
spk00: Sounds good, and congrats on that $7 million prepay. Thank you.
spk07: Thank you.
spk10: Our next question is from Anthony Stoss with Craig Hallam. Please go ahead.
spk01: Hey, George and Marty. Maybe more for Marty. How many different paying customers did you have in the quarter? And then for George, your revs came in just shy of your prior guidance. I would assume it's probably component shortages for some of your customers. Any thoughts on that would be helpful. Thank you.
spk05: I think the number of customers has been pretty stable between the quarters. We've talked about the importance of the world's largest manufacturer who's added We've had billings and just recently got cash in. And then we also, from the other unit volumes we've talked about, we have five customers that are contributing to that, bringing cash in at a much smaller level.
spk01: And what was the second half of that question, Tony? If you've heard from some of your customers on component shortages and if that's what kind of had you guys come in just slightly below your guys.
spk07: No, I think what it really is, is we came in just shy. Even though we had forecasted for this group that we wouldn't close the follow-on deal until the end of the year, we were hoping to get it done more than a quarter early, perhaps four or five months early, which would have given us a little bit more runway on converting revenue recognition on some of that early part of that, you know, kind of new bands that we received. That's really the big thing for us. Component shortages haven't really driven any appreciable change in the trajectory that we see either from our largest customer or any of our legacy customers at this juncture. The only one that we had, we noted several quarters ago, was an automotive application which is a relatively low-volume runner and currently is kind of inconsequential to the overall unit volume ramp of the legacy business.
spk01: Okay, perfect. Thanks, George.
spk10: Our next question is from Raji Gill with Needham & Company. Please go ahead.
spk04: Hey, Raji. Hey, guys. How are you? Thanks for taking my questions. I appreciate it, and congrats on the expanded partnership with Murata. I think that's really interesting. So, George and Marty, you mentioned you are increasing the expected revenue from $17 million up to $45 million from this expanded partnership. I think it was up from about $9 million. So the revenue expansion is moving up. Wondering how you're thinking about how you how you're getting to that to that number. You know, what kind of assumptions are you baking in? Because it's a sizable revenue opportunity obviously the number of filter bands that You're developing is now eight versus four So maybe it's obviously the more filter bands, but curious how you're thinking about the build-up of that new revenue range possibility Okay, great.
spk07: So Let's, as a reminder, the first four bands were at $2.25 million per band. That was well-defined in the initial agreement. The new addendum to the original agreement provided for four additional bands that had a range in ASP from $2 to $9 million each. Then it gets a little complicated. And that $2 to $9 million is based on, there's kind of four different buckets, and that's based on the complexity of these devices. And, you know, the complexity of the devices is what allows us to charge more or less. And you can imagine that probably the least complex device would be a follow-on to an existing band, something we've already done before would have a follow-on component to it. That would be at the lowest ASP. But then you get higher ASPs for these more complex devices. And, you know, the way this worked is, you know, we took a chunk of upfront that just happened at the time of signing. That was $4 million. Then we got a $3 million payment on top of that. Both of those made up that $7 million that we announced today. That $3 million payment is a 50-50 payment. 50% done at the time of signing of the SOW and 50% at the completion. So that obviously is a $6 million device plus one quarter of the $4 million prepayment, so a $7 million device. So I'm not suggesting that each of the devices we have that will go into this four bands will all be $7 million bands, but they could be, and that would make it a a $28 million uptick to kind of what we're currently looking at. That would be great. I think what we're looking at, $28 million on top of nine, that gives you a pretty good chunk for this first agreement. As we look at it today, we really only have visibility to this first one. As you can imagine, We're heads down, buckle down hard, trying to get these first four devices into volume production, which is mission one for this customer. And then, obviously, the fifth band that we signed recently that equates to the $7 million I just described will be following shortly thereafter. But that's really all the visibility we have right now. I tend to think there'll be a blended view that will get some complement of most complex, couple in the middle, one at the bottom, and you'll end up with a value range on this new release in the plus or minus 20 range on top of the nine that's already out there. So it's a good run, and it's a good start, but we've got more work to do, and that's what we're running hard for between now and the end of the year.
spk04: Yeah, no, that's great. Very helpful to walk you through it. Now, George, the WaveX, your proprietary software that allows simulation of filter performance and helping customers bring the filters faster to the market. Can you talk about how you're incorporating this proprietary software in your go-to-market strategy? How are you kind of leveraging this approach? to gain new customers. I'm curious how you guys are thinking about WaveX.
