Resonant Inc.

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.

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.

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?