spk07: Well, let me do two things. One, I'm going to hand it over to Dylan. Let him give you a little bit more of an overview of when we transitioned from ISN and rebranded to WaveX, what that truly means, what that means from a processing capability perspective, and what that truly means. Because those two things combined is what makes this a very competitive solution. So, hey, Dylan, why don't you jump in here and talk about that a little bit?
spk06: I'd say the focus of the last year was really extending it to full 3D simulation of the entire resonator, the building block of our filters. And we look at it as something that's truly unique in the marketplace. We don't believe anyone else has that capability. And so it's a way that we were able to bring FSPARS to market in a very predictable fashion quickly. And it's something that we don't think anyone else would be able to mimic at this point. So we really treated it as the crown jewels. It's rather than providing access to it, it's what's allowing us to go and win customers on this licensing basis of export designs. Does that help?
spk04: Yes, yeah, it does. And just a question on the non-mobile component. You talked about a Tier 1 for non-mobile. You know, Wi-Fi 6E and ultra-wideband are, you know, operate at similar frequencies and bandwidths as the 5G. So, you know, the X-bar filters, you know, could meet the needs of these communication standards as well. You know, the size of the non-mobile market is quite big, equal to the mobile market. and definitely will be a play on 5G. When you talked about this Tier 1, and you kind of mentioned a whole bunch of different markets that they were potentially focused on, can you maybe elaborate a little bit further? Are you seeing XBAR, you know, for non-mobile being deployed in specific kind of end markets with this customer? And if so, why? And where in these end markets, you know, whether it's IoT or connected cars, do you see kind of the biggest opportunity for, you know, for your non-mobile X-bar filters?
spk07: Well, first, I would say that we're aggressively pursuing multiple tier ones and doing that concurrently between now and the end of the year. with the hopes that we can deliver minimally, though, the one that we've committed to deliver. I think we're on track to do that. I would tell you that that customer has all three of those customers that we're engaged with have a very active business in the Wi-Fi 6E space, in particular, focused heavily on you know, the CPE market for Wi-Fi routers obviously is one of their first and most high volume deployment opportunities. And I would say clearly that's probably where these devices go first. Obviously, UWB is one of the interesting things because the current devices on the marketplace from other filter manufacturers don't have great rejection on the high side, which is right where UWB fit. So I think that our X-bar devices have really good rejection on both the low and the high side and are a full band, not a hybrid or a sub-banded filter. So I think that is going to be a key play for it because now you're going to see greater throughput, less number of you know, routers needed in these applications. So I would tend to think that's where it's going to go. Dylan, do you have a view?
spk06: Yeah, I'd just say that, you know, it's a little dangerous for us to comment on the exact application as we're working with these customers. But, you know, generally speaking, as we go up in frequency, you know, the differentiation of X-bar against aluminum nitride block goes up. So, you know, 6E has been the sweet spot for this year of emerging market in a need. But as George is saying, EWB is up next. And there's a lot of interesting work going on in 3GPP looking at, you know, what are the next bands to be released. And there's a lot of focus in that, you know, 7 to 12 gigahertz range, which I think is really the sweet spot.
spk04: And just for my last question, I'll squeeze this in. This is one from Marty. The Murata expansion, I think in the past, you had said that that will help you reach cash flow break-even levels. in calendar 22. Is that still the case as the disagreement kind of rolls into the P&L?
spk05: Absolutely. It adds, you know, we just brought $7 million in from the contract. And this is, you know, we're starting to build the backlog. This was a major step, which we've talked about. We've talked about the non-mobile coming on. In George's remarks, we've talked about, hey, with the ending of the exclusivity, we expect to continue adding you know, adding prepaids and, you know, combinations thereof, which will get us, you know, which is in the right direction. It's a big improvement.
spk07: Yeah, these are all things that are going to, as they ladder up, get us one step closer. And as a reminder, right, Raj, as you sit back and look at it, you know, when, you know, our cash flow break-even number, plus or minus $30 million, you know, at that point in time, everything beyond that, you know, you start seeing a lot of dollars dropped to the bottom. This is going to be a very, very high margin business where if we were a fully integrated filter manufacturer or even a fabulous filter manufacturer, you know, it would see a break-even number probably more closely approaching $100 million range. So, you know, there's a lot of operating margin that drops to the bottom when we get north of $30 million. So we're pretty excited about it, and I think we've got a good – Good run on it with this latest deal expansion and obviously not only signing the deal, but getting our first cash in is a big deal.
spk04: Thank you.
spk10: As a reminder, if you would like to register for a question, you may press the one followed by the four. Our next question is from Kevin Didi with HCW. Please proceed.
spk08: Thank you. Good afternoon, gentlemen. Mr. Deedee, how are you? I'm great, sir. Thanks for taking my question. I was hoping you could sort of walk me through this last payment on the old contract, right? Of the $8 million that Marty says is going to be in deferred, there's probably a million of that from the old deal. I'm just trying to sort out what's left on the old contract and how that flows. I mean, I think you did a great job going through the new one. The $7 million, but I just want to make sure I got the eight and the last payment from the old contract straight.
spk07: Okay, well, as we noted the last call, we didn't call it out specifically this call. We've got half of the original contract cash has come in, so there is a small portion of that still in deferred, but there's still $4.5 million left to go there, okay? Okay. So obviously that will come as we move the next couple of milestones. And we've highlighted that we expect at least one of those to happen next year concurrent with the end of exclusivity in that timeframe. And then obviously the last payment will come shortly thereafter, we believe. So there are four and a half million left on the original release. And now on this release, they've released $7 million. And, you know, we've said what the range is. Now we've just got to go drive hard and do some good work and help them capture share with these first five devices, and we'll drive that hard at the top end of the range.
spk08: So, George, you think you're on track to finish things up? I mean, they have to move from – Well, help me recall exactly that last stage for you to be able to recognize that or release that $4.5 million. It's actual full production, correct?
spk07: No, we've actually never said the specifics on when that last payment is due. If you recall, we said there were four payments. We only announced the schedule of the four payments. At the beginning, we said the first payment is in. We expect the next three to happen over the course of the development, which ends shortly after the release of exclusivity. And right now these guys are working hard, both our team and theirs, to keep schedules. I mean, this is a pretty lofty project that they're working on. And if you recall, they're making major investments on their side to be able to produce these devices in high volume, all of which speaks to the importance of what it is that we're working on with them. And they've highlighted that, obviously, on their quarterly and annual shareholder calls that we've shared and referred people to over the last couple of quarters. So I think it's I'm sorry I can't give you the definitive end date for these, but it's out in the future and it's not too far in the future given where we are.
spk08: Okay. It sort of begs the question on residents' pricing power. And, you know, I know it's a sensitive topic, but I think it – It would certainly help me in understanding how they valued exclusivity, how they valued your progress thus far, and how they value the technology, especially as you're negotiating with these other non-mobile customers. I don't know what you can add there, but if you could add some color, that would be really helpful.
spk07: Well, you know, hey, it's not a sensitive topic at all. I mean, we highlighted that we did a massive expansion of the ASB. You know, the first four devices were worth maximum $9 million. The next four devices are worth a maximum of $36 million. I think that's a pretty significant uplift in the value of these devices and really speaks to what our customer feels about the technology And moreover, when they did the initial deal, they had a first mover advantage, clearly, because they were the first person to come in and sign a contract. But now we've had these major validations that have happened, frankly, that they've done a lot of the work on, and they see that the value is going up. I mean, this is a great thing for not only us, but our shareholders. We see that that ASP is going from $2.25 million to to as high as $9 million per device. I think that's a pretty significant uplift in my book. And more importantly, probably the most important component here is we did not have to extend exclusivity. So that really speaks to the power of the technology And the fact that we are, with this further validation, in a much better position to negotiate. Yep. Okay. Not only with our existing customer, but also with new customers, clearly.
spk08: You said the other variable in that function was complexity. And, you know, we're sitting out here. We can't see those details. But I appreciate the color, George. Thank you.
spk07: Well, hey, let's talk about complexity. I'll have Dylan talk about what the difference in complexity is in the different types of devices, right? Clearly, a follow-on device, a simple band-pass filter, a diplexer for a CPE piece of gear versus a diplexer for a handset. I mean, those are kind of the kind of balance. Speak to that a little bit and give Kevin the color he's looking for.
spk06: There's two major factors. One is the bandwidth of the filter. We see new applications where we're seeing further increases in the operating bandwidth, which brings up new considerations. Really, it has a higher value in the market. It's such a challenging filter to design. It differentiates a lot against competing technologies, so that's one. And the other is, George mentioned, moving to things like diplexers, where essentially you're designing two filters and then combining them together. There's a greater amount of more effort involved, as well as more value in the application.
spk08: Okay.
spk06: Thanks, Dylan.
spk08: Sure.
spk10: Mr. Holmes, I'll return the call back to you. You may continue with your presentation or closing remarks.
spk07: Well, thank you, Operator. Hey, I want to thank everybody again for joining us today. We had a great quarter. Lots of significant achievements this quarter, and we really are looking forward to finishing up the year strong and delivering on behalf of our customers, our employees, and our shareholders. Thank you again, everyone.
spk10: And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great evening.
